PAGENO="0001" ADMINISTRATION'S BALANCE-OF-PAYMENTS PROPOSALS HEARINGS BEFORE THE COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES NINETIETH CONGRESS SECOND SESSION ON ADMINISTRATION'S BALANCE-OF-PAYMENTS PROPOSALS (INTERNATIONAL TICKET TAX, TRAVEL EXPENDITURE TAX, REDUCTION OF DUTY-FREE EXEMPTION FOR RETURNING TOURISTS) FEBRUARY 5, 6, 19, 20, 21, 22, 23, 26, 27, 28, 29, AND MARCH 1, 1968 PART 3 Contains February 27, 28, 29, and March 1, 1968 and Material Received for the Record~ Printed i1or the use Otf the Committee on Ways and Means * OW5~Tx~2 U.S. GOVERNMENT PRINTING OFFICE 89-749 WASHINGTON : 1968 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price $1 PAGENO="0002" CECIL IL KING, California HALE BOGGS, Louisiana FRANK M. KARSTEN, Missouri A. S. HERLONG, Ja., Florida JOHN C. WATTS, Kentucky AL ULLMAN, Oregon JAMES A. BURKE, Massachusetts MARTHA W. GRIFFITHS, Michigan GEORGE M. RHODES, Pennsylvania DAN ROSTENKOWSKI, Illinois PHIL M. LANDRUM, Georgia CHARLES A. VANIK, Ohio RICHARD H. FULTON, Tennessee JACOB H. GILBERT, New York JOHN W. BYRNES, Wisconsin THOMAS B. CURTIS, Missouri JAMES B. UTT, California JACKSON E. BETTS, Ohio HERMAN T. SCHNEEBELI, Pennsylvania HAROLD R. COLLIER, Illinois JOEL T. BROYHILL, Virginia JAMES F. BATTIN, Montana BARBER B. CONABLE, Ja., New York GEORGE BUSH, Texas WILLIAM H. QURALY, Minority Counsel (II) COMMITTEE ON WAYS AND MEANS WILBUR D. MILLS, Arkansas, Chairman JOHN M. MARTIN, Jr., Chief Counsel J. P. BAKEn, Assistant Chief Counsel PAGENO="0003" CONTENTS PART 1 1968: Page Monday, February 5 1 Tuesday, February 6 285 PART 2 Monday, February 19 425 Tuesday, February 20 569 Wednesday, February 21 607 Thursday, February 22 697 Friday, February 23 723 Monday, February 26 747 PART 3 Tuesday, February 27 795 Wednesday, February 28 881 Thursday, February 29 953 Friday, March 1 1011 Material received for the record 1021 PERTINENT PUBLIC DOCUMENTS Press release dated Friday, January 19, 1968, announcing public hearings on administration balance-of-payments proposals 1 Press release dated Tuesday, February 6, 1968, announcing guidelines rel- ative to testimony from the general public on the President's balance-of- payments proposals 422 Excerpt from President's message of January 1, 1968 416 Report to the President of the United States from the Industry-Govern~ ment Special Task Force on Travel, February 1968, Chairman, Ambas- sador Robert M. McKinney 427 STATEMENTS OF GOVERNMENT OFFICIALS Commerce, Department of, Hon. Joseph W. Bartlett, Acting Director of the Office of Foreign Direct Investment, and General Counsel 3, 285 Trade Negotiations, Special Representative for, Ambassador William M. Roth 3, 225, 285 Treasury, Department of: Fowler, Hon. Henry W., Under Secretary 3, 285 Barr Hon. Joseph W., Under Secretary 3 285 Marks, Hon. Matthew J., Acting Assistant Secretary 285 Surrey, Hon. Stanley S., Assistant Secretary 3, 285 STATEMENTS OF PUBLIC WITNESSES Abels, Joel M., editor and publisher, Travel Trade magazine 740 Air Line Pilots Association: Nevins, John, chairman of the master executive council, Trans World chapter 653 Olsen Curtis, legislative committee 653 Air-Res Travel Service, George Marucci, president 787 Air Transport Association of America: James, Dr. George, vice president, economics and finance 747 Philion, Norman, vice president, traffic 747 Tipton, Stuart G., president 747 (III) PAGENO="0004" Iv American Association of Retired Persons, Ernest Giddings, legislative Page representative 060 American Federation of Teachers, AFL-CIO, Carl J. Megel, director of legislation 923 American Friends Service Committee, George W. Marshfield director, Summer Projects Abroad, Youth Services Division 860 American Heritage Tours Thomas H Woods president 784 American International Travel Service, Inc., ]Elarold S. Low, president.. - - 564 American Merchant Marine Institute (AMMI), Albert J. Keenan 890 American Society of Travel Agents: Fichtenbaum, George, executive vice president 495 Frankel, irvin M., immediate past president 495 Quinn, Paul S., legal counsel 495 American Symphony League, Carlos Moseley, vice president 730 American Travel .Asseciation, Wallace J.. Campbell, president 488 Americans for Democratic Action, Dr. Peter Kenen 836 Arata, Clarence A., president, National Association of Travel Organiza- tions 478 Association for Academic Travel Abroad, Inc., Emmet V. Mittlebeeler~ - - - 927 Association of Retail Travel Agents: Grimes, Peter H., president 538 LoFrisco, Anthony F., attorney 542 Blatt, Daniel, Brooklyn, N.Y 600 Bowman, John E., executive director, Council on International Educa- tional Exchange 904 Brody, Barnie, president, World Tobacco Co., Inc 708 Broyhill, Hon. Joel T., a Representative in Congress from the State of Virginia Campbell, Wallace J., president, American Travel Association 488 Campus Tours Inc and Olson Travel Organization Inc Harvey S Olson president 591 Chapman College, Eldridge R. Plowden, provost 929 Chester, Howard P., executive secretary, Stone, Glass, and Clay Co- ordinating Committee 855 Committee for a National Trade Policy, Inc., John W. light, executive director 650 Committee of American Steamship Lines (CASL): James, Ralph K., U.S. Navy (retired), executive director 890 Keenan, Albert J., member, passenger ship committees 890 Council on International Educational Exchange: Bowman, John E, (xecutive director 904 Murray, J. Ralph, chairman of the board 904 Countersurge, export expansion project, Collingwood J. Harris, chairman~ - 862 Creative Tour Operators Association, Morton L. Meyer, president 555 Curry, Joseph R., director, Mount Hermon summer schools 945 Danielian, N. R., president, International Economic Policy Association~ - 795 Diners-Fugazy Travel, Inc., William Fugazy, president 680 Discover America, Inc., Robert E.. Short, national chairman 987 Eddy, George A., Alexandria, Va 715 Fichtenbaum, George, executive vice president, American Society of Travel Agents Findley, Hon. Paul, a Representative in Congress from the State of Illinois_ 881 First National City Bank of New York: Waters, Somerset, travel consultant 569 * Wilcox, Thomas R., vice chairman 569 Frankel, Irvin M., immediate past president, American Society of Travel Agents Fraser, Hon. Donald M., a Representative in Congress from the State of Minnesota 958 Freedom Inc., Evan S. Hall 1017 Friedlander, Paul J. C., travel editor, New York Times 1002 Frome, Michael, former president, Society of American Travel Writers - - 723 Fugazy, William, president, Diners-Fugazy Travel, Inc 680 PAGENO="0005" V ~ ~ ~ ~ ~ Page Gateway Holidays Inc and Globus Tours Inc Donald E Streicher 689 Giddings Ernest legislative representative, American Association of Retired Persons and National Retired Teachers Associatitn 960 Globus Tours Inc , and Gateway Holidays Inc Donald E Streicher 689 Grimes Peter H, president, Association of Retail Travel Agents - - 538 Hall, Evan S., Freedom, Inc 1017 I-Iamilton, Lyman, treasurer; International Telephone & Telegraph Corp - 581 Harker Preparatory School for Boys, Col, John E. Kieffer, headmaster~. - 931 Harris Colhngwood J, chairman, Export Expansion Project Countersurge 862 Flight, John W., executive director, Committee for a National Trade Policy, Inc 650 Holiday magazine Caskie Stinnett editor - 744 International Economic Policy Association N R Danielian, president 795 International Telephone and Telegraph Corp.: Hamilton, Lyman, treasurer 581 Seath John vice president and director of taxes 581 Irelanci United States Council for Commerce and Industry Bernard B Smith secret tr~ 846 James, Dr. George,. vice president economics and .finan~ie, Air Transport Association of America .,. 747 James, Ralph K., U.S. Navy (retired), executive directer, Committee of American Steamship Lines (CASL) 890 Kane, Robert S., president, Society of American Travel Writers . 723 Keenan, Albert J., member, Passenger Ship Committees, Committee of American Steamship Lines (CASL) and the American Merchant Marine Institute (AMMI) 890 Kenen, Dr. Peter, Americans for Democratic Action 836 Kieffer Col John E headmaster Harker Preparatory School for Boys and dean of the academy, World Academy Schools 931 LoFrisco Anthony F attorney Association of Retail Travel Agents 542 Low Harold S president, American International fravel Service, Inc ~64 McFarland Stanley J assistant to the assibtant secretary for legislat National Education Association 900 Machinery and Allied Products Institute, Charles W. Stewart, president~ - 607 Marshfield, George W., director, Summer Projects Abroad, Youth Serv- ices Division American Friends Service Committee - - 860 Martin, Donald N., Donald N. Martin & Co 970 Marucci, George, president, Air-Res Travel Service 787 Megel, Carl J., director of legislation, American Federation of Teachers, AFL-CIO 923 Meyer Morton L, president Creative Tour Opeiators Association 955 Miller, John J. B., College Park, Md 598 Mittlebeeler, Emmet V., Association for Academic Travel Abroad, Inc - - 927 Moseley, Carlos, vice president, American Symphony League and man- aging director New York Philharmonic Symphony Society 730 Mount Hermon Summer Schools Joseph R Curry director 945 Murray, J Ralph chairman of the board Council on International Edu cational Exchange 904 National Association of Evangelicals, Floyd l~tobertson, assistant to gen- eral director 1011 National Association of Travel Organizations Clarence A Arata president 478 National Education Association, Stanley J. McFarland, assistant to the assistantsecretary for legislation 900 National Foreign Trade Council, Inc., Robert T. Scott, vice president - - - 697 National Retired Teachers Association, Ernest Giddings legislative representative 960 Nevins, John, chairman of the master executive council, Trans World chap- ter, Air Line Pilots Association 653 New York Philharmonic-Symphony Society, Carlos Moseley, managing director 730 Olsen Curtis, legislative committee Air Line Pilots Association 653 Olson, I-Iarvey 5, president Olson Travel Organization, Inc, and Campus Tours, Inc 591 PAGENO="0006" ~vI Olson Travel Organization, Inc., and Campus Tours, Inc., Harvey S. Olson, Page president 591 Overseas Press Club of America, Ansel E. Talbert 872 Pacific Area Travel Association, Warren Titus, director 780 Peat, Marwick, Mitchell & Co., Leon 0. Stock, in behalf of H. J. Heinz, Co., Star-Kist Foods, Genesco, Inc., Olin Mathieson Chemical Corp., Atlas Chemical Corp., States Marine Lines, Standard Pressed Steel Co., Max Factor & Co., and Data Processing Financial & General Corp__ 1013 Pepper, Hon. Claude, a Representative in Congress from the State of Florida Philion, ~Norman, vice president traffic, Air Transport Association of America - Plowden, Eldridge R., provost, Chapman College 929 Procedural Aspects of International Law Institute of New York City, James K. Weeks, secretary, advisory council 867 Quinn, Paul S., legal counsel, American Society of Travel Agents 495 Robertson, Floyd, assistant to general director, National Association of Evangelicals 1011 Schwartz, Dr. Richard A., Washington, D.C 789 Scott, Robert T., vice president, National Foreign Trade Council, Inc_ 697 Seath, John, vice president and director of taxes, International Telephone & Telegraph Corp 581 Short, Robert E., national chairman, Discover America, Inc 987 Smith, Bernard B., secretary, Ireland-United States Council for Commerce and Industry 846 Society of American Travel Writers: Frome, Michael, former president 723 Kane, Robert S., president 723 Stewart, Charles W., president, Machinery & Allied Products Institute_ 607 Stinnett, Caskie, editor, Holiday magazine 744 Stock, Leon 0., Peat, Marwick, Mitchell & Co., in behalf of H. J. Heinz, Co., Star-Kist Foods, Genesco, Inc., Olin Mathieson Chemical Corp., Atlas Chemical Corp., States Marine Lines, Standard Pressed Steel Co., the Gillette Co., Max Factor & Co., and Data Processing Financial & General Corp 1013 Stone, Glass, and Clay Coordinating Committee, Howard P. Chester, execurive secretary 855 Streicher, Donald E., Gateway Holidays, Inc. and Globus Tours, Inc_ - - - 689 Taft, Harold A., counsel, World Tobacco Co., Inc 708 Talbert, Ansel E., Overseas Press Club of America 872 Tipton, Stuart G., president, Air Transport Association of America 747 Titus, Warren, director, Pacific Area Travel Association 780 Travel Trade Magazine, Joel M. Abels, editor and publisher 740 Waters, Somerset, travel consultant, First National City Bank of New York 569 Weeks, James K., secretary, advisory council, Procedural Aspects of Inter- national Law, Institute of, New York City 867 Wilcox, Thomas R., vice chairman, First National City Bank of New York ~ 569 Woods, Thomas H., president, American Heritage Tours 784 World Academy Schools, Col. John E. Kieffer, dean of the academy 931 World Tobacco Co. Inc.: Brody, Bernie, president 708 TaftllaroldA. counsel 708 MATERIAL SUBMITTED FOR THE RECORD GOVERNMENT OFFICIALS Bartlett, Hon. Joseph W., Acting Director of the Office of Foreign Direct Investment and General Counsel, Department of Commerce: Attorney General's views as to the legal authority for the foreign direct investment program, letter dated February 3, 1968, to Hon. Alexander B. Trowbridge, Secretary of Commerce 389 Canada-United States automotive parts balance of payments 248 Petroleum and petroleum products, modification in Presidential proc- lamation adjusting imports of 342 PAGENO="0007" VII Bartlett, Hon.-Continued Secretaries of Interior and Commerce announce decisions on imports of Page petrochemical feedstocks 341 Table 1.-Direct investment capital transactions by major industry group, 1964 to estimated 1967 296 Table II.-Direct investment capital transactions of selected manu- facturing industries, 1964 to estimated 1967 298 Table 111.-Performance under the voluntary program target for di- rect investment capital transactions with developed countries 301 Table IV.-Direct investment transactions adjusted to exclude items not included in the foreign direct investment program base and com- parison with voluntary program transactions 303 Fowler, Hon. Henry H., Secretary, Treasury Department: Balance of payments, statement by the President outlining a program of action-January 1, 1968 51 Cost of enforcing travel tax and customs proposals 278 Effectiveness of Federal Reserve program to restrain foreign lending by financial institutions 307 Expenditures abroad for travel by U.S. resident, 1964-67 268 Foreign assets and investments in the United States 322 Foreign travel allowances granted to residents of major industrialized countries 270 Government grants and capital entering the balance of payments, January-September 1967, at annual rate 400 Gross international security issues, United States and EEC, total, 1968-65 294 McKinney outlines task force on travel work program and announces appointment of committee chairmen 40 "Maintaining the Strength of the U.S. Dollar in a Strong Free World Economy," a publication of the U.S. Treasury Department- January 1968 43 Making U.S. industry more export minded through selective export expansion programs 131 Memorandum from the President to Hon. William S. Gaud, Admin- istrator, AID 400 Net foreign purchases of U.S. corporate securities 322 Panel appointed in copper dispute-statement of the Secretary of Commerce and the Secretary of Labor 249 Reduction of U.S. personnel and official travel overseas: President's memorandum to heads of executive departments and agencies, January 18, 1968 241 President's memorandum to the Secretary of State and the Direc- tor, Bureau of the Budget, January 18, 1968 242 Table 1.-Unit labor costs in manufacturing for selected industrialized countries since 1961 22 Table 2.-U.S. share (percent) of the total world exports of manu- factures 22 Table 3.-U.S. GNP and foreign trade, 1960-67 22 Technical explanation of the travel tax program and proposed changes in customs rules: Travel tax program 26 Proposed changes in customs rules relating to tourist exemptions and processing of certain noncommercial importations 26 U.S. foreign trade in copper-base mill products 367 U.S. Government grants (excluding military) and capital outflows total, and increase in U.S~ private direct investment, 1960-67 326 U.S. private capital outflows 292 PTJBLIO Abraham & Co., Henri L. Froy, partner, letter dated February 7, 1968, to Chairman Mills 1130 Aerospace Industries Association of America, statement 1079 Air-Land-Sea Travel Agency, Faye Freeman, owner, letter dated February 14, 1968, to Chairman Mills 1132 PAGENO="0008" VIII Air Line Pilots Association, John Nevins, chairman of the master executive council, Trans World chapter: Page Letter dated March 1, 1968, to Chairman Mills 670 Letter dated March 1, 1968, to Chairman Mills, re views on proposed tax on international air fares 678 Letter dated March 2, 1968, to Chairman Mills, re fifth freedom carriage 679 Recommendations with appendixes A and B 956 Air Transport Association, Stuart G. Tipton, president: Attachment A, page 1-Expenditures profile of U.S. travelers to Europe on scheduled flights 756 Attachment A, page 2-Results of application of hypothetical ex- penditurelimitations 757 Attachment A, page 3-Results of application of hypothetical ex- penditure limitations including $300 $400 and $500 flat limitations to expenditure profile of U.S. travelers to Europe on scheduled flights (with covering letter dated February ?8, 1968, to Hon. Al Ullman 763 Letter dated February 28, 1968, to Hon. Barber B. Conable, Jr., re revenue from a $5 head tax 776 Letter dated March 18, 1968, to Hon. Al Uliman from Leo Seybold, vice president, Federal affairs re air travel between the United States and foreign countries during 1967 769 American Academy of Religion, Harry M. Buck, treasurer, letter dated February 20, 1968, to Chairman Mills 1076 American Association of Retired Persons. (See Giddings, Ernest.) American Association of University Women, board of directors, letter dated February 27, 1968, to Chairman Mills 1068 American Automobile Association, George F. Kachlein, Jr., executive vice- president, statement 1096 American Council of Learned Societies, Frederick Burkhardt, president, letter dated March 6, 1968, to Chairman Mills 1067 American Council on Education, American Association of Junior Colleges, American Association of State Colleges and Universities, American Association of University Professors, Association of American Colleges, Association of American Universities, Council of Protestant Colleges and Universities, and National Association of State Universities and Land Grant Colleges, combined statement 1052 American Federation of Teachers, AFL-CIO, Carl J. Megel, director of legislation: Breakdownof studytoursbyareasof world 926 Breakdown of study tours by countries of world 926 American Field Service international scholarship programs: Howe, Arthur, Jr., president, statement 1066 Kellner, Ben W., president, Bakersfield Chapter, letter dated Feb- ruary 25, 1968, to Chairman Mills 1067 American Hotel & Motel Association, statement 1093 American Institute for Foreign Study and the Foreign Language League, statement 1059 American Merchant Marine Institute (AMMI). (See Keenan, Albert J.) American Political Science Association, Evron M. Kirkpatrick, executive director, letter dated February 2, 1968, to Chairman Mills 1068 American Society of Travel Agents, Irvin M. Frankel, immediate past president: Exhibit 1-Travel expenditures abroad by U.S. residents and expendi- tures by foreign travelers in the United States 505 Exhibit 2-Development of the travel deficit with Canada, Mexico, andoverseascountries 506 Exhibit 3-Letter dated January 10, 1968, to Ambassador Robert M. McKinney, Chairman, Industry-Government Special Task Force on Tourism, from Charles B. West, vice president 507 Exhibit 4-Letter dated February 2, 1968, to Ambassador Robert M. McKinney, Chairman, Industry-Government Special Task Force on Tourism, from George L. Fichtenbaum, executive director 508 Letter dated March 8, 1968 to Chairman Mills re role of travel agent in theUnitedStates Object of travel (by mode of travel-departure) 529 Proposed length of stay 530 PAGENO="0009" Ix American Society of Travel Agents, Inc., Hawaii chapter, Mary K. Robin- son, president, letter dated February 29, 1968, to Chairman Mills, with Page resolutionattached 1131 American Tourist Car Delivery Tax Committee, Kenneth Weilner, et al., statement 1112 American Travel Association, Wallace J. Campbell, president: Letter dated February 1, 1968, to the President of the United States.. - - 491 Membership list 493 Andrews, J. Floyd, president, Pacific Southwest Airlines, letter dated Febru- ary 22, 1968, to Chairman Mills 1089 Arata, Clarence A., president, National Association of Travel Organiza.. tions, graph entitled "Visitors from overseas-1950-~67"_ - 485 Ardunn Travel, Inc., Richard Dunn, president, letter lated February 14, 1968, to Chairman Mills 1133 Armco Steel Corp., C. William Verity, Jr., president, statement 1121 Arnold, H. Park, Glendale, Calif., letter dated February 16, 1968, to Chairman Mills - 1179 Art's Travel Bureau, Arthur Barkoff, et al., letter dated February 26, 1968, to Chairman Mills 1133 Association Internationcie Des Etudiants en Sciences Economiques at Commerciales, statement 1066 Auerbach Travel Service, L. Joyce Gibbons, president, letter dated Feb- ruary 20, 1968, to Chairman Mills .. - 1134 Austrian State Tourist Department, R. F. Mattesich, U.S. representative, statement, with covering letter dated February 29, 1968, from the Austrian Embassy, to John M. Martin, Jr., chief counsel, Committee on Ways and Means .. 1100 Bal-Mar Travel Service, Miss Gene Taylor, manager-partner, letter dated March 1, 1968, to Chairman Mills 1134 Bennett, William E., president, Kentuckiana World Commerce Council, letter dated February 16, 1968, to Chairman Mills 1112 Berbower, Mr. and Mrs. M. R., Long Beach, Calif., letter dated February 19, 1968, to Chairman Mills - 1178 Biesel, Robert G., president, International Trade Club of Chicago, telegram dated February 19, 1968, to Chairman Mills.. - ~. 1111 Blackstone Valley Travel Service, George M. Kurzon, letter dated Feb- ruary 17, 1968, to Chairman Mills 1135 Bloomingdale, Alfred, chairman of the board, Diners Club, Inc., and Diners Fugazy Travel, Inc., statement 680 Boyce, Dr. F. Gordon, president, Experiment in International Living, statement - 1054 Broadcast Music, Inc., Robert B. Sour, president, letter dated February 23, 1968, to Chairman Mills - 1127 Buck, Harry M., treasurer, American Academy of Religion, letter dated February 20, 1968, to Chairman Mills 1076 Bulova Watch Co., Inc., Harry B. Henshel, president, statement 1123 Burkhardt, Frederick, president, American Council of Learned Societies, letter dated March 6, 1968, to Chairman Mills - - 1067 Burnham, Charles F., Springfield, Mass. letter dated February 10, 1968, to John M. Martin, Jr., chief counsel, óommittee on Ways and Means~. - 1177 Byrne, Qeorge P., secretary, Service Tools Institute, letter dated February 28, 1968, to Congressman Thomas B. Curtis 1128 California State Colleges, Walter P~ Coombs, director, international affairs, letter dated February 16, 1968, to Congressman Cecil King, with state- ment attached 1069 Campbell, Wallace J. ($ee American Travel Association.) Carriger, JOhn S., Chattanooga Tenn., letter dated February 17, 1968, to Committee on Ways an~ Means 1163 Carter, Mr. and Mrs. Justin N., Long Beach, Calif., statement.~... - 1179 Catholic Travel Office, John G. Hodgson, president, letter dated February 16, 1968 to Chairman Mills 1076 Cerf, Jay 1~T., manager, international group, Chamber of Commerce of the United States, statement - 1108 Chamber of Commerce of the United States, Jay H. Cerf, manager, inter- national group, statement 1108 Chicago Association of Commerce and Industry, statement ~. 1109 PAGENO="0010" Christoffersen Poultry Egg and Feed Market, E. S. Christoffersen, presi- dent, letter dated January 10 1968 to Congressman John J McFall, Page with forwarding letter 1047 Clark, Earl W., and Hoyt S. Haddock, codirectors, Labor-Management Maritime Committee, statement 1090 Coleman, J. R., New York City, letter dated February 12, 1968, to John M. Martin Jr., chief counsel, Committee on Ways and Means 1159 College Art Association of America, Marvin Eisenberg, president, resolu- tion 1065 Collier, Hon. Harold R., a Representative in Congress from the State of Illinois, cost for fiscal years 1962 through 1968-U.S. Travel Service - 779 Columbia Artists Management, Inc., Rosenman Cohn Kaye Petschek Freund & Emil, letter datedFebruary 29, 1968, to Chairman Mills- - 1128 Commerce and Industry Association of New York, Ralph C. Gross, president letter dated February 16, 1968 to Chairman Mills - - 1111 Committee of American Steamship Lines (CASL). (See Keenan, Albert J.) Compton, Ell Dee, Toledo, Ohio, letter dated February 22, 1968, to Congressman Gerald Ford, with forwarding letter 1041 Coombs, Walter P, director, international affairs California State Colleges, letter dated February 16, 1968, to Congressman Cecil King, with state- ment attached 1069 Corson, Fred Pierce, resident bishop of Philadelphia, and past president of the World Methodist Council, letter dated February 12, 1968, to Chairman Mills 1078 Costa Mesa Travel Agency, Jim Herman, statement 1136 Council on international Educational Exchange, Ralph J. Murray, chair- man of the board: Letter dated March 11, 1968, to Chairman Mills with supplemental statement attached 920 Membership list - - - - - - - - -- - 914 Partial list of short-term oversea educational exchange programs spon- sored by U.S. nonprofit organizations and institutions 915 Part I-Programs sponsored by colleges and universities - - - 916 Part IT-Programs sponsored by nonprofit organizations 916 Countersurge, export expansion proj ect, Cohlingwood J. Harris, chairman, letter dated February 28, 1968, to Chairman Mills 866 Creative Tour Oferators Association, Morton L. Meyer, president, mem- bership roster CrOwn Travel Coordinators, Inc., Estehle Martens, president, letter dated February 13, 1968, to Chairman Mills 1137 Danielian, N. R., president, International Economic Policy Association, inequities and ambiguities in the Department of Commerce regulation of direct investments and recommended corrective actions 830 Darrow, Karl K, New York letter dated February 21, 1968, to chief counsel, Committee on Ways and Means - - 1170 Daugherty Travel Agency, F W Daugherty, Jr, letter dated February 12, 1968, to Chairman Mills 1138 Davenport, Horace E, chairman of the board, National Rowing Founda tion, letter dated February 21, 1968 to John M Martin, Jr, chief * counsel, Ways and Means Committee 790 Denney, Hon. Robert V., a Representative in Congress from the State of Nebraska, letter dated March 8, 1968, to Chairman Mills 1027 Derylo Walter student Pontifical North American College in Rome letter dated February 16, 1968, to Congressman Gerald Ford, with forwarding letter 1042 Diners/Fugazy Travel Inc and Diners Club Inc American World Trade Ship - - 687 Statement of Alfred Bloomingdale, chairman of the board - - 680 Discover America Inc Robert E Short, national chairman Attachment A-Congressional resolution and Presidential proclama tion 992 Attachment B-Membership list 992 Attachment 0-Growth of travel to and within United States as related to U.S. gross national product 993 Attachment D-Report to the President from the Industry-Govern- ment Task Force on Travel 994 PAGENO="0011" XI Discover America, Inc., etc.-Continued Page Cablegram to President Johnson re policy statement 994: Letter dated March 7, 1968, to Chairman Mills with suggested amend- ments to Public Law 89-235 1001 Supplemental statement 1000 Driscoll, Edward J., president, National Air Carrier Association, Inc., letter dated March 1, 1968, to Chairman Mills 1081 Eisenberg, Marvin, president, College Art Association of America, resolu- tion 1065 Emcor Travel, Inc., Harriett Emerson letter dated February 29, 1968, to Chairman Mills 1138 Esch, Hon. Marvin L., a Representative in Congress from the State of Michigan, statement with attachments 1027 European Travel Commission, Timothy J. 0' Driscoll, president, and Onno Leebaert, chairman, letter dated February 27, 1968, to Chairman Mills, with statement attached and covering memo from H. G. Tor- bert, Jr., Deputy Secretary of State, Department of State 1102 Evelyn Scheyer Travel Service, Inc., Fred Del Pozzo, letter dated Febru- ary 19, 1968, to Chairman Mills 1139 Evergreen Travel Service, Betty J. Hoffman, owner-manager, letter dated February 22, 1968, to Chairman Mills 1139 Experiment in International Living, Dr. F. Gordon Boyce, president, statement 1054 Farbstein, Hon. Leonard, a Representative in Congress from the State of New York, letters dated March 6 and 7, 1968, to Chairman Mills 1021 Fenton, Leslie L., Austin, Tex., letter dated February 12, 1968 1175 Foreign Language League and the American Institute for Foreign Study, statement 1059 Frankel, Irvin M. (See American Society of Travel Agents.) Freedman, Mr. and Mrs. Herbert, letter dated February 23, 1968,. to Chairman Mills 1180 Freeman, Faye, owner, Air-Land-Sea Travel Agency, letter dated Febru- ary 14, 1968, to Chairman Mills 1132 Friedheim, Eric, editor and publisher, Travel Agent magazine, statement 1104 Froy, Henri L., partner Abraham & Co. letter dated February 7, 1968, to chairman Mills 1130 Fugazy, William. (See Diners/Fugazy Travel, Inc.) Fun Travel Service, John P. Madden, executive manager, letter dated February 15, 1968, to Chairman Mills 1139 Gelston Judah Travel Advisors, Gelston C. Judah, president, letter dated February 19, 1968, to Chairman Mills 1140 General Conference of Seventh-day Adventists, W. L. Pasco, assistant treasurer, letter dated March 5 1968, to Chairman Mills 1077 Giddings, Ernest, legislative representative, American Association of Retired Persons and National Retired Teachers Association, excerpts from letters concerning proposed travel tax 965 Ginsburg, Martin D., New York City, letter dated February 23, 1968, to Chairman Mills 1161 Gray, H. Peter professor of economics College of Liberal Arts, Wayne State University, letter dated February 20, 1968, to Chairman Mills, with statement attached 1070 Greene, Dita C., Sayville, N.Y., letter dated February 26, 1968, to Com- mittee on Ways and Means 1170 Gross, Ralph C., president, Commerce and Industry Association of New York, letter dated February 16, 1968, to Chairman Mills 1111 Haddock, Hoyt S., and Earl W. Clark, codirectors, Labor-Management Maritime Committee, statement.~. - 1090 Hager, Lucile E., Grand Rapids, Michigan, letter dated February 19, 1968, to Congressman Gerald Ford, with forwarding letter 1043 Hanke, Frieda, Woodland, Calif., letter dated February 28, 1968, to Chairman Mills 1176 Harris, Collingwood J., chairman, Export Expansion Project Countersurge, letter dated February 28, 1968, to Chairman Mills 866 Harrison, James W., et al., Los Alamitos, Calif., letter dated February 19, 1968, to Chairman Mills 1178 Henshel, Harry B., president, Bulova Watch Co., Inc., statement..-- - - - - - 1123 Hodgson, John G., president, Catholic Travel Office, letter dated Feb- ruary 16, 196S, to Chairman Mills 1076 Holiday, Travel Service, Inc., James L. Williams, president, letter dated February 17, 1968, to Chairman Mills 1141 PAGENO="0012" XII Hoppe, H. C., executive vice president, Mercedes-Benz of North America, Inc., lett~ir dated February 29, 1968, to Chairman Mills, with statement Page attached 1115 Horton, Hon. Frank, a Representative in Congress from the State of New York, statement 1022 Howe, Arthur, Jr., president, American Field Service International Scholarship Programs, statement 1066 Hubbell, Theodore H., professor of zoology, University of Michigan, letter dated February 15, 1968, to Congressman Gerald Ford, with forwarding letter 1044 Hutchinson, Alan D., president, National Maritime Historical Society, letter dated February 13, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 1092 Hutmacher, Deanna, Quincy, Ill., letter dated February 24, 1968, to Chair- man Mills 1175 Institute of international Education, statement 1064 International Economic Policy Association, N. R. Danielian, president, inequities and ambiguities in the Department of Commerce regulation of direct investments and recommended corrective actions 830 International Trade Club of Chicago, Robert G. Biesel, president, tele- gram dated February 19, 1968, to Chairman Mills 1111 international Travel Agency, M. W. Chamberlain, partner, letter dated February 17, 1968, to Chairman Mills 1141 Kachlein, George F., Jr., executive vice-president, American Automobile Association, statement 1096 Kayser, Walter W., manager, international division, Oliver Machinery Co., letter dated February 16, 1968, to Congressman Gerald Ford, with forwarding letter 1045 Keenan, Albert J., member, Passenger Ship Committees, Committee of American Steamship Lines (CASL) and the American Merchant Marine Institute (AMMI): Passengers (including cruise) departed from United States to foreign countries 895 Passengers departed United States by sea on cruises 896 Passengers departed United States on cruises 896 Kellner, Ben W., president, Bakersfield Chapter, American Field Service International Scholarships, letter dated February 25, 1968, to Chairman Mills 1067 Kelso, M. W. Kelly, Pasadena, Calif., letter dated February 19, 1968, to Chairman Mills 1177 .Kentuckiana World Commerce Council, William E. Bennett, president, letter dated February 16, 1968, to Chairman Mills 1112 Kingsbury, Cmdr. R. D., USNR, retired, Pasadena, Calif., letter dated ~ February 22, 1968, to Chairman Mills 1177 Kirkpatrick, Evron M., executive director, American Political Science Association, letter dated February 2, 1968, to Chairman Mills 1068 .Knecht, William J., president, National Association of Amateur Oarsmen, letter dated February 27, 1968, to Chairman Mills 790 Koretz, Sidney, Arlington, Va., letter dated February 27, 1968, to Chair- * man Mills 1171 L-D Travel Service, Mary 0. Venable, president, letter dated February 13, 1968, to Chairman Mills 1142 Labor-Management Maritime Committee, Earl W. Clark and Hoyt S. Haddock, codirectors, statement 1090 Leebaert, Onne., (See European Travel Commission.) Loughary, Ethel M., Seattle, Wash., letter dated February 26, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means - - - 1179 McCaskey, Donald L, Pittsburgh, Pa letter dated February 19, 1968 to Chairman Mills 1164 McClary, Mr. and Mrs. L. S., Alhambra, Calif., letter dated February 19, 1968, to Chairman Mills 1179 Machinery and Allied Products Institute, Charles W. Stewart, president: Appendix entitled "Estimated balance-of-payments impact from insti- tuting controls over direct private investments in Europe at year- end 1958" 632 Memorandum entitled "Government expenditures in the postwar era: the bulge in the nondefense area" 643 Supplement to statement entitled "The U.S. balance of payments and the Government's mandatory restrictions on direct private invest- ment abroad-a detailed examination" 624 PAGENO="0013" XIII Mann, Boris Thousand Oaks, Calif , letter dated February 25, 1968, to Page Chairman Mills 1176 M~trgaret Chase Travel Service, Margaret Chase, letter dated February 27 1968, to Chairman Mills 1142 Martin, Donald N., Donald N. Martin & Co. : Exhibit 1-Statement of Lyndon B Johnson, dated September 25, 1967 979 Exhibit 2-Excerpt from President's Economic Report (p. 167) ~ 980 Exhibit 3-Excerpt from President s Economic Report (p 171) 980 Statement re Role of Federal Government in promoting foreign tourist travel in United States 986 Mattesich R F IT S representative Austrian State Tourist Department, statement with covering letter dated February 29, 1968, from the Aus trian Embass~, to John M Martin, Jr, chief counsel, Committee on Wa~ s and Means - - 1100 Meadowbrook Travel Agency Marian A Thompson, owner/manager letter dated February 12, 1968, to Chairman Mills 1143 Megel Carl J (See American Federation of Teachers, AFL-CIO) Mercedes-Benz of North America, Inc., H. C. Hoppe, executive vice presi- dent letter dated February 29, 1968 to Chairman Mills with statement attached - - - 1115 Merrimac Travel Michael A Spinelli owner, letter dated February 23, 1968 to Chairman Mills 1143 Meyer Morton L, president Creative Tour Operators Association, membership roster 555 Miller Ralph A Mount Rainier Md, statement 1167 Moore, Jay, Shaker Heights, Ohio, letter dated February 20, 1968, to chief counsel, Committee on Ways and Means 1165 Muriay Ralph J (See Council on International Educational Exchange) National Air Carrier Association Inc Edwaid J Driscoll, president, lettei dated March 1 1968 to Chairman Mills - 1081 National Association of Amateur Oarsmen, William J. Knecht, president, letter dated February 27, 1968, to Chairman Mills 790 National Association of Manufacturers statement 1105 National Association of Travel Organizations, Clarence A. Arata, presi-~ dent, graph entitled "Visitors From Ovei~seas, 1950-67" 485 National Council of the Churches of Christ David M Stowe `issociate gen eral secretary for overseas ministries letter dated February 29 1968, to John M Martin Jr chief counsel, Committee on Ways and Means 1077 National Foreign Trade Council Inc Attachment A-Letter dated Januaiy 15 1968, to Hon Alexander B Trowbridge, Secretary of Commerce, from Robert Norris president 702 Supplemental memorandum 705 National Maritime Historical Society Alan D lliitchmson president letter dated Februaiy 13 1968 to John M Martin Jr chief counsel Committee on Ways and Means 1092 National Milk Producers Federation E M Norton secret'iry letter dated March 1 1968 to Chairman Mills 1125 National Retired Teachers Association (See Giddings Ernest) National Rowing Foundation Horace E Davenport, chairman of the board letter dated February 21 1968 to John M Martin, Jr chief counsel, Ways and Means Committee 790 National Student YWCA Ruth H Purkaple, projects consultant, state ment - 1073 Nelson Travel Service Jack Nelson president statement - 1144 Nevins John (See Air Line Pilots Association) Norton E M secretary National Milk Producers Federation lettei dated March 1 1968 to Chairman Mills 1125 Odian, Bedros Buffalo, N Y letter dated February 15 1968, to John M Martin, Jr chief counsel Committee on Ways and Means - 1168 O Driscoll Timothy J (See European Travel Commission) Oliver Machinery Co Walter W Kayser, manager international division 1etter dated February 16 1968 to Congressman Gerald Ford, with forwardingletter 1045 Olson, George K., assistant professor, University of Minnesota, letter dated February 8, 1968, to John M. Martin, Jr., chief coutisel, Committee on Ways and Means - - - 1071 PAGENO="0014" XIV Ontario Travel Bureau, Dave Johnson, owner, letter dated February 13, Page 1968, to Chairman Mills 1144 Overmyer Corp., Lowell L. Roesner, president, letter dated February 12, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 1124 Pacific American Steamship Association, statement 1092 Pacific Area Travel Association, Warren Titus, director, resolution of the 17th annual conference 780 Pacific Southwest Airlines, J. Floyd Andrews, president, letter dated February 22 1968 to Chairman Mills 1089 Pasco W L assistant treasurer, General Conference of Seventh day Adventists, letter dated March 5, 1968, to Chairman Mills 1077 Payette, Steven E, et al, Berkeley, Calif statement 1176 Peninsula Travel Service, W. H. Barthold, president, and Ellen W. Bar- thold, letter dated February 15, 1968, to Chairman Mills 1145 People to People, Mrs. C. E. Swanson, chairman, executive committee, board of trustees, letter to Chairman Mills 1072 Professional Travel Service, Kit Barnard and M~nuë1 G. Ruiz, co-owners, letter dated February 22, 1968, to Chairman Mills 1146 Purkaple, Ruth H., projects consultant, National Student YWCA, state- ment 1073 ilappole, George H., North Tarrytown, N.Y., letter dated February 15, 1968, to Chairman Mills 1169 Reformed Bible Institute, Dick L. Van Halsems, Th. D., president, letter dated February 13, 1968, to Congressman Gerald Ford, with forwarding letter 1046 Reinecke, Hon. Ed, a Representative in Congress from the State of Cali- fornia, statement 1025 Reservations Please! Travel Service, Inc., Saul T. Grand, letter dated February 13, 1968, to Chairman Mills 1146 Robinson, Mary K., president, Hawaii Chapter, American Society of Travel Agents, Inc., letter dated February 29, 1968, to Chairman Mills, with resolution attached 1131 Roesner, Lowell L., president, Overmyer Corp., letter dated February 12, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 1124 Rosenberg, Milton L., New York City, letter dated February 26, 1968, to Chairman Mills 1163 Rosenman Cohn Kaye Petsehek Freund & Emil, Columbia Artists Man- agement, Inc., letter dated February 29, 1968, to Chairman Mills - - - - 1128 Sally Paris Travel Bureau, Sally Paris, letter dated February 13, 1968, to Chairman Mills 1147 Saltzman, Gloria, Tracy, Calif., letter dated March 5, 1968, to Congress- man John J. McFall, with forwarding letter 1049 Schwartz, Dr. Richard A., Washington, D.C., breakdown of taxable ex- penditures for 1967 rowing championships, Vichy, France 792 Service Tools Institute, George P. Byrne; secretary, letter dated Febru- ary 28, 1968, to Congressman Thomas B. Curtis 1128 Seven League Travel, P. Franklin Long, letter dated February 16, 1968, to Chairman Mills 1147 Sharp, Floyd M Laguana Hills, Calif, letter dated February 17, 1968 to Chairman Mills 1178 Shelby Travel, Preston C. Johnson, vice president, letter dated Febru- ary 14 1968, to Chairman Mills - 1147 Short, Robert E. (See Discover America, Inc.) Siegman, Rabbi Henry, executive vice president, Synagogue Council of America, letter dated February 23, 1968, to Chairman Mills 1078 Skorga Henry A., Kansas City, Kans., letter dated February 7, 1968, to Congressman Larry Winn, Jr with forwarding letter 1051 Sochor Travel Service, Inc., John M. Sochor, letter dated February 15, 1968, to Chairman Mills, with editorial attached 1148 Sour, Robert B, president Broadcast Music, mc, letter dated Febru ary 23, 1968 to Chairman Mills 1127 PAGENO="0015" Spear, Richard E., assistant professor of art, Oberlin College, letter dated February 8, 1968, to Congressman Charles Mosher, with forwarding Page letter 1051 Stewart, Charles W. (See Machinery and Allied Products Institute). Stover, Francis W., director, national legislative service, Veterans of Foreign Wars, letter dated March 6, 1958, to Chairman Mills, with attachment 1075 Stowe, David M., associate general secretary for overseas ministries, National Council of the Churches of Christ, letter dated February 29, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 1077 Swanson, Mrs. C. E., chairman, executive committee, board of trustees, People to People, letter to Chairman Mills 1072 Synagogue Council of America, Rabbi Henry Siegman, executive vice president, letter dated February 23, 1968, to Chairman Mills 1078 Talcott, Hon. Burt L., a Representative in Congress from the State of California, letter dated March 5, 1968, to Chairman Mills 1024 Thomas J. Woodrow, vice president, Trans World Airlines, letter dated February 28, 1968, to Chairman Mills, forwarding a letter from Charles C. Tillinghast, Jr., president of TWA, to President Johnson 1088 Thomas, Lee B., Jr., Louisville, Ky., statement 1168 Thos. Cook & Son, Inc., E. O'Connor, president, letter dated February 13, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means, with attachments -- 1149 Tiernan, Hon. Robert 0., a Representative in Congress from the State of Rhode Island, statement with attachments 1032 Tillinghast, Charles C., Jr., president of TWA, letter to President Johnson, with forwarding letter from J. Woodrow, Thomas, vice president, Trans Airlines, to Chairman Mills, dated February 28, 1968 1088 Tipton, Stuart G. (See Air Transport Association.) Titus, Warren, director, Pacific Area Travel Association, resolution of the 17th annual conference 780 Tour Arrangements, Inc., George M. Alsberg, president, letter dated March 6, 1958, to Chairman Mills 1152 Trans World Airlines, J. Woodrow Thomas, vice president, letter dated February 28, 1968, to Chairman Mills, forwarding a letter from Charles C. Tillinghast, Jr., president of TWA, to President Johnson 1088 Travel Agent Magazine, Eric Friedheim, editor and publisher, statement. 1104 Travel Centers, Betty Lou Wallace, president, letter dated February 15, 1968 to Chairman Mills 1153 Travel Marketing Institute, Murray Vidockler, executive director, state- ment 1097 Travel Near & Far, Inc., Paul H. Silverstone, secretary-treasurer, letter dated February 23, 1968, to Chairman Mills 1154 Travelers Travel Bureau, Claire Puglisi, partner, letter dated February 12, 1968, to Chairman Mills 1155 Trottman Nelson, letter dated February 27, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 1160 United States Travel Bureau, Michael R. Seligman, director, and Richard L. Watson, tour manager, letter dated February 16, 1968, to Chairman Mills ii&o Vagabond Cruises and Travel Service, Inc., Barbara Bird, secretary/ treasurer, letter dated February 26, 1968, to Committee on Ways and Means with newspaper article attached 1157 Van Halsems, Dick L., Th.D., president, Reformed Bible Institute, letter dated February 13, 1968, to Congressman Gerald Ford, with forwarding letter 1046 Verity, C. William, Jr., president, Armco Steel Corp., statement 1121 Veterans of Foreign Wars, Francis W. Stover, director, national legislative service, letter dated March 6, 1968, to Chairman Mills, with attachment. 1075 Vidockler, Murray, executive director, Travel Marketing Institute, state- ment 1097 Watts, George & Son, George Watts, letter dated January 31, 1968, to Committee on Ways and Means, with forwarding letter from Congress- man Henry S. Reuss - 1047 PAGENO="0016" xvi Weitz Travel Inc., Karl L. Lewin, president, letter dated February 14, Page 1968, to Chairman Mills 1158 Weilner, Kenneth, et al., American Tourist Car Delivery Tax Committee, statement 1112 Whitman, Robert, associate professor of law, University of Connecticut, letter dated February 28 1968, to Chairman Mills, ~ ith letter to the editor attached 1072 PAGENO="0017" ADMINISTRATION'S BALANCE OF PAYMENTS PROPOSALS TUESDAY, FEBRUARY 27, 19~8 HousE OF REPRESENTATIVIJS, COMMITTEE ON WAYS AND MEANS, Wa~hzngton, D C The committee met at 10 a m, pursuant to notice, in the committee room, Longworth House Office Building, Hon. A. Sidney Herlong, Jr., presiding Mr HEnLONG The commitee will be in order The first witness this morning is Mr N B Danielian Mr Darnehan, will you please identify yourself for the record and proceed with your testimony. STATEMENT OF N R DANIELIAI'1, PRESIDENT, INTERNATIONAL EC'ONO~IC POLICY ASSOCIATION Mr DANIELIAN My name is N B Damehan I am president of the International Economic Policy Association I appear today in my individual capacity. There has been no opportunity to present this statement to our mem- ber companies for their review and consensus Mr. HERLONG. Will you speak a little louder please? I can't quite hear you. Mr. DANIELIAN. I appear in my individual capacity as an economist as there has been no opportunity to present the statement to our mem- ber companies for their comments and to obtain a consensus. I have a statement, Mr Chairman, here which is somewhat lengthy I am given 15 minutes With your indulgence I would like to summarize the high points and subject myself to cross-examination. Mr. HERLONG. Without objection your entire statement and the ex- hibits you attached will appear in the record and you may proceed as you desire (Mr. Danielian's prepared statement follows:) STATEMENT OF DR. N. R. DANIELIAN, PRESIDENT INTERNATIONAL ECONOMIC PoLIcY ASSOCIATION Mr. CHAIRMAN: I appreciate this opportunity to appear before the Committee. The International Economic Policy Aissociation consisting of a number of U.S. corporations engaged in worldwide trade and investment operations is naturally interested in the continued deterioration in the United States balance of payments, the steps taken by the Administration in January, and the further actions recommended in the President s Balance of Payments Proposals `The issues presented by the balance of payments deficit's, the relationship be- tween the private and the government sectors and the interaction between 795 89-749-68-pt. 3-2 PAGENO="0018" 796 domestic and international financial policies are so complex that no group of economists, businessmen, congressmen, and government officials can agree on either the causes or the remedies. It may `be more useful `to the Committee, there- fore if I try to give a personal analysis for which no individual member of our group should be held responsible. I shall not burden this statement with a historical review of the policies `since World War II which have brought the United States to the present state of dis equilibrium. This has been factually analyzed in our book, "The United States Balance of Payments-An Appraisal of U.S. Bconomic Strategy," of which mem- bers of this Committee have received copies. Here I shall try `to address myself to the following propositions: 1. The effect of the cold and hot war on the U.S. balance of payments. 2. The ability of the U.S. private economy to absorb the impact of these costs. 3. The necessity of sharing the costs with our allies. 4 In the absence of such cooperation the necessity of equitable distribil tion of such costs among different components of the American community. 5 And in the long rufl the inevitability of reassessing our economic and strategic `commitments around the world. 6. Finally, the consequences upon the long-range interests of the United `States if effective and realistic action `is not taken. In the course of this discussion, I shall comment on the various elements in the President's balance of payments program, some of which are before this Committee. The Effects of Cold and Hot War Policies One of the simple, basic facts to remember with respect to our international accounts is that `about 25% of total U.S. expenditures abroad are on government account. In absolute figures, this ranged between $7.5 and $8.5 `billion up to 1965. Since then it has jumped to $99 billion in 1966 and $11 1 billion in 1967 based on the first three quarters of the year. (ISee Table 1.) The major cemponents of this are foreign aid, including contributions to international institutions, and military expenditures There are other items such as interest payments on gov ernment bonds held abroad, pension payments to retired Americans living in foreign countries, etc. PAGENO="0019" TABLE 1.-PRIVATE AND GOVERNMENT SECTORS IN THE U.S. BALANCE OF PAYMENTS, 1960-67 [In billions of dollarsi 1960-61 1962 1963 1964 1965 1966 196 71 (average) Gov- Gov- Gov- Gov- Gov- Gov- Gov- Private em- Private em- Private em- Private em- Private em- Private em- Private em- ment meet ment ment ment ment ment Exports 17. 6 2.4 18. 2 3. 0 19. 3 3. 5 22. 5 3. 6 23. 6 3. 6 26. 2 4. 0 27. 0 4. 4 Income on investments 3.3 .4 4. 1 . 5 4.2 . 5 5. 0 . 5 5.0 . 5 5. 7 .6 5. 8 . 5 Other service receipts 4. 0 . 2 4. 4 .2 4. 7 . 2 5.2 . 3 5. 6 . 3 6. 5 . 3 6.0 .3 Long-term capital inflows .4 .3 .1 -.2 2.2 2.6 Repayments to U.S. Government 2 - 6 .6 . 7 . 8 . 9 Government liabilities 3 1 .5 . 2 . 1 Total receipts 25.4 3. 7 27. 1 4.9 28. 5 5.2 32. 8 5. 5 34.6 5. 3 40. 6 5. 8 42.4 6. 4 Imports -14.6 -16.2 -17.0 -18.6 -21.5 -25.5 -26.6 Services -5.2 -.9 -5.6 -1.0 -6.2 -1.1 -6.6 -1.3 -7.2 -1.4 -8.2 -1.5 -9.4 -1.7 ~ Privatelong-terrn investments -2.6 -2.9 - -3.7 -4.4 -4.5 -3.8 -3.4 Military cash outflows -3.0 -3.1 -2.9 -2.8 -2.8 -3.7 -4.2 Government grants and loans -3.7 -4.3 -4.6 -43 -4.3 -4.7 -5.2 Total payments -22. 4 -7.6 -24.6 -8.4 -26.9 -8.6 -29.6 -8.4 -33. 2 -8. 5 -37. 5 -9.9 -39.4 -11. 1 Basic position 3.0 -3.9 2.5 -3.5 1.6 -3.4 3.2 -2.9 1.4 -3.2 3.1 -4.1 3.0 -4.7 Short-term capital outflows -1.5 -.5 -.8 -2.1 .8 -.4 -.6 Unrecordecloutflows -1.0 -1.2 -.4 -1.2 -.4 -.3 -.5 Balance .4 -3.9 .8 -3.5 .2 -34 -.1 -2.9 1.8 -3.2 2.4 -4.1 L9 -4.7 Note: Private exports equal value of all merchandise exports, minus expenditures by U.S. Gov. S Excludes sale of medium-term government securities to foreign governments which total ernment on merchandise ($3,012,000,000 in 1966). Government exports equal goods and services $251,000,000 in 1962, $642,000,000 in 1963, $547,000,000 in 1964 and $252,000,000 in 1965. During exports paid for by U.S. Government plus all other transactions involving no direct dollar outflow 1966, $997,000,000 of these securities matured and were not renewed. ~ in 1966). Source: U.S. Department of Commerce, Survey of Current Business, (Washington: U.S. Govern- 2 Excludes debt prepayr~ents oc$53,000,000 in 1960, $696,000,000 in 1961, $681,000,000 in 1962, ment Printing Office), June 1965, p. 12; December 1965, pp. 18, 20; March 1966, pp. 18-22, December $326,000,000 in 1963, $122,000,000 in 1964, $221,000,000 in 1965, $428,000,000 in 1966, and 1966, pp. 21, 31, December 1967, p. 19. $5,000,000 first 3 quarters of 1967~ PAGENO="0020" 798 There are offsets against these government expenditures; about $3 billion of exports resulting from tied aid, including P.L. 480, and $1.2 billion of military' hardware sales, and a few other smaller items. But these receipts on govern- ment account have always fallen far short of its total expenditures:. Thus: the government's needs for net transfers of resources to foreign countries, for political, economic and military reasons have been in deficit by between $2.f~ and $3.9 `billion in the years 1960 to 1965, and then jumped to $4.1 billion in 1966 and $4.7 billion in 1967.. Private `international t,ransactions, including capital movements and tourism, have consistently earned a `surplus: for the United States:. This has been true, more specifically, in' foreign investment and income. Unfortunately, these surpluses have not been sufficient to satisfy the government's mounting needs' for transfer or acquisition of resources abroad. The shortfall up to 1966 has: been between $2.9 and $3.9 billion, if one excludes special trannactions, such as' prepayments of debts and shifting liabilities from less-than-one-year to more-than-12-month' notes, devices which are statistical deferments of the day of `reckoning. If one disallows similar temporary statistical reallocation of items, the 1967 picture was much worse than generally known. [The fact that the U.S. balance of payments statistics reflected an overall' deficit of about $1.3 and $1.5 billion in 1965 and 1966, in sp'ite of the Viet- nam conflict, did not in any way leave room for optimism. (How little' room can be, seen in the fact that preliminary estimates put our deficit for 1967 at $3.6 billion.) The improvement in 1965 and 1966 over the prertous deficits of $3 and $31/4 billion was due basically to special factors centering about higher interest rates in this country, the Interest Equalization Tax, `and the vol- untary restraint programs. In 1965, there was an inflow of short-term capital amounting to $761 million, as contrasted with an outflow of $2,146 million `in 1964. In 1966 foreigners purchased $909 million worth of U.S. securities. They also de- posited on long term another $930 million with U.S. banks. In `balance of pay- ments statistics these funds are recorded as an inflow of long-term capital, even though they often involve a switch from, say, 90-day Treasury Bills to more than one-year Time Certificates' of Deposits. These "inflows" were the result of higher interest rat~s in this country and are, therefore, subject to a quick `and substantial reversal. Table 2 s'hows the effects of special transactions in making' the balance of payments appear in better shape `than It really has been.] The United States has been financing this shortfall in its earnings by selling' gold, over $11 billion since December 1957,' and increasing our current liabilities (borrowing short `abroad) by over $17 billion. TABLE 2-EFFECT OF TEMPORARY FACTORS AND SPECIAL TRANSACTIONS ON BALANCE OF PAYMENTS FIn billions of dollarsj 1964 1965 1966 1967' Overall deficit 2 -2. 8 Debt prepayments 0. 1 Advance payments for militarysales 0.5 Inflow of long-term capital: U.S. corporate securities -0.1 Long-term bank deposits 0. 2 Short-term capital transactions: Bank_ --1.5 Nonbank(corporate) -0.6 Total special or temporary transactions -1.4 -1. 4 -1. 4 -1. 71 0. 2 0.2 -0.4 0. 2 0.3 0.4 0. 4 4 0.4 0.9 0. 9 -0.1 -0.3 1.0 0. 8 -0.5 0.05 0.9 2.2 1. 35 1 First 3 quarters of 1967. 2 Liquidity basis of measurement. a Includes reported prepayment by West Germany in fourth quarter of $196 million. Includes reported advance payment by West Germany in fourth quarter of $250 million. Source: Survey of Current Business, U.S. Department of Commerce, June 1966, December 1966, September 1967, anch December 1967. PAGENO="0021" 799 As Continental European countries are the principal holders of gold, and are Pour major creditors, it is easy to understand why they are extremely concerned about the availability and price of gold, and our continued ability to pay our external debts in a currency they will accept. As a result, we have, to a considerable degree, lost our freedom of action, and are subject to the wishes of our creditors, from the elimination of the gold re- serve requirements to c~ontro1 of private Investments. For fear of retaliation, there is very little that we are likely to do that our creditors oppose, because essentially their willingness to hold dollars (to lend us resources) finances much of the foreign exchange costs of our military deployment abroad. THE ABILITY or THE PRIVATE SECTOR TO MEET THE GOVERNMENT'S NEEDS The President's balance of payments program, announced on January 1, 1968, proposes an improvement of $3 billion a year divided as follows: MiUito~~ Direct investment $1. 000 Bank and nonbank credit . 500 Exports . 500 Tourism 500 Government expenditures . 500 Total 3. 000 It is significant that the private sector is expected to yield five-sixths of the saving, and government expenditures, one-sixth. Can this be achieved? I would dearly like to be able to say unequivocally that, yes, this is the medi- *cine the patient needs. Having urged upon the Cengress and~the Administration, ever since 1960, that unless we got control of our balance of payments deficits this country would lose its power of initiative and freedom of choice, at long last the matter has been given top priority and specific measures have been pro- posed. Again, instead of passing moral judgments or advancing superficial eco- nomic preconceptions, it would be more useful to the Committee if I gave an objective assessment. Direct Private IHvestment.-We have studied the opportunities of savings in this area. In Schedule B and C countries, there are, between outflows and earn- ings that may be repatriated, more than enough resources to save $1 billion in 1968. In fact, a strict application of the mandatory regulations to direct inves- tors might save as much as $1.5 billion, plus whatever must be brought back in liquid assets. There is, therefore, room for leniency and relaxation in the enforce- inent of the regulations. (Tables 3 and 4.) PAGENO="0022" I Total all areas 44 386 49 328 54562 2 416 3418 562 3 543 1 431 1542 1 720 5 061 5 460 5 680 3 670 3 963 4 045 444 292 387 420 1 419 1 551 1 647 1137 1184 1 228 A. Schedule Atotal 12,320 13,289 14,170 397 Latin America 8,894 Far East, less Japan 1,182 Africa, less Libya and Republic of South Africa 816 Other oceanic4 117 Other Western Hemisphere 1,311 B Schedule B total 22 150 24 664 27 226 760 1 650 1 728 782 911 884 2 825 3 002 3 047 2 080 2 134 2 243 Australia 1 475 1 679 1 918 125 136 147 64 72 89 121 126 143 52 52 54 Canada 13 796 15 223 16 840 239 912 1 087 500 540 539 1106 1 209 1 240 634 703 766 Japan 598 675 756 78 19 31 35 49 49 54 91 91 30 47 43 Libya 402 428 389 70 21 -42 5 5 4 258 232 270 252 226 266 Middle East6 1 332 1 536 1 671 42 245 121 11 3 13 813 840 876 836 836 863 United Kingdom 4547 51235652 206 317384 167 242 190 473 504 427 276 270 251 C Schedule C total 8029 9 391 11149 1179 1193 1 442 279 164 292 724 773 852 424 576 545 TABLE 3-US DIRECT INVESTMENT POSITION 1964_661 ACCORDING TO SCHEDULES A B C OF FOREIGN DIRECT INVESTMENT REGULATIONS UNDER EXECUTIVE ORDER 1138/ tIn millions of dollarsi Value of investments Outflows 2 Reinvested earrnngs Earnings Income3 1964 1965 1966 1964 1965 1966 1964 1965 1966 1964 1965 1966 1964 1965 1966 9 391 9 854 143 176 162 216 30o 299 1 095 1160 1 261 895 869 962 1,358 1,463 103 164 54 28 9 49 153 168 157 117 156 104 961 1 088 54 118 110 -1 25 23 1 43 21 3 23 1 134 14& -27 9 4 15 8 8 21 20 23 6 10 13 1,445 1,619 124 95 114 34 39 41 149 160 185 116 126 148 Common Market 5,426 Other Europe, less United Kingdom 2, 136 South Africa 467 6,304 7,587 807 857 1,140 100 2,558 2,961 355 305 281 141 529 601 17 31 21 38 -3 105 398 395 435 275 366 149 139 239 277 293 103 132 18 48 87 101 124 46 78 1 Preliminary (usually within $3,000,000 of final). u Includes Egypt and other Middle East countries (normally in schedule A). 5 Includes funds borrowed abroad: 1965, $190,000,000; 1966, $600,000,000. Note: Totals of all schedules will not equal "Total, all areas" due to "International shipping corn- oya es an service ees no nc u e . n inco o ted borad" bein omitted 4 New Zealand is not listed separately although mimmal it is in this total (normally in schedule B) 5 Includes Bermuda and Bah mas which are not listed separately (normally in schedule B) Source U S Department of Commerce Survey of Current Business September 1966 and 1967 316 158 71 PAGENO="0023" 801 TABLE 4.-THEORETICAL LEVELS OF ALLOWED INVESTMENT IN SCHEDULES A, B, C COUNTRIES UNDER EXECUTIVE ORDER 11387 [In millions of dollarsj Total and average, 1965-66 investment Investment allowed, 1968 (allow- able increase of average) Total 1 Average Percentage Amount Schedule A, total Latin America Far East(lessiapan) Africa (less Libya, Republic of South Africa)_ OtherOceanic Other Western Hemisphere Schedule B, total Australia Canada Japan Libya Middle East United Kingdom Schedule C, total Common market Other Europe (less United Kingdom) South Africa 1, 813 906. 5 110 997. 15 943 276 276 29 289 471.5 138.0 138. 0 14.5 144. 5 110 518.65 110 151.80 110 151. 80 110 15.95 110 158.95 5, 173 2, 586. 5 65 1, 681. 22 444 3, 078 148 -12 382 1, 133 222. 0 1, 539. 0 74.0 191. 0 566. 5 65 144. 30 65 1, 000. 35 65 48.10 65 65 124. 15 65 368. 22 3, 091 1, 545. 5 35 540.92 2, 099 874 118 1, 049. 5 437. 0 59. 0 35 - 367.32 35 152. 95 35 20. 65 1 Includes funds borrowed abroad, $190,000,000 in 1965; $600,000,000 in 1966. (These funds represent total overall funds borrowed abroad and cannot be broken down by schedules.) Note: Derivation of figures: From approximately 700 companies reporting under voluntary restraint program ac- counting for 80 to 90 percent of all U.S. investment abroad. Source: Figures comppted from figures contained in table 3. In addition, direct investors are required to reduce their liquid asset's abroad to the 1964-66 level. We do not know how much money this will bring back. Whether the control of private investments is the righlt way to solve this problem is another question. There are three negative factors which may come into play. First, It is an accepted premise that about 25 percent of private capital out- flows reported by Depart~nent of Commerce `are not in the form of money, but in goods arbd services. Would these `continue in the absence of investments? Unless exceptions are made in `the case of investments in kind, both present and future exports may be advers'ely affetced. Secondly, borro'wing `abroad at high interest rates will diminish the earnings available for repatriation. In the long run, this is counter-productive in our bal- ance of payments. Thirdly, there may be retaliation and forced re~tructuring of the financial and' control setup of U.S~ subsidiaries, which will diminish `the wvailability of earnings to be repatriated. There are other serious s'~orteomings in the mandatory regulations issued by the Department of Commerce. We have made specific recommendations for their improvement and we hope they will be accepted. I must say in all candor `that I do not know of a businessn~an. who thinks this is the right way to rectify the balance of payments deficit. But as a patriotic duty in a time of crisis, business firms are generally complying now as `they did under the voluntary system. I must also `say that the Department of Commerce officials are working hard and diligently to apply the rules fairly. We believe that their workload will be alleviated `if they `accej~t `our recommendations. Cutback of Bank and Non-bank Lending.-Another measure proposed by the President to bring back $500 million in 1938 is reduction of lending by U.S. bank and non~bank financial institutions abroad. This can be achieved in 19'G& (See Table 5.) PAGENO="0024" 802 `TABLE 5-OUTSTANDING LOANS TO RESIDENTS OF CONTINENTAL EUROPE BY U.S. BANKING AND NONBA1~KING INSTITUTIONS AT YEAR END BANKING [In millions of dollars[ Long term Short term 1964 1965 1966 1967 1 1964 1965 1966 1967 1 France 66.3 58.4 42.9 44.8 81.3 72. 2 73.2 71. 3 Austria 134.9 77.3 27.6 13.8 10.6 8. 5 16. 2 9.9 Belgium 86. 5 95. 1 103. 6 73. 1 48. 2 52. 3 66. 9 63. 0 Denmark 56. 8 43. 4 28. 7 15. 9 26. 2 37. 4 61. 8 48. 0 Germany 159. 5 205.2 141. 1 93.0 151.6 190.2 234.3 169. 8 Netherlands 15. 2 7.3 5.0 1. 1 36. 5 38.3 40.2 49. 4 Sweden 109. 1 93.4 60. 1 36.5 48.5 51.9 74.1 67. 1 Norway 274.8 221.9 187.6 137.0 42.8 51.4 75.6 57.0 Italy 382.7 342.1 199.6 97.8 114.0 110.2 108.0 69.0 Portugal 82.4 90.2 73. 5 63. 1 23. 0 25. 5 43.9 13. 5 Spain 73.1 72.4 63.9 46.2 39.6 50.1 67.4' 53.4 :Switzeriand 37. 3 37. 5 16.4 11. 1 111. 2 73.0 88. 0. 109. 7 Other Western Europe 19. 9 10. 5 12. 4 18. 8 20. 2 28. 0 36. 6 34. 1 u.S.S.R (1) 5.5 2.0 .08 Easter.n Europe 13.3 5.5 12.8 18.6 20.4 27.2 16.2 18.9 Totals 1, 511. 8 1, 360. 2 975. 2 670. 8 774. 1 821. 7 1, 004. 4 834. 2 NONBAN KiNG ~ Long term Short term 1964 1965 1966 1967~ 1964 1965 1966 19672 France 15. 15 10.82 14. 29 14. 88 60. 91 81. 60 110. 28 101. 97 Austria 1.31 1.30 1.30 1.17 6.55 6.01 7.64 9.20 Belgium 2 00 3 16 8 57 10 81 18 68 44 `68 53 01 39 39 Denmark 6.95 3.36 4.72 5.97 6.26 8.97 13.70 9.65 -Germany 4.85 7.11 . 9.05 60.83 139.96 111.83 126.61 122.18 Netherlands 34 07 13 1 67 31 25 40 70 47 99 46 56 Sweden . 33 1.09 1. 74 1. 68 19. 16 . 19. 77 36. 03 18. 87 Norway 2.16 2.24 .38 1.04 7.66 7.52 8.18 6.20 Italy 20. 56 19. 44 21. 00 23. 09 94. 80 76. 58 101. 00 80. 33 Portugal 113 4 40 17 53 12 05 4 05 4 99 6 67 6 28 Spain 12.05 16.64 45.71 62.80 42.14 49.96 61.14 62.13 -Switzerland 11.77 1.36 11.31 (2) 21.68 28.51 17.87 23.78 Other Western Europe . 82 2. 18 3. 60 3. 90 9. 01 8. 31 11. 48 13. 21 USSR 30 106 07 192 Eastern Europe .20 .17 2.22 2.02 2.18 3.68 ~....* .~ ~ ._.,.. ., ~ ~ `.__*~ .. ~ ~ ~. Totals 79. 61 73. 33 139. 33 199.90 464. 60 490.50 603.85' 545. 35 1 Through Nov 30 1967 2 Less than $50,000. 2 Through June 1967. Source: Treasury Bulletin, U.S. Treasury Department, Office of the Secretary, August 1967, pp. 93, 94, 106; February `1967, pp. 105 and 109. Thus, `the U.S. private capital account is likely to yield the `$1.5 `billion favor- able contribution this year. In 1969 and future years, the `adverse effects of this approach to the problem will gradually reduce earnings in other classifications in our balance of payments exports interest and di~ idend income and through possible reductions in equity positions in foreign subsid'iares or loss' of competi- tive vigor I am on record before this Committee and other committees of Congress that -discouragement of direct, productive investments abroad is harmful to our long- run balance of payments interests Income on investments has been one of the strongest growing items in our international receipts far surpassing direct dol lar outflow for new investments Unfortunately there is a persistent opinion `In the. United States th'at the deficits `are temporary and, therefore, "temporary" measures are justified. How one can `hold `to this view after persistent deficits since 1950 escapes this non- ~academic economist. There is a further view that other programs of the govern- .ment, such as foreign `aid and military expenditures, are irreducible; therefore, `the private `sector must be sacrificed. One might even agree to this view, as a national' necessity. But what worries me is how we a're going to maintain these PAGENO="0025" Merchandise exports excluding military Less aid-financed exports Merchandise imports Commercial balance Tourism: Receipts Expenditures2 - Balance Transportation: Receipts Expenditures Balance 1964 1965 1966 1967' 25. 3 26. 3 29. 2 22. 6 -2. 8 -2. 8 -3. 0 -2. 4 -18. 6 -21. 5 -25. 5 19. 7 3.9 2.0 0.7 0.5 1.1 1.2 1.5 1.3 -2.2 -2.4 -2.7 -2.6 -1.1 -1.2 -1.2 -1.8 2.3 -2. 5 2.4 -2. 7 2.6 -2. 9 2.0 -2. 3 -0.2 -0.3 -0.3 -0.3 3.6 3.6 3.9 3.3 -4.3 -4.3 -4.7 -3.9 -0.7 -0.7 -0.8 -0.6 3.7 4.0 4.0 3.0 0.8 0.9 1.1 0.8 -2. 4 -3. 4 -3. 5 -2. 0 2.1 1.5 1.6 1.8 Military: Receipts (military sales) Expenditures Balance Foreign aid: Receipts3 Expenditures Balance Direct investments: Receipts: Income Royalties, fees Expenditures Balance Other private capital: Receipts Expenditures Balance 1 First three-fourths of 1967. 2 Excludes transportation expenditures on foreign carriers. Expenditures on U.S. goods and services. 4 Includes at least $600,000,000 raised abroad through foreign sale of securities issued by special U.S. incorporated~ companies or through long-term loans from foreign banks. Source: Survey of Current Business, U.S. Department of Commerce, June 1966, December 1966, September 1967, and~ December 1967. 1.3 1.4 1.6 1.3 -4.1 -0.3 -0.6 -1.4 -2.8 1.1 1.0 -0.1 803 programs, over the long pull, if we undercut our earning power in the private sector. This is not a question of selfish business interests against the national interest. It goes to the very heart of the ability of the United States to maintain its power position in the world. Contrary to common misunderstanding, Great Britain's financial difficulties are not due simply to lack of competitiveness in international commodity markets. Her difficulties are due, on the one hand, to loss of invest- ment income, and on the other, to government expenditures abroad beyond her earning power. That is why she has to withdraw her troops from East of the Suez. If we are not careful and balanced in our military and economic policies in the next decade, we may find ourselves in a similar situation. Trade.-The President's program calls for an improvement in the trade account in 1968 by $500 million. This is a modest enough,objective, considering that our total export trade is over $30 billion. Modest though the target is, it will not be easy to achieve because it requires a reversal of recent trends. The reducton of U.S. trade surplus since 1964 has been nothing short of devastating so far as our balance of payments is concerned. Before we can assess the facts and potentialities in our trade picture, we must first agree on the mean- ing of trade statistics. The year 1964 was a good year. But the commercial trade surplus that year, touted at $6.7 billion, was actually $3.9 billion after deducting $2.8 billion of aid-financed exports. The comparable figure in 1965 was $2.0 bil- lion; in 1966, $700 million; in 1967, preliminary, $600 million. Our commercial trade surplus has dropped $3.3 billion since 1964. (Table 6.) TABLE 6.-U.S. BALANCE OF PAYMENTS BY MAJOR SECTORS [In billions of dollars] 0.7 0.8 0.9 0.9 -2 8 -2.9 -3.7 -3.2 -2. 1 -2. 1 -2. 6 -2. 3 PAGENO="0026" 804 Yet 1964, with this unusually high trade surplus, was one of the bad deficit years, $3 billion, and was followed in 1965 by the voluntary restraint program, the renewal of the Interest Equalization Tax, and the withdrawal of the gold cover from Federal Reserve Deposits. Ever since 1961, expansion of exports to solve the balance of payments prob- lem has been in the forefront of national policy. Organizations of national and regional trade expansion councils, trade missions abroad, trade fairs, trade negotiations-the Dillon Round and the Kennedy Round-have all been held up ~s the answer to export expansion. In a way they have been successful-com- mercial exports (excluding aid-financed exports) have soared by $9.6 billion from 160 to 1967, almost fifty percent. This is indeed phenomenal. But imports have increased faster, from $14.6 billion in 1960-61, to $26.6 bil- lion in 1967-a $12 billion increase, or eighty percent in eight years. We must again confront the question: Is this trend temporary, due to fortu- itous, unanticipated circumstances, such as the deficit-induced inflation in the United States or bountiful agricultural crops abroad in 1966 and 1967? Or is it structural and more permanent, reflecting a reallocation of productive functions around the world, where U. S. products are becoming less needed or too expensive and therefore being displaced by other sources? Frankly, I do not have the answer. Neither, I am afraid, does the U.S. Govern- ment with all of its resources. We have a tendency to select political objectives in *the economic field and then try to justify them by assumed "facts". This is one area where economic theory had better serve its master well-the national in- terest. For if we find in the next five to ten years that the policies we have adopted will not give us the surplus on commercial trade account and on in vestment income, we will have to pull up stakes from many outposts in the world and leave many people bitter and disillusioned, including our own. I am afraid that the trade problems we confront may be structural and not matters of temporary adjustments. This does not mean that we cannot increase our export sales by the amount needed in 1968 or 1969, by hard sell. An~ country that can push out $1.2 billion worth of military hardware a year to offset mill- tary expenditures can certainly do half as much with automobiles, coal, grain and a host of other competitive products we can supply. The instruments proposed for export expansion, however are not too reassur- ing. The sum of $200 million at an annual rate of $40 million, most of it to be spent abroad, probably on trade fairs and market studies and such, does not touch the real issue-price competitiveness, and ability and willingness of other countries to buy. For years many Presidental panels have suggested tax incentives for exports. To date there is no proposal on this before Congress. There is not even a thorough study on the price competitiveness of U.S. exports, product-by-product, country-by-country, to see what the scale of the problem is. Should the tax incentives be 2, i~, 5 or 10 percent to obtain a predictable result? ~o one knows. Given the need of the importing country and even price competitiveness, it does not follow that the opportunities for unilateral increase in exports are there without limit or without repercussions. You can group the countries in the world into three categories: the Communist countries, the developing countries, and the developed countries. The Communist countries are not in the market to buy consumer goods, except food in conditions of dire need, and they are not in the position to buy a net surplus from the United States. They like to come as close as possible to a barter basis .and equalize imports and exports. The developing countries do not have the reserves necessary to increase their imports over their exports. They are candidates for foreign aid. The only way we can increase our trade `surplus with them is by taking markets away from European and Japanese exporters. The developed countries may be divided into two groups: the first group is comprised of countries such the U.K., Canada and Japan which run balance of payments deficits with the United States, sometimes offset by our credits and military expenditures. Bilateral trade with them will increase, but it is unlikely that they will give us a net surplus in `trade by increasing their deficits with us. `This leaves the developed countries of Continental Europe, Australia, and South Africa. It should not be impossible, by hard sell at the political level to increase our exports to Continental Free Europe by $500 million a year. The surplus countries mainly those in the `Common Market however will resist this because their trade balance with the United States on the average has been $2 PAGENO="0027" 805 billion in deficit and they have `the upper hand in bargaining leverage. Besides their creditor position and the vulnerability of the United States in the gold/cur.. rent liabilities ratio, they have tradition, precedents and international agree- ments on their side. In 1947 we acceded to the General Agreement on Trade and Tariff (`GATT). At that `time we recognized the precarious economic condition of the Western European countries. In our anxiety to see them strengthen their economies we were prepared to make concessions to them. The GATT rules permit the rebate of indirect taxes on exports and their im- position on imports, but do not permit rebates of direct taxes. (Indirect taxes constitute a large portion of the revenues of Western European countries, while they are relatively minor in the United States.) This practice was recognized as a subsidy for exports in the original GATT agreement where it was proposed that such subsidies should be eliminated by January 1, 1958, or the earliest practical date thereafter. Nevertheless, in 1960 the United States, in response to a proposal by France, acceded to the continu~ ance of this practice. This gives European exporters an important subsidy while protecting them in their own. markets through a levy on imports. Now the European Economic Community has agreed that its member countries will adopt a common value added tax by January 1, 1970. France already has such a tax which is applicable generally at the rate of 162/s percent. Germany instituted such a tax at the rate of 10 percent in January of 1968. This system under the GATT rules will give EEC producers a substantial export advantage over the producers of the United States and will compound an already existing disadvantage. In the light of the changed competitive conditions such a concession was not appropriate in 1960 and certainly further continuance cannot be justified now. The President, in his proposals, indicated that he would seek changes by our European friends or recommend legislation to impose a similar system in the United States. This discriminatory provision should be eliminated or our export- ers should be given fully compensatory trade treatment. GATT rules also permit the formation of free trade areas or common markets. Groups of countries in such blocs can provide preferential treatment to the other members and discriminate against outsiders, while we are bound by the rule of unconditional-most-favored-nations treatment to extend any concession we make to all other GATT members. In the Kennedy Round Negotiations, concluded last year, the European Economic Community negotiated as a bloc. In those negotia- tions we were able to secure no agreement with the EEC to reduce its high pro- tective agricultural levy system so as to assure us continued access to that im- portant market for major exports such as grains. There is no evidence that the mutual concessions made on industrial products will contribute to an increase in the trade surplus of the United States. It is, in fact, defended as a balanced package. Mr. Jean Rey, President of the European Economic Commission, stated before the National Press Club during his recent visit that we must not expect to increase our trade surplus with Europe. He re- lated that he and his former associate, Mr. Marjolin, were surprised, during a visit to the White House, to find that President Kennedy entertained unrealistic ideas of solving the balance of payments problem through the Trade Expansion Act negotiations. To hear Mr. Jean Rey describe it, Mr. Marjolin simply ex- ploded, it was not clear whether in merriment or anguish. Thus the Kennedy Round, regardless of what was said or hoped for in 1962, was not intended or expected by the time it was concluded in 1907, to increase our trade surplus. The best that can be hoped for is a balanced and equitably distributed increase in world trade, which in itself is a blessing if it is not ac- companied by a deterioration in the U.S. commercial trade surplus. There is reason to believe, however, that the failure in agricultural negotia- tions will make it impossible for the United States to substantially increase grain exports to EEC countries, if over time it can even maintain its share of the market. This is important because agricultural exports to Europe, particu- larly grains, have been an important earner of hard currencies, about $2.5 bil- lion per year. In addition to the tariff barriers imposed against U.S. exports by other coun- tries, there are a multiplicity of nontariff barriers which substantially discrim- inate against our products'. These would include, for example, the high road taxes on American automobiles by the EEC countries, which in the case of a Chevrolet or Rambler in France amount to $200. It would also include other internal taxes such as horse-power taxes penalizing large cars, quotas on coal and other prod- PAGENO="0028" 806 ucts, national preference laws and practices, surcharges and stamp taxes, and the like. These nontariff barriers are, in many cases, more restrictive than the tariff barriers. This is. the area where relief is needed but it will take time. There are other policies that inhibit improvement of our trade balance. The State: Department has reversed its traditional opposition and has come out in favor Of commodity agreements in response to the demands of the less developed countries. These often involve stabilizing the prices of the commodity involved at relatively high prices, thus insuring that our import bill for stich commodities will remain at a high level or go up. Another policy that is bound to have deleterious effects upon our trade balance is in the making. We have now reached agreement in the Organization for Euro- pean Cooperation and Development to try to work out with the less developed countries a system of preferential tariff arrangements. This matter is now under discussion at the second United Nations Conference on Trade and Development in New Delhi. The proposal is for preferences without reciprocal advantage anI thus, if agreed, can be expected to have an adverse impact on our trade balance. None. of the actions thus far taken or prop.osed are conducive to improving our trade balance. That balance, as noted above, has declined substantially since the high point reached in 1964. Trade should make a contribution to our foreign exchange earnings. It has been making little or none in the past two years. In the absence of substantial positive *steps to reduce restrictions abroad and improve the capacity of our exporters, there is little reason to expect that it will begin to do so soon. Trn~wism.-Phe recommendations contained in the report to the President from the Industry-Government Task Force on Travel on February 19, 1968 are most welcome. I cannot help but enthusiastically endorse them since our Association has made comparable suggestions over the past two years~ I am particularly pleased to see the proposal for discounts on roundtrip air and steamship fares to the United States and hope that this recommendation will be implemented by the InternationalAir Transport Association, the steamship liner conferences, and foreign governments. We also endorse the proposal for an expanded and im- proved U.S. Travel Service with an increased budget with the understanding, as set forth in the Task Force report, that substantial increases in appropriations will be subject to presentation of a program justified by them. Certainly we would be better served by i.ncreasing foreign travel in the United States to overcome our deficit on travel account than by placing restric- tions on the travel of Americans. Should it be necessary to impose restrictions on travel Americans, these restrictions should be temporary in nature and re- moved as soon as positive steps have brought the account into balance. Certainly any restraints imposed on foreign travel should be equitable, easy to administer, and capable of fair enforcement. In view Of the increased personal income levels, reversal of travel habits of Americans will be difficult. The trend shown in Table 7 has been steeply upwards. In 1968, thespecial attraction of Expo 67 will be in part replaced by the Olympics, and the Caribbean and Latin America may become inviting second choices to many travel~bent Americans. The target of a $500 million saving in this area in .1968 is somewhat optimistic. PAGENO="0029" 807 E C- -C' C~) ~oc~1~c~oo ~` C~CC'4('4OO 00~O `-0 U, 00 C-) 00 0 0 0 C-) >< ~ ~0 0 < 0 ~ (0 -`C = C-) = o = 00 - = C-) LU 0 LU 00 -J 00 -`C 1- C-) = 00,,, 8 0) C-) = 00) co 2 C.) C-) CO C,~ CO ~ + ~ H E CO ~- 0 0 LU -0) C-) OLC) ~ C) CC) ~ 0) CC)CC)~ C)-~ 00 CC\ LC) ~ 0000 0 II I I ~00C)CL() 00 cC) )C, ~ 0) III I I I ~ II I~I I ~)CC-J0CCJ 00 I I I I CO I I~ I I I C)) 0) 2 00 C-) 0)00 C)) = `0)' U' 0 `-~ 2 PAGENO="0030" 808 Travel abroad by U S businessmen is essential to the expansion even the maintenance, of earnings of foreign exchange by private business. If the govern- ment wants business to expand exports, particularly without direct investments, it must tolerate a great deal of travel by salesmen not to mention auditors accountants, and the like to make sure that the Department of Commerce regulations are complied with~ Any tax on foreign travel should not put a further onerous burden on businessmen engaged in such necessary activity. The tax im- posed on expenditures abroad should apply only to direct outflows from U.S. sources and not to expenditures in local currency or services provided by foreign affiliates which do not cause an expenditure of U.S. dollars. The Government Account It was pointed out earlier that th.e government's expenditures abroad had risen from $7 5 billion to $8 5 billion in the early 1960 s to over $11 billion in 1967 and that $4.7 billion of the latter went unrequited by any offset arrangements. The President proposes to save $500 million in this account by reduction of civilian personnel and expenses ($100 million), by reducing the balance of payments impact of foreign aid ($100 million), and by sale of long-term Treasury Bonds to offset military expenses ($300 million). Is this adequate under the circumstances? I must say in all fairness that the Administration has taken many actions at the behest of the Treasury Department to reduce the incidence of foreign aid on the balance of payments The proportion of tied aid has increased Fhe substitution effect of foreign aid on commercial sales has come under scrutiny and machinery has been set up to insure additionality of sales Reluctantly the international institutions have come to accept the imperative of using U.S.- contributed dollar resources for procurement in the United States The Inter American Development Bank and the Asian Development Bank have accepted this principle. It is reported that the new financing proposed for the Interna- tional Development Association will yield on this point. These are all measures that our organization has advocated. The logic of events has forced their ac- ceptance, and much credit goes to the Treasury Department. Without these changes in the way aid funds are spent, the payments deficits, in view of escala- tion of other foreign costs, would have been so much higher that the national credit might have been in jeopardy this very moment. Our military expenditures in Western Europe are mostly in the context of the NATO common defense commitments; about half-~between $700 and $800 million-in Western Germany. The Department of Defense has undertaken many activities in Western Europe to reduce these foreign exchange costs in amount. The principal ones have been first offset procurement of defense equipment by Germany and more recently when Germany declined to continue these offset purchases of military hardware, in the form of the purchase of $500 million in the United States medium-term securities in Fiscal 19~38. An attempt is now being made to continue these arrangements to offset or immunize these military expendi- tures as an immediate claim on gold. News reports from. Bonn seem to indicate that the German Government is not disposed to buy long-term bonds from us. The sale of Treasury securities to the German Government which may in the future still be converted into gold, is not an adequate or wise means of meeting the costs of stationing U.S. troops in Western Europe. It is not an offset againts these expenditures, ~ut is simply mortgaging the future and it does not directly ease our balance of payments deficits and the claim on gold. It seems to us that our Western European presence, within the context of the NATO Alliance is part of a collective security arrangement and therefore the cost must be shared in such a way as to eliminate the impact on the U S balance of payments. The United States contributes to this collective security not only its troops in Europe, but also the total military capability of the United States as expressed in our total military budget. Generally, this country is allocating 10 to 12 percent of its gross national product for defense, as com- pared with 5 to 6 percent in most Western European countries. The assumption of the foreign exchange cost of our troop presence in Germany and other NATO countries, equitably divided, would add but a fraction to their military budget. The problems that have been raised are political, rather than the capacity to pay. The objections from European countries have been the tax burden, the limits on their military budget and the public relations aspects of paying for the presence of U.S. troops in their midst. These objections may be overcome if the NATO Alliance could develop either of two alternative approaches First pro curement of goods and services in the United States in the equivalents of our PAGENO="0031" 809 military expenditures, making sure that such procurement will be in addition to their normal purchases in the United States; or a lend-lease concept of paying military costs within the NATO Alliance where each country would contribute the local national costs of troop presence. If our allies in Europe still refuse to go along with equitable sharing of these costs, then we should be prepared to reduce these expenditures unilaterally. It is not likely that either the Soviets or the NATO countries will ever agree to this or make it easy for us if we make the solution conditional upon their agreement and reciprocity. The situation in Asia, particularly the larger part of the costs relating to Vietnam, differ from those in Europe. The economic base of the countries in- volved could not afford to support the activities which we have undertaken. On the other hand, most of those countries are dollar-deficit countries and they are in need of growing amounts of imports from the United States. Hence, it should be possible to make specific arrangements with countries like Japan, the Philip- pines, Republic of China, Thailand, and South Korea to increase their procure- ment in the United Stateson a current basis with the accretion of dollar reserves due to military expenditures. This would require payment in blocked dollars in American banks acceptable for U.S. procurement upon specific administrative arrangements, assuring additionality of imports from the United Sta~tes over a base period. Defense-support grants to South V:ietnam amounted to *587 million in 1966. This is widely recognized as one of the more conspicuous forms of dollar drain. The use of these grants to fight inflation due to military expenditures by means of massive import programs is a strange way of managing what should be essentially a mobilized war economy. Many Congressional investigations and reports have been critical of this program as wasteful and hurtful to our balance `of payments. It would seem to us that a better system of allocation and utilization of resources applicable to a wartime economy can be devised than this free-for-all import assist- anc'e program. The government account is the major area in which fundamental corrective action must be taken. We must reduce `the foreign exchange costs of the govern- ment to a level which can be met by the foreign exchange earnings of the private sector. Failure to move in this area will mean continuing d'eficit's and permanent, probably more stringent, restrictions on the private sector. UOGU3~US~Ofl Mr. Ohairman, there are certain lessons to be drawn from this analysis. The first is that it is not possible to run a war economy internationally `any more than domestically on a business-as-usual basis. Internally, as well as externally, we must make sacrifices. The only thing we can hope for is that tile sacrifices are evenly and fairly distributed. In th'e case of the international deficits, I do not believe the `sacrifices `have been evenly distributed. Ever since the foreign tax proposals of 1961, through the Interest Equalization Tax, voluntary restraint programs, and to the present mandatory programs, the private lender and investor has been singled `out as a special sacrificial of4~ering. This is not only unfair, but is contrary `to the long- range national interest. We `are willing to penalize the prudent investor, who will bring back over the years several times the money sent out, in favor of con- sumption expenditures `both in~ `the government and private account. In `terms of equity, I fail tio see the opprobrium visited upon a company or a bank, entrusted with the savings of millions of people, whose funds may be invested abroad to earn a dollar fQr his company and his country. Why `single them out, in contrast to th'ose, both in public and private life, who spend larger amounts on `n'onremunera- tive and nonrecoverable expenditures? A second lesson is that `a wartime economy cannot operate within the frame- work of unlimited freedom. It is the irony of the present situation that world communism and our `determination to resist it in the name of preserving freedom and independence of other nations, is forcing `the United States in'to a controlled economy and serious curtailment of traditional personal freedoms. Our NATO allies, as well as Japan, should recognize that lack of cooperation on their part, throwing `the whole burden of sacrifice on the American public, may lead this nation into a revulsion and inward withdrawal, which Will revive the isolationism of the 1920's and 1930's. They should come forward of their own accord, just as the United States did in the Lend Lease Program of 1941 and the Marshall Plan of 1948, and offer to consider the equitable distribution of our burdens in budgetary and foreign exchange terms. I can think of nothing that PAGENO="0032" 810 would enhance the honor and assure the future security of France, for example, than a noble gesture in this direction The alternative either forced unilaterally by the United States or resulting from the inexorable course of events may well be complete collapse of the Western Alliance, with incalculable consequences for Europe s security and social and economic structure Failing a cooperative solution with our allies Mr Chairman our next course demands a reassessment of priorities in our e~ternal commitments. The private sector will not he able to finance these government outlays. The American public is not likely to tolerate a garrison state existence in the name of freedom and prosperity for far distant peoples. This country will be forced to reconsider its `moral and political' obligations in the light of available capabilities. This will happen either as a deliberate and thoughtful process, or it will happen helter-skelter by the dictates of foreign' creditors and boarders of gold in a crisis atmosphere. When this may occur no one can say. It `may be five years, it may be longer, depending on the scale of Our operations abroad. Mr. Chairman, this is the cost of the cold and now the hot war in our inter- naitional accounts, not counting other psychological and political factors. If I were sitting in Moscow and figuring out what 1 eould do to weaken the United States without going to war with it by direct confrontation it is a fair guess that I would plot ways of diminishing U.S. power abroad by increasing its expenditures and diminishing its earning power from trade and investments. If you look around the world, I think you will find that `this is exactly what they are doing. While our attention' Is naturally focused on the human suffering in Asia, we may `find some day `that the issue of our freedom will be determined in this area of economic policy. Your Committee has a very heavy responsibility. Mr DANIELIAN I would like to cover today, Mr Chairman, the fol lo.w'ing points: First the effect of the cold and hot war on the U.S. balance of payments; secondly, the ability of the U.S. private economy to absorb the impact of these costs; thirdly, the necessity of sharing the costs with our allies, fourth, in the absence of such cooperation, the necessity of equitable distribution of `such costs among different com- ponents of the American community; and, in the long run, the inev- itability of reassessing our economic and strategic commitments around the world, and, finally, the consequences upon the long-range interests of the United States if effective and realistic action is not taken to control the balance-of-payments deficits. In the course of this discussion I shall of course comment on the various aspects of the President's balance-of-payment program. It must be remembered, first, that of the total U.S. expenditures abroad, which is over $40 billion, 25 percent is spent on Government account. In absolute figures this has ranged between $7.5 and :$8.5 billion up to 1965 Since then it has jumped to $9 9 billion in 1966 and $11 1 billion in 1967. These are of course the costs only that involves trans~- for of resources to other nations. They do not include the direct costs of the dollar costs that we pay our troops or their dependents in the United States and such other procurements that are part of the total military budget of the United States. These have been offset to some extent by exports resulting from such expenditures, such as Public Law 480 and tied aid, and also by mih tary offset sales About $3 billion of our exports are assignable to tied aid and aibout $1.2 billion of military sales `have had the effect of offsetting these Government expenditures Hotw'ever, the Government's needs for net transfers of resources to foreign countries for political, economic, and military reasons have been in deficit by between $2.9 and $3.9 billion in the years 1960 to 1965, and then jumped to $4.1 billion in 1966 and $4.7 billion in 1967. PAGENO="0033" 811 Private international transactions, including capital movements and tourism, have consistently earned a surplus for the United States. This has `been true, more specifically, in foreign investment and income. Unfortunately, these surpluses have not been sufficient to satisfy the Government's mounting needs for the transfer or acquisition of re- sources abroad. The shortfall up to 1966 has been between $2.9 and $3.9 billion, if one excludes special transactions, such as prepayments of debts and shifting liabilities from less than 1 year to more than 12 months notes. If one disallows similar temporary statistical reallocation of items, the 1967 picture was much worse than generally known. The United States has been financing the shortfall in its, earnings by selling gold, over $11 billion since December 1957, and increasing our current liabilities; in other words, borrowing short abroad, by over $17 billion. As `a result of the increased current liabilities, whh~h at the moment are estimated at about $32% billion, the United States has lost to a considerable degree its freedom of action and we are now subject to the wishes of our creditors, from the elimination of the gold reserve requirements to control of private investments. For fear of retaliation, there is very little that we are likely to do that our creditors oppose, because essentially their willingness to `hold dollars (to lend us resources) finances much of the foreign exchange costs of our military deployment abroad. `The President's `balance-of-payments program announced on Janu- ary 1, 1.968, proposes an improvement of $3 billion a year divided as `follows: Direct investment, $1 billion; bank and non'b'ank credit curtailment, $500 million; increased `export surplus, $500 `million; tourism, $500 million; and Government expenditures, $500 million; for a total of $3 `billion. T'his is for 1968. It `is significant t'hat the private sector is expected to yield five-sixths of the savin'g and Government expenditure one-sixth. Can this be achieved? Let's first look at private investment. We have studied the oppor- tunities of `savings in this `area. In schedule B and C countries-I am assuming the committee is aware of the classifications-there are, between outflows and earnings that may be repatriated, more than enough resources to save $1 billion in 1968. In fact, a `strict application of the mandatory regulations to direct investors might save as much as $1V2 `billion, plus whatever must be brought back in liquid assets. There is, therefore, room for leniency a'nd relaxation in the enforce- ment of these regulations. Whether the control of private investments is the right way to solve this problem is ano'ther question. There are three negative f'actors which may come into play. First, it is an accepted premise that about 25 percent of private capital outflows reported by the Department of Commerce are not in the form of money, but in goods and services. Would these continue in the absence o'f investments? Unless exceptions are made in the case of investments in kind, both present and future exports may be `adversely affected. 89-749-68-pt. 3-3 PAGENO="0034" 812 Secondly, borrowing abroad at high interest rates will diminish the earnings available for repatriation. In the long run this is counter- productive in our balance of payments. Thirdly, there may be retaliation and forced restructuring of the financial `and control organization of U.S. subsidiaries, which will diminsh the availability of earnings to be repatriated in the future. There are other serious shortcomings in the mandatory regulations issued by the Department of Commerce. We have made specific recom- mendations for their improvement and we hope they will be accepted. I must say in all candor that I do not know of a businessman who thinks this is the right way to rectify the balance-of-payments deficit. But as a patriotic duty in a time of crisis, business firms are generally complying now as they did under the voluntary system. I must also say that the Department of Commerce officials are work- ing hard and diligently to apply the rules fairly. We believe their workload will 12e alleviated if they accept our recommendations. Another measure proposed by the President to bring back money is to curtail the lending by bank and nonbank financial institutions. By this device they hope to save $500 million in 1968. This can be achieved for this one year. Thus, the U.S. private capital account is likely to yield the $1.5 billion favorable contribution this year. In 1969 and future years, the adverse effects of this approach to the problem will gradually reduce earnings in other classifications in our balance of payments: Exports, interest, and dividend income, and through possible reduc- tion's in the equity positions in foreign subsidiaries or loss of competi- tive vigor `by U.S. subsidiaries abroad. I am on record before this committee and other committees of `Con- gress that discouragement o'f direct, productive investments abroad is harmful to our longrun balance-of-payments interests. Income on in- vestments has been one of the strongest growing items in our interna- tional receipts, far surpassing direct `dollar outflow for new invest- ments. `There is a view in the `Government that `programs of the Govern- ment such as foreign aid and military e~penditures are irreducible; therefore, the private sector must be sacrificed. One might agree' to this view as a national necessity, but what worries me is how we are going to maintain these programs over the `long pull if we undercut our earning power in the private sector. This is not a question of selfish business interests against the na- tional interest. It goes to the very heart of the ability of the United States to maintain its power position in the world. To turn now to the trade account, the President's program calls for an improvement in the trade account `in 1968 by $500 million. This is a modest enough objective, considering that our total export trade is over $30 billion. Modest though the target is, it will not be easy to achieve because it requires a reversal of recent trends. Let's take 1964, which was a good year. T'he commercial trade siir- plus in that year `was touted to be $6.7 billion, but was actually $3.9 billion after deducting $2.8 billion of aid-financed exports, and yet in 1965 we `had to renew the interest equalization tax and put voluntary restraints on private investments and had to take other actions be- cause the `balance-of-payments situation in 1964 was one of the worst in `spite of this tremendous trade surplus. PAGENO="0035" 813 The comparable figure in * 1965, eliminating aid-financed exports, was $2 billion , in 1966, $700 million , in 196AT, preliminary figure, $600 million. Our commercial trade surplus has dropped $3.3 billion since 1964. Ever since 1961, trade expansion has been a major objective of the administration, to increase our trade surplus and help our balance of payments, and we have undertaken many activities, trade expansion councils, trade missions, trade fairs, trade negotiation-the Dillon round and the Kennedy round-and in a way they have all been successful because commercial exports, excluding aid financed exports, have soared by $9 6 billion from 1960 to 1967, almost 50 percent This is indeed phenomenal But imports have increased faster, from $14 6 billion in 1960-61, average, to $26 6 billion in 1967, a $12 billion increase, or 80 percent in 8 years. Whether these developments are due to structural reasons or to tern porary conditions such as good crop years abroad in 1966-67 or infla- tion at home is not easy to analyze, and I think we would do' well not to brush aside this trend in foreign export and import relationship as a temporary factor. Therefore, we must judge the instruments proposed as to whether they might be effective in achieving their purpose. The President rec- ommends the sum of $200 million at an annual rate of $40 million, most of it to be ~pent abroad, probably on trade fairs and market studies and such. This does not touch the real issue-price competitive- ness and ability and willingness of other countries to buy goods and services in the United States. For many years presidential panels have suggested tax incentives for exports To date there is no proposal on this before Congress I think before we can hope to solve the problem of balance of payments deficits on trade account we must analyze the woild markets in a real istic way. You can divide the countries in the world into three general cate gories: the Communist countries, which are not willing to buy any consumer end products They want technology and machinery, and they certainly are not going to buy a surplus of goods over their exports to us. Their hope at best is a barter relationship equalizing imports and exports. Then there are the underdeveloped countries which do not have the reserves and the resources to buy a net surplus of imports from us or increase their surplus of purchases from us They are candidates for foreign aid. This leaves the developed countries, and they are of two groups- one, Canada, Japan and the United Kingdom, which have generally balance of payments deficits with United States and therefore they would be reluctant to increase the surplus of purchases from us. This leaves pretty much the continental European countries, mostly the Common Market countries, which possess surplus reserves. Now, the question is Are they willing to buy more and to what extent? They certainly are not willing to buy more by $3 billion or so to solve our balance of payments deficits, because that would be almost an 80 percent increase in their purchases from the United States. In his recent visit to Washington Mr Jean Rey, President of the European Economic* Commission, stated as much, that we must not PAGENO="0036" 814 expect to increase our trade surplus with them because it is already very high. It is on the average about $2 billion a year. There are certain policy positions of the U.S. Government that will militate against a substantial net increase in trade surplus. I must make it clear here that I do not foreclose and I hope our policies will lead to a general increase in world trade both ways. I think intel national trade is the leaven of international living and that this trend that has been observed in the last 20 years will continue But here we are talking about the ability to create a net surplus uni- latei ally for the United States, which means that other countries must accept moi e goods from us than they sell to us, which is an entirely different problem There are certain policy positions of our Government that will make it difficult to achieve this objective. First, of course the adherence to GA'TT, which has rather prefer- ential arrangements for other trading blocs in the field of taxation. The organization of trading blocs also discriminate against outsiders and will tend to diminish the market for end products from the United States. I think if you look at trade statistics you will find that we have be- come suppliers of agricultural products, machinery, and industrial raw materials. Then there are many nontariff barriers which must be eliminated. Again it is a question whether they are going to eliminate them on a unilateral basis in order to help us sell more. Recently the administration has changed its opposition to com- modity agreements and is now supporting it as a concession to less developed countries. Obviously the effect of this is going to be to increase the price of commodities that the United States buys from these countries, coffee or oil nuts of various kinds. It is very astounding to me that at the very time that we are con- sidering expoit incentives for encouragement of exports we have be fore the Senate a grain an angement which proposes an increase of 21 cents per bushel of grain. How we expect to sell more grain by increas- ing its price escapes me. These are inconsistent policies that have to be ironed out. Then we are now proposing at New Delhi preferential tariff treat- ments to underdeveloped countries. The announced purpose of that, of course, is for these countries to increase their exports to the de- veloped countries, primarily the United States All these policies in the long run will have the effect of narrowing oui trtde surplus instead of increasing it So in this area I come to the conclusion that the $500 million expected improvement in the year 1968 is likely to elude us Coming to tourism, our group does not have a position on the President's recommendations except insofar as will appear in my concluding remarks. I he American community has to share whatever sacrifice we `ire called upon to make We are wholeheartedly for the President's In dustry-Government Task Force on Travel recommendations which appe'tred on February 19 We enthusiastically endorse these because many of these recommendations were made in our book published 2 ye'ii s ago and we are happy that now we are finally moving in the direction of encouraging tourism into the United States PAGENO="0037" 815 However, when you look at the trend of tourism it appears that with the increased personal income levels, the reversal of travel habits of Americans will be difficult. In 1968 the special attraction of Expo 67 will be in part replaced by the Olympics, and the Caribbean and Latin America may become inviting second choices to many travel-bent Americans, and I cer- tainly fail to see the favorable effect upon our balance of payments of travel to the south since many of the dollars that are earned by other countries in the south will be free dollars and they will be free to spend them anywhere in the world they wish. Therefore, the target of a $500 million saving in this area in 1968 is somewhat optimistic. Travel abroad by U.S. businessmen is essential to the expansion, even the maintenance, of earnings of foreign exchange by private business. If the Government wants business to expand exports, par- ticularly without direct investments, it m~st tolerate a great deal of travel by salesmen, not to mention auditors, accountants, and the like to make sure that the Department of Commerce regulations are complied with. Any tax on foreign travel should not put a further onerous burden on businessmen engaged in such necessary activity. The tax imposed on expenditures abroad should apply only to direct outflows from U.S. sources and not to expenditures in local currency or services provided by foreign affiliates which do not cause an expenditure of U.S. dollars. I must also say that the same should apply, for instance, to a stu- dent who finds a job abroad for a couple of months and spends some local money. I don't see that his income obtained abroad from such a job should be subject to a tax. Now we come to the Government account, a most important one. It was pointed out earlier that the Government's expenditures abroad have risen from $7.5 billion to $8.5 billion in the early 1960's to over $11 billion in 1967, and that $4.7 billion of the latter went unrequited by any offset arrangements. The President proposes to save $500 million in this account by reduction of civilian personnel and expenses-$100 million-by re- ducing the balance-of-payments impact of foreign aid-$100 mil- lion-and by sale of long-term Treasury bonds to offset military ex- penses-$300 million. Is this adequate under the circumstances? I must say in all fairness that the administration has taken many actions, at the behest of the Treasury Department, to reduce the ui- cidence of foreign aid on the balance of payments. The proportion of tied aid has increased. The "substitution effect" of foreign aid on commercial sales has come under scrutiny and machinery has been set up to insure additionality of sales. Reluctantly the international institutions have come to accept the imperative of using U.S.-con- tracted dollar resources for procurement in the United States. The Inter-American Development Bank and the Asian Develop- ment Bank have accepted this principle. It is reported that the new financing proposed by the International Development Association will yield on this point after considerable argument. These are all measures that our organization has advocated. PAGENO="0038" 816 The logic of events has forced their acceptance, and much credit goes to the Treasury Department. Without these changes in the way aid funds are spent, the payments deficits, in view of escalation of other foreign coste, would have been so much higher than the national credit might have been in jeopardy this very moment. Our military expenditures in Western Europe are mostly in the context of the NATO common defense commitments, about half- between $700 and $800 million-in West Germany. The Depart- ment of Defense also has undertaken many activities in Western Europe to reduce these foreigii exchange costs in amount. The principal ones have been: First, offset procurement of defense equipment by Germany, and more recently when Germany declined to continue these offset military purchases of hardware, in the form of the purchase of $500 million in U.S. medium-term securities in fiscal 1968. An attempt is now being made to continue these arrange- ments to offset or minimize these military expenditures as a immediate claim on gold. The sale of Treasury securities to the German Government, which may in the future still be converted into gold, is not an adequate or wise means of meeting the costs of stationing U.S. troops in Western Europe. It is not an offset against these expenditures, but is simply mortgaging the future and it does not directly ease our balance-of- payments deficits and the claim on gold. It seems to us that our Western European presence, within the context of the NATO alliance, is part of a collective security ar- rangement and, therefore, the cost must be shared in such a way as to eliminate the impact on the U.S. balance of payments. The United States contributes to this collective security not only its troops in Europe, but also the total military capability of the United States as expressed in our total military budget. Generally, this country is allocating 10 to 12 percent of its gross national product for defense, as compared with 5 or 6 percent in most Western European countries. The assumption of the foreign exchange cost of our troop presence in Germany and other NATO countries, equitably divided, would add but a fraction to their mili- tary budget. The problems tha't have been raised `are political, rather than the capacity to pay. The objections from European countries have been the tax burden, the limits on their military budget, and the public relations `aspects of paying for the presence of U.S. troops in their midst. These objections may be overcome if the NATO alliance could de- veióp either of two alternative approaches: First, procurement `of goods and services in the United States in the equivalents of our mili- tary expenditures, making sure that such procurement will be in ad- dition to their normal purchases in the United States; or `a lend-lease concept of paying military costs within the NATO alliance where each country would contribute the local national costs of troop pres- ence. The situation in Asia, particularly the larger part of the costs relat- ing to Vietnam, differ from those in Europe. The economic base of the ~ountries involved could not afford to support the activities which we have undertaken. PAGENO="0039" 817 On the other `hand, most of those countries are dollar-deficit coun- tries and they are in need of growing amounts of imports from the United States Hence, it should be possible to make specific arrange ments with countries like Japan, the Philippines, Republic of China, Thailand, and South Korea to increase their procurement in the United States on a current basis with the accretion of dollar reserves due to military expenditures. This would rec[uire payment in blpcked dollars in American banks acceptable for U.S. ~rocurement upon specific administrative arrange- ments, assuring `additionality of imports from the United States over a base period. Defense-support grants to South Vietnam amounted to $587 mil- lion in 1966. Many congressional studies `have shown that this is a major source of dollar drain. it would seem to me that `the ~olicy of giving import assistance in order to fight inflation due to military ex penditures is a bottomless pit and in a wartime economy it should be possible to arrange a more effective way of introducing consumer goods without just pouring them in, with rather unhappy speculative profit making effects. The Government account is the major area in which `fundamental corrective action must be taken. We must reduce the foreign exchange costs of the Government to a level which can `be met by the foreign exchange earnings of the private sector Failure to move in this area will mean continuing deficits and permanent, probably. more stringent, restrictions on the private sector. In conclusion, Mr. Chairman, there are certain lessons to be drawn from this analysis. T'he first is that it is not possible to run a war economy internationally any more than domestically on a business as usual basis Internally, as well as externally, we must make sacrifices The only thing we can hope for is that the sacrifices are e~ enly and fairly distributed. In `the case of international deficits, I do not believe t'he sacrifices have been evenly distributed Ever since the foreign income tax pro posals of 1961, through the Interest Equalization Tax, voluntary restraint programs, and to the present mandatory programs, `the pri- vate lender and investor has been singled out as a special sacrificial offering. This is not only unfair, but is contrary to the long range national interest We are willing to penalize the prudent investor, who will bring back over the years several times the money sent out, in favor of the consumption expenditures both in the Government and the pri ~ ate account, and this is done on the theory that the deficits are temporary As late as January 14 I heard Mr Walter Heller on "Meet the Press" say that he approved of these measures to meet a temporary situation Well, we have had balance of payments deficits since 1950 When, d'oes `it become permanent instead of temporary under the'se conditions? In terms of equity I fail to see the opprobium visited upon a corn pany or a bank, entrusted with the savings of millions of people, whose funds may be invested abroad to earn a dollar for his company and his country Why single them out, in contrast to those, both in public and private life, who spend larger amounts on nonremunerative and `nonrecoverable expenditures. PAGENO="0040" 818 A second lesson is that a wartime economy cannot opei ate within the framework of unlimited freedom It is the irony of the present situa tion that `world communism and our deteimin'~tion to resist it in the name of preserving freedom and independence of other nations is forcing the United States into a controlled economy with serious cur tailment of traditional personal freedoms Our NATO allies, as well as Japan, should recognize that l'tck of cooper'ttion on their part, throwing the whole burden of sacrifice on the American public, may lead this Nation into a revulsion and inward withdrawal, which will revive the isolationism of the 1920's and 1930's. They should come forward of their own accord, just `as the United States did in the lend lease progi am of 1941 and the Marshall phn of 1948, and offer to consider the equitable distribution of our bur dens in budgetary and foreign exchange terms I can think of nothing that would enhance the honor and assure the future security of France, for extmple, than a noble gesture in this direction The altern~tive, either foi ced unihtei ally by the United States, or resulting from the inexorable course of events, may well be `complete collapse of the Western Alliance, with incalculable con- sequences for Europe's security and soci'tl `md economic structure Failing a cooperative solution with our allies, Mr Chairm'mn, oui next course demands a reassessment of priorities in our externil corn mitments. The private sector will not be able to finance these Govern- ment outlays at the present scale or escalating scale. The American public is not likely to tolerate a gil rison state existence in the n'mrne of freedom and prosperity for far distant peoples. This country will be forced to reconsider its moral and politicil obligations in `the light of the avail'mble capabilities This will happen either as a dehbeiate and thoughtful process, om it will h'mppen helter skelter by the dictates of foreign creditors and hoarders of gol:d in a crisis atmosphere. When `this may occur no one can say. It may be 5 years, it may be longer, depending on `the scale of our Operations abroad and the rate of withdrawal of gold. Mi Chairman, this is the cost of the cold `mnd no~ the hot war in our international accounts, not counting other psychological and polit ical factors. If I were sitting in Moscow and figuring out what I could do to weaken the United States, without going to war with it by direct confrontation, it is a fair guess that I would plot ways of diminishing U S power abro'md by increasing its expenditures and diminishing its earning power from trade and investments. If you look aroun'd `the world I think you will find t'hat this is exactly what `they are doing. While our attention is naturally focused on the human suffering in Asia, we m'iy find some day that the issue of oui freedom m~ ill be determined in this `imea of economic policy Your committee has a very heavy responsibility indeed Thank you very much. Mr HERL0Nc Thank you very much, Mr Daniehan, for your state ment Are there questions ~ Mr Schneebeh `will inquire Mr. SCHNEEBELI. Mr. Danielian, up to `this `point you have given us the most comprehensive and capable statement that this committee has received, I believe, on this subject. I want to congratulate you on your book that you sent to all `the members. It is excellent and it, is one of the primary references we use in connection with the balance- PAGENO="0041" 819 of-payments problem. It is a very learned book. I think the Treasury Department would be well advised to consider hiring you as an ad- viser or consultant for this field. Because of your background and some of your recommendations I think they would come up with a much better program than they did bring before us, if they followed some of your ideas. I concur in much of what you say. Specifically on pages 14 and 15,. at the bottom of page 14, you say: The President, in his proposals, indicated that he would seek changes by our European friends or recommend legislation to impose a similar system in the United States. You are referring to lifting the indirect or border tax, et cetera, that is, the indirect tax in Europe. Mr. DANIELIAN. Yes. Mr. SCHNEEBELI. This discriminatory provision should be elimin- ated or our exporters should be given fully compensatory trade treatment. Are you recommending that either we have an export incentive in the reduction of some of our taxes on exports, or that we have some sort of a tax on imports to help achieve this more favorable balance of trade? This was first suggested by the President in January but not followed up by Ambassador Roth when, he appeared before our com- mittee, and I am interested in your approach to this problem. What do you think might be the best answer to this problem, the one of our declining exports. Mr. DANIELTAN. Mr. Congressman, I want to reply to this in all candor. WTe have always recommended export incentives in the way of tax concessions. We have recommended, for instance, a more equitable interpretation of rule 482 in the allocaton of costs, in the Internal Revenue regulations, between domestic and foreign operations of a company. We have recommended export tax incentives. We would like to see tIme creation of an export trade corporation with a special tax treat- ment, including a lower income tax rate as applied to an export trade corporation such as we do in the `Western Hemisphere Corporation. Mr. SCHNEEBELT. Specifically how would this work? Let's say Cater- pillar Tractor is going to sell some tractors. In what degree and in what fashion would this work that they would be given a tax incen- tive to do this to increase their exports? Mr. DANIELIAN. Caterpillar Tractor would have an export corpora- tion. They would transfer their exportable products at the water's edge and that corporation would be taxed at a lower rate than 48 or 50 percent. It could be taxed at 30 percent. And then that would give them an incentive to emphasize export sales in their operations. We would prefer this approach rather than a restrictive approach. Mr. SCHNEEBELT. Wouldn't there be reprisals by the foreign coun- tries to equate this deduction? Mr. DANIELTAN. I don't believe so. I think we take the talk of re- prisal a little too seriously. Most of these countries buy the things they ~need from us and only those things that they think are com- petitively priced and so I think that there are very serious limits on this reprisal they talk about. PAGENO="0042" 820 Mr. SCTTNEEBELI. Even the small tax concession that you talk about, let's say, or the large one you talk about, reducing it from 50 to 30 percent, would more than increase our exports to bring in the $500 million surplus the Government is looking for in this balance-of-trade area. Mr. DANIELIAN. I think here we are dealing with motivations. I think that business corporations are going to put more human re- sources and give more attention to an area which promises a greater net return and therefore $200 million that we are going to appropriate, for instance, for studies, and market studies, and so on, if that were made available in the way of tax concessions to a number of companies, I think you would find a great enthusiasm in promoting exports. Mr. SOJINEEBELI. Do you think you would agree that with our large labor-increased costs we are pricing ourselves out of a competitive posi- tion in foreign trade? Isn't this a factor? I didn't notice that you men- tioned this, but isn't this one of the reasons why we have had a declin- ing trade, our costs are going up more than our competitors' costs? Mr. DANIELIAN. There is no question that in many products this is true. In others, however, I am sure that we are just as competitive as any. We can make tires, for instance, here that are cheaper because of long production lines than you can buy anywhere else in the world. We can produce cars similarly, but wherever we have a product in which we are competitive the other side puts up some impediments. Mr. SCIINEEBELI. To what degree has our wage-price spiral been a hinderance to developing larger exports in the past couple of years? Do you have the figures on this? You have figures on a lot of things, but to what degree are we having a difficult time meeting competition due to the recent wage-price spiral? Mr. DANIELJAN. Surprisingly enough, there are no comparitive price studies product by product and country by country. We tried to en- courage the State Department some years ago to put their commercial attach~s to work to get such figures, but we haven't got them. They threw their hands up and said it was too extensive a study. Mr. SCHNEEBELI. Isn't this a rather basic analysis of what our prob- lem would be, the problem of to what degree we are pricing ourselves out of the international market? Mr. DANIELIAN. That is true. I can say in my travels around the world, in South America and other places, and even in Eastern Eu- rope, they have told me they will buy in the United States only those things they cannot buy anywhere else because our prices are 25 percent higher than in other countries. On the other hand, we do have products that are competitive-coal, for instance, and grains. We can produce grains, wheat, for instance, at $1.50 a bushel. The Common Market price is $2.89, but they won't allow us to sell wheat because they have this variable levy, so this does not become only a question of price competitiveness. It is a question of really hard diplomatic sell. Mr. SCHNEEBELI. It seems to me that one of the big motivations of why they buy or don't buy is the price of the item. Mr. DANIELIAN. No; they exclude the things that we can sell to them competitively. Mr. SCHNEEBELI. Hasn't our wage-price differential gone up a lot faster than the Common Market countries in the last 2 or 3 years. PAGENO="0043" 821 Mr. DANIELIAN. Well, that depends on the base you start from. If they start from $1 an hour and they go up by 50 percent that is $1.50 an hour and if you start at $3 an hour and our wages go up by only 10 percent that iS $3 30 You still are at a disadvantage But I think the important thing is to consider productivity per man hour When you travel abroad there are not very many products you. see in the stores that are cheaper than in the. United States, even shirts, or TV sets, and so on. So if they would only allow these things to come in we could really solve this balance of payments problem, but they will not The world is now divided into these trading blocs which are trying to become self sufficient within themselves We are encouraging the organiza tion of these trading blocs because it is good for them, but at the same time when they do organize the principle is to favor those on the in side and to discriminate against those on the outside We must not be surprised if the net result of it is a diminution of U S exports to those countries because they are going to make some of the things them- selves, even if it costs more to do so. Mr. SCHNEBBELI. In encouraging these types of common markets we are depriving ourselves of future markets as well, aren't we Mr DANIELIAN Yes Mr. SCITNEEBELI. Getting back to my original question, you then are in favor of export incentives to try to beef up our balance of trade Mr DANIELIAN Yes On the other side, and I don't want to duck the question, on the side of putting imposts on imports, I would pre fer for our trading partners to be more yielding so that it would not be necessary to do so Mr SCITNEEBELI You would prefer this, but the experience we have had in the last couple of years doesn't seem to indicate it is going that way because what they have done January 1 over in the Common Market is being more discriminatory against our products with their tax program, particularly France And doesn't this whole attitude of a little more protectionism or export incentive militate against the Kennedy round, of what we are trying to accomplish in lowering tariffs ~ Aren't we going in two di- rections at one time here ~ Mr DANIELIAN I think it will shave off that much of the advan tage, yes, of the Kennedy round But the Europeans have done that since the Kennedy round They raised the support price of corn, for instance, by 12 to 15 percent which automatically increased the van able levy and to that extent they favor the corn or feed grains pro duced in Europe as against the outside imported products And they have done this on the tax front, so apparently the Common Market counti ies are not as sensitive to principle as we are in this matter Mr SCHNEEBELI Would you say that we are a little more idealistic in our approach to this problem than the Common Market countries, particularly what has happened over there since January 1 ~ Mr DANIFLIAN We are looking `it the welfare of the world in the long run and I wouldn't discount this as an ideal obiective, but if in the process we are going to put ourselves in the control of shortsighted st'itesmen, as has been exhibited, say, in November and December in the gold speculation, then you sometimes wonder whether we c'in af ford to put ourselves in their control in the name of the longrun ideal. PAGENO="0044" 822 I think we have to be a little tougher in our negotiations. Mr SCHNEEBEJ i Mr Daniehan, in conclusion as far as my remarks are concerned, you have covered so many subjects so well and so com prehensively, and you have backed them up with some excellent facts and figures, I could talk to you all morning but there are other people here who want to ask you further questions. I just want to compliment you on a very fine statement. Mr. DANIELIAN. Thank you. Mr. HERLONG. Mr. Ullman will inquire. Mr. ULLMAN. Mr. Danielian, I concur in congratulating you on a fine statement. Would you mind turning to table 6 in your statement which is your summary by major sectors, and go through these very quickly with me one by one so that I get `i summary of your sug gestion. First, in the export import balance where in 1967 you arrive at a commei cial balance of 0 5 on the plus side, your recommendations in this area would be along the lines you have just mentioned of export subsidies to improve this? Mr. DANIELIAN. Right. Mr. TJLLMAN. Do you see any way of immediately approving this? An export subsidy would take some time, would it not? Mr. DANIELIAN. Oh, I think it will take the concurrence of the Ways and Means Committee and the Finance Committee. Mr ULLMAN But I mean take some time to put it into operation too, would it not ~ It would not be immediately i eflected within `t yeax or two? Mr. DANIELIAN. Well, that is probably true but I think you will find greater attention being paid by business firms in this area. I think it will have a much more galvanizing effect than all the councils that we have been organizing Mr TJLLMAN I happen to `igree with you I think that we should have some export subsidy, but I do also know that this idea is m~t with a great deal of resistance on the part of foreign nations. Mr P iNLELIAN I don't think we should call it `t subsidy The ap proach th'tt ~e have suggested, namely, the organization of an expoit ti `ide corporation with `t f'ivored tax ti eatment, is simil'ir to the `Western Hemispheie Trade Corp, which has been `iccepted by other countries, and I don't think the question of violence to GATT prin- ciples ~s ould be raised in connection ~ ith that It is the sovereign right of this country to tax different citizens at diflerent rates I'Vhere you `ire likely to get total resist'ince I think is in the import levy field 1-lere is a possibility of the pragm'ttic negotiation Why not em ph'isize the export forgiveness of taxes in exchange to, say, not doing `inything on the other side ~ I think this is a possibility I `igree with you and I think I made it clear in my statement that I do not expect the $500 million savings in trade `iccount to be mate rialized this year. Mr. 1IJLLMAN. Yes. I would respond by saying a rose by any other name would smell as sweet and I am afraid that foreign nations would call it a subsidy whether we did or not, but I concur with you that this incentive would assist us to reestablish a stronger position in the world markets and I favor some similar type of approach. Turning to the next item, you spent very little time on tourism and yet we have an outflow of $1.3 billion. Your recommendation in that PAGENO="0045" 823 area is limited to encouragement of foreigners to travel in this nation, is that right? Mr. DANIELIAN. Affirmative position, yes. If in the judgment of the Congress to alleviate the present critical situation in our balance of payments something is done in that area we suggest simplification of the process and certainly a very definite time table to make sure that it is temporary. Mr. TJLLMAN. But even under your recommendation you would then not get any immediate response in the near term, thinking of this coming year. It would be quite limited, would it not? Mr. IDANIELIAN. I think so. I don't think you are going to get $500 million on that. As I indicated, the winter Olympics are over already but then the summer Olympics are going to be in Mexico City. They may not attract as many people as Expo 67 which caused about $350 million extra outflow in 1967, but they will attract a substantial num- ber of people so that that would be in the account and we cannot control where Mexico is going to spend those dollars. Certainly en- couraging travel down to South America is a good foreign aid kind of an approach favoring our friends, but still it will not diminish the dollar flow because they again would be free to spend these funds in Japan or Germany. Mr. TJLLMAN. Even under the administration recommendation that would not be effective. Mr. DANIELIAN. I do not think it would yield as much as $500 mil- lion this year. Mr. ULLMAN. Do I understand then that you are opposed to the various recommendations of the administration? Mr. DANIELIAN. As much as I have studied them I find it hard to conceive how they can be implemented administratively. They are very, very complex and I think that a much more simplified approach is certainly going to be necessary. Mr. ULLMAN. You are not necessarily opposed to some action along the lines recommended by the administration? Mr. DANIELIAN. I have stated that if we have to sacrifice, everyone should be called upon to sacrifice. Mr. ULLMAN. This is the principle we attempt to put into practice whenever we impose taxes on the people. This is the greatest difficulty we have, putting that principle into effect. Mr. DANIELIAN. I realize the difficulties, particularly from the point of view of elected representatives, certainly. Mr. ULLMAN. Turning to the third item, you have an outflow of $300 million in transportation. What are you talking about there? Mr. DANIELIAN. This of course is ocean transportation, air trans- portation, and so on. Mr. TJLLMAN. I thought our outflow was greater than that. Mr. DANIELIAN. This is the total, including cargo shipments, and this is not merely tourism. Mr. ULLMAN. I see, This is the whole package. Mr. DANIELIAN. And I think in part it reflects the 50-percent require- ment under the Foreign Aid Act, you know 50-percent use of American bottoms under the Foreign Aid Act. Mr. TJLLMAN. That is an interesting figure and I am glad to receive it because I thought the outflow was greater there. Under military of PAGENO="0046" 824 course you have a minus $2.3 billion. This in an area where very little can be recommended I guess. Mr. DANJELIAN. I think we make specific recommendations on that, both as to the European deployment as well as the Far East and I do not think the answer is in selling bonds and insisting they keep our troops at the same time. If they need the troops for defense I think they must do one of two things, either pick up the tab on their local currency costs, or they must at the least purchase equivalent goods and services on current account, not just pile up future debts, so that we can pay for these troops as we go along. Mr. TJLLMAN. Thank you. Then on direct investments we have ac- cording to your figures a plus of $1.8 billion. This is because of repatri- ation from investment? Mr. DANIELTAN. Yes. Mr. TJLLMAN. I take it you are opposed to the investment controls of the administration? Mr. DANIELIAN. Well, certainly we don't like them. We do not be- lieve this is going to serve the country in the long run. Without the income on investment you can imagine what our balance of payments deficit would have been. Mr. TJLLMAN. Yes. Mr. DANIELIAN. And we just cannot run this country with all its worldwide commitments without income on exports and investment. Now, on investment income, this is a rather misleading figure ac- tually because experience indicates that about a third of our manu- facturing and industrial exports are investment related. About $6 billion of annual exports go along with the direct investments in Europe and other places, so that our trade account is actually related to our investment activity abroad, so that we estimate about 30 per- cent of our earning capacity abroad, in fact the equivalent of the gov- ernment's net expenditures, about $11 to $12 billion, is earned by direct investment and investment-associated exports. Now, you gradually squeeze that out and you are not going to be able to spend $11 billion on government account, and this is my pri- mary interest, being an economist. Ten years ago I started this organization because I felt that mili- tary power will come to a state of stalemate and that in this area of economic policy the ability of this country to lead the free world is going to be determined and unless we protect our investments abroad and aggressively promote our exports which are related to invest- ments we simply aren't going to be able to keep the troops in Western Europe or to undertake these activities in the farfiung reaches of the Pacific. This is what happened to the British. In spite of the common as- sumption that Great Britain is in the economic doldrums because they are not competitive in international commodity markets, that is not true. The British private international accounts have been in balance or have even yielded a surplus. The difficulty with the British has been that in World War I and World War II they had to liqui- date a great deal of their investments, and of course the dismantling of the colonial system lost them a lot more, and they have increased their government expenditures abroad. Between these two activities, ~he diminution of income on investment and services and increased PAGENO="0047" 825 government expenditures abroad, the British pound has become un- tenable Although we are very strong in the United States the prob lem of transferring resources abroad or buying resources abroad from other people to maintain our power position is not necessarily related to our ability to produce in the TJnited States unless we devise, as I said, a garrison state where we take the goods bodily and take them to Vietnam or to the Philippines, American products, and you don't have to depend upon purchases from other countries This may be done, but I think it is going to be done under mobi lized wartime economy. Mr TJLT MAN Do you agree v~ ith the differentiation between devel oped and underdeveloped countries in the treatment of investment ~ Do you agree that it is desirable policy to encourage investment in the less developed countries? Mr. DANIELIAN. I think we ought to distinguish between the balance- of-payments significance of it and the social or political or economic significance. From a balance-of-payments point of view I do not accept the distinction I think investments in some of these countries are less secure The income is less If I were really looking at the long range interests of the United States I would like these investments at high interest rates in secure, stable countries with convertible currencies For instance, instead of India I would prefer to have investments in Germany. Furthermore dollars spent in those countries don't neces- sarily come back to the TJnited States So here we are mixing a social and political objective ~uth a balance of payments objective which necessarily are not parallel But if we assume that obligation as a nation'il policy I do not find it difficult to live with Mr TJLT MAN You would agree that it would be more desirable to put dollars over on a sound investment basis than it would be on some of the aid programs we have had ~ Mr DANIELTAN Right, no question about it I think that the more we transfer noncompensatory and nonrecoverable expenditures into income-bearing investments, the better we will be. Mr ULLMAN If these dollars of investment were to replace other kinds of dollars, then it would probably be a very desirable objective? Mr. DANIELIAN. Yes. Actually when you look around the world you find that much of the resources that we get out of investment income we turn around and give back to them as foreign aid after having charged taxes on the income. I mean in terms of quantities in the area of $3, $4 billion a year Mr ULLMAN Thank you, Mr Daniehan You have been very help ful. Mr. HERLONG. Mr. Collier will inquire. Mr CoLLIER Dr Daniehan, I want to echo the sentiments of my colleagues here in telling you I think that your book on the U S bal ance of payments is without a doubt the most comprehensive study and evaluation of our critical problem that I have read I recall that in 1964, I believe it was, you were down here testifying on the interest equalization bill You at that time pointed out the direction in which we were traveling with regard to our serious balance of payments problem and made certain recommendations which had they been fol- PAGENO="0048" 826 lowed we probably would not be here even considering this bill today, which is pretty much of a fly-swatter approach to killing a tiger. I would like to get to something that you said earlier that disturbs me. It disturbs me because I see nothing now except optimistic ver- biage with regard to results of the Kennedy round. Pointing out as you did that while salaries in certain industries abroad may have increased percentagewise faster than they have in the United States, the fact still remains that dollarwise since the beginning of the GATT negotiations in basic industries U.S. wages have in- creased faster than they have abroad. You have seen the prime example of steel. If that is going to con- tinue to be the trend, as it appears to be, then what effect are we going to accomplish in the reduction of tariffs on some 60,000 commodities that we negotiated, in attacking the narrowing advantage that we have been able to enjoy in our trade balances? Mr. DANIELIAN. I agree with you that the tendency of labor to de- mand, and often secure, increases in wages beyond that permissable by increased productivity is inflationary, and, of course, this is fur thered by the inflation in the Consumer Price Index due to budgetary deficits and inflation in the United States There is no escape from that, however, in a protectionist approach That merely makes it pos sible for them to keep on favoring themselves by organized negotia- tions. So that we here are really dealing with another problem. I think in the long run the developed countries must gi adually reach ~ level of comparable real income for comparable productivity and often I have thought that if some of the imaginative American labor leaders would undertake that job abroad maybe our problems here would diminish So my own feeling is that tariffs are not necessarily the an swer to the question of preventing wage price spiral or preventing price inflation because of a large budgetary deficit. Mr Cor I IER I wasn't implying, Dr Damehan, that protective tar iffs were the answer. I am merely trying to find out what roads we are traveling, where are we going if we continue to have the situation which works counterclockwise to what we are trying to do by liberal- izing through GATT negotiations our tariffs, or do we merely assume that at some given point this advantage we now enjoy if the trend continues will no longer be an advantage? Mr. DANIELIAN. Presumably the negotiations are reciprocal in their concessions Now, I have not studied the schedules commodity by commodity to be able to report that we have achieved reciprocity in these negotiations. I would have been much happier, for instance, if after the negotia- tions tariffs on American cars in Europe were down to U.S. levels, 61/4 percent instead of 11½ percent I don't consider that reciprocity They cert'unly can absorb more imports in the form of the smaller American cars that `ire comparable to theirs I do not think, for instance, `we achieve reciprocity of any kind in the field of `igriculture, and therefore, I foresee that our tr ide surplus in agriculture is likely to diminish in the future PAGENO="0049" 827 But then these are not questions of principle. They are questions of how clever we are in negotiations. As I said, there are many products in which we are certainly coni- petitive with the best of them, but when you have a product like that you confront some other kind of an impediment to exports. For instance, Japan doesn't permit any American cars to be im- ported, and yet they cry to high heaven that we are not giving them enough opportunity to increase their exports to the United States. So I think it becomes really a question of tough, hard sell, diplomatically, rather than the discriminatory approach to policy. I do think that some of the rules of the road need to be reviewed, such as those in GATT, to see whether they serve our purpose or not. An instrument like GATT was instituted in 1948 primarily to help the ravaged European continent, and it was part and parcel of the Mar- shall plan concept. They needed help so we gave them a lot of con- cessions. Many of the trade negotiations after that gave them tariff concessions in the United States in return for bindings on their part; in other words, a promise not to increase their tariffs, and we lower ours. But that was during a period when the theory was you have to help Europe in order to get them up on their feet. So perhaps we ought to review some of these instrumentalities that were devised for a different period, but you know tradition has a strong hold on our thinking and it is very difficult to review these. This is true of NATO. It is true of troop commitments in West Ger- many. Twenty years after the war we are still looking over the hill with muskets on our shoulder. Is this the right tactical or strategic weapon in the area in the present context of Europe? What I am com- ing to is this: the problem is not merely a question of tariff rates. The question is really one of major economic policy changes brought about by these evolving trade blocs. We have to develop bargaining instru- mentalities that will permit us to get what we need at this times Mr. CoLLIER. Of course you speak about the discriminatory ap- proach. Reviewing somewhat briefly the report issued by the U.S. travel task force to the President, it is punctuated with discrimination, in my opinion, inasmuch as it is going to provide foreign tourists dis- counts of every nature on motels, hotels, travel allowance, that Ameri- can travelers do not enjoy. And in the final analysis, while it seems to me this is good Madison Street window dressing, the fact also re- mains that if there is any loss involved in encouragement through dis- counts by an airline or by any other establishment, it is going to be reflected in tax revenues on profits that normally would go to the Treasury on the one hand, and if not, then certainly the American traveler is going to have to pick up the tab for the discounts extended to foreign travelers by the very nature of the profit motive of a busi- ness operation. This deeply concerns me when we get into the area of discrimination. Mr. DANIELIAN. Well, for a worthy national purpose I guess there are many things we can afford to do and I think that getting European and other nationalities to visit the United States will help us on our balance of payment, and is very important. 89-749-68-pt. 3-4 PAGENO="0050" 828 Mr. COLLIER. While it is a worthy national purpose, I recall just 7 years or so ago the Congress, with no help from me personally passed legislation that waived payments on the British debt in the year 2003 when we were receiving at that time installments of $60 billion from the United Kingdom. This is hardly a way to deal with the balance of payments problem. Mr. DANIELIAN. I certainly agree with you. For instance, coming back to GATT and the preferences they enjoy in the field of taxation, originally this was considered to be a temporary subsidy in the GATT rules and subject to review. In 1960 the French Government requested the American Govern- ment to make this a permanent part of the GATT regulations and we accepted it. This was 1960. We had started running a massive balance-of-payments deficit in 1958 and yet someone in the State Department figured that this was a concession we could afford to make. I think perceptivity into the future is an essential quality of statesmanship. I once made a state- ment here on the Hill back in 1960 suggesting that we have to review our economic policy because we were going through a transitional period, and I said if the Defense Department invented or developed a missile and advertised that it would fly 5,000 miles and then on a test they discovered it would only go 500 miles there would be some red faces. But this is what we do in economic policy. From year to year we advocate policies and make great promises of what they will achieve and then we discover that they won't work. Now, therefore, I say in this area of economic policy we have to de- vote a great deal more thought and discriminating judgment than has been the case in the past several years. Mr. COLLIER. Perhaps that is why, Doctor, economics has never been considered a science, not even on a college campus. I apologize to the committee for taking so long. Mr. HERLONG. Any further questions? Mr. Conable. Mr. CONABLE. Dr. Danielian, lawyers have a tendency to say when they are referring to the opinions of the late Mr. Justice C~rdozo that although he might address himself to one point he usually illuminated the whole subject. Your statement has the same effect. I think it is obvious from the questions you have had here today that you stimulate a very general interest on the part of the committee. I would like to come back to tourism specifically. Do you have any reason to doubt the correctness of the administra- tion's statement that our balance-of-payments deficit in tourism was $2 billion in 1967? I notice the figures you quoted for the first three quarters show a deficit of $1.3 billion, and I assume of course that the big tourist deficit months would fall in the second and third quarters. Mr. DANIELIAN. No; I must say that that figure is just the tourist account. The transportation is not included in that figure and I think the Secretary's figure included on account of tourism not only the ex- penditures abroad but also the transportation. The transportation element in the tourist deficit is about $700 mil- lion, so that if you added that it would come to $2 billion. Mr. CONABLE. I see. You say the target of a $500 million saving in the area of tourism is somewhat optimistic. Is that because you ques- PAGENO="0051" 829 tion the enforcibility of the proposals that have been made, or is it sim- ply that you don't think the people will change their habits, as you say somewhere else in your statement ~ Mr. DANIELIAN. First, we are already at the end of the second month and I doubt very much that Congress is going to act on this expedi- tiously and that, second, the administrative machinery is going to be quite a problem to set up, and, third, I don't think that the urge to travel is going to be so radically curbed that they are going to be able to save that much. You see, the saving is generally expected from the expenditures abroad, and that~is almost half of our total expenditures in Europe. Our total expenditures in Europe are about $900 million, and so un less you have buy American in tourism and insist they travel on Amen can carriers it is going to be very difficult to save that much. Mr. CONABLE. You seem to be suggesting an exemption for busi- nessmen traveling abroad and possibly for students Mr. DANIELIAN. No. Mr. CONABLE. At least that is the implication of the statement. Mr. DANIELIAN. If you read it carefully I say expenditures in local currencies or services which do not involve dollar outlays should not be taxed. Mr CONABLE What about the American citizen who owns assets abroad and expends some of them abroad? Mr D ~NIELIAN Well, unless you have a companion rule that he must bring his assets home I on't see what effect it will have on the balance of payments, how he spends it. Mr. CONABLE. This sort of problem is going to create a very serious problem of enforcement. Mr DANIELIAN Is your objective really saving dollars, or is it- Mr CONABLE Is it imposing sacrifice ~ Yes, that is the question Do you feel that such a tax is likely to be an enforceable tax ~ Mr. DANIELIAN. I have no experience in the administration of tax laws I must say that it is a frightening prospect to turn your pockets inside out, on the way out and also on the way in Mr CONABLE Regardless of the impact on balance of payments Mr. DANIELIAN. Yes. Mr. CONABLE. Thank you. Mr. HERLONG. Any further questions? Dr. Danielian, in your very fine statement you state on page 7 that there are other serious shortcomings in the mandatory regulations on direct investments issued by the Department of Commerce and that you have made several specific recommendations for improvement to the Department of Commerce. I wondered if you would state those recommendations to us for our record here. Mr. DANIELIAN. I would be glad to submit them for the record. Mr HERLONG Would you please do that Mr. DANIELIAN. Yes, sir. They are under consideration by the De- partment of Commerce and we are hopefully waiting for a conference PAGENO="0052" 830 to see what part of these they will be able to accept, but I think they are of general interest and may be helpful to the committee. Mr TIERLONG Without objection they will appear at this point in the record. (The information referred to follows:) INEQUITIES AND AMBIQuITIES IN THE DEPARTMENT OF COMMERCE REGULATIONS OF DIRECT INVESTMENTS AND RECOMMENDED CORRECTIVE ACTIONS I. REPATRIATION OF DIRECT INVESTMENT EARNINGS-SECTION 1,000,202 This regulation requires the annual repatriation by, a direct investor of cur- rent earnings from affiliated foreign nationals. The amount to be repatriated is either the amount by which current earnings exceed authorized reinvestment or the average percentage at which funds were repatriated in 1964-66 wbichevei is the higher. QUESTIONS POSED CORRECTIONS PROPOSED A. At no place in the regulations are A. Amend the regulations to define current earnings defined. The only defi- earnings from an affiliated foreign na- nition of earnings in the regulations is tional as being after deduction of pay- the definition of reinvested earnings in ment described in Questions Posed or Section 1000.313, which is "the earnings in conformity with normal U.S. account- of an affiliated foreign national avail ing practices in determining earnings able at any time for distribution and not available for distribution. so distributed In no event should earnings be con Under the circumstances it is not clear sidered liable to repatriation if circum whether the requirement for repatria stances beyond the control of the direct tion applies to earnings calculated after investor makes them unavailable for (1) payment of losses incurred in prior repatriation. Under no circumstances years, (2) payment of preferred* stock should the mandatory repatriation re- dividends, (3) repayment of loans or quirement in any year be more than 100 compliance with dividend restrictions in percent of the earnings of foreign af- loan agreements, and (4) offset of losses fihiates in any one country. of a second tier subsidiary against pro Pi ovision should be made that re fits of a first tier subsidiary. patriation will be in accordance with No consideration is given to the legal the rate of exchange at the time of re- requirements in other countries con- patriation in the event that there has cerning calculation of earnings or au- been a devaluation of the currency in thorization of dividends Some countries which eainings were reported between only authorize distribution of dividends the time of~ calculation of earnings and based on the prior year's earnings, the time of repatriation. No consideration is given to the pos- sibility of devaluation of currencies be- tween the time that earnings are cal- culated and repatriation is made. B. The regulations require a corn- B. Amend the regulations to provide pany which, as a good citizen, exceeded that repatriation under each schedule the voluntary program target in 1964, will meet the requirements if it amounts 1965, and 1966 to repatriate at a higher to a percentage ten percent greater than level than a company which had been the avelage percentage repatriation in less cooperative. This is inequitable, the base period. A mature company which had no cap- Where a company can demonstrate ital outflows from the United States and that the base period is inequitable it repatriated earnings from its foreign should be given the option of calculat affiliates at a high level during the base ing the base for repatriation on a peiiod period will be required tO repatriate at for. example 1961-1966, which would a very high level particularly from eliminate the inequity Schedule C countries. This could be so high as to be akin to liquidation. (See Table I below.) PAGENO="0053" QUESTIONS POSED 831 TABLE I-COMPARISON REPATRIATION LEVELS IN SCHEDULE C COUNTRIES FOR COMPANIES WITH HIGH AND LOW LEVELS OF REiNVESTED EARNINGS IN BASE PERIOD CORRECTION S PIIOPOSEI) Company A Company B Earnings, base period (1965-66) Average repatriation, base period Reinvested earnings, base period Target for reinvestment_ - - Earnings, current year Reinvestment allowed, currentyear Repatriation required, current year 1.0 . 6(60%) .4 . 35(35%) 1. 0 . 4 .86(86%) 1.0 1.0 . 35(35%) 1. 0 .35 .65(65%) The base prescribed for computing average past repatriation is 1964, 1965, and 1966. Two of these years were cov- ered by the Voluntary Restraint Pro- gram, under which many companies had made unusual efforts to increase re- patriations. Moreover, a three-year pe- riod may be short for some companies, since in any one or two years unusual repatriations from foreign affiliates may have been made, even in excess of a given year's income. C. A direct investor is defined in Sec- tion 1000.304 as any person within the United States who owns or acquires an interest of more than ten percent in an affiliated foreign national. The follow- ing circumstances may make it impos- sible for a company to comply: 1. An American company has a mi- nority interest in an affiliated foreign national, but in excess of ten percent. The controlling interest in the foreign enterprise refuses to distribute earnings at the level required by Section 1000.302 of the regulations. 2. An American company has control of an affiliated foreign national but the laws of the foreign country where it is located protect minority shareholders. Despite its control the American com- pany would be in violation of the ap- plicable foreign law if it distributed earnings at the level required. 3. A. foreign government establishes regulations which make it impossible for the American investor to repatriate at the level required by the regulations. P. Some direct investors have hold- irogs in excess of ten percent in holding companies abroad which derive their profits from countries in more than one Schedule. The regulations do not make C. Amend the regulations to provide an exception where a company is un- able to comply because of lack of con- trolling interest in the foreign affiliate or because foreign law makes it impos- sible. P. Special provision should be made in the regulations for holding com- panies abroad, in which a U.S. direct investor has more than a ten percent interest, which derive their income PAGENO="0054" QUESTIONS POSED 832 it clear whether the repatriation of earnings is to be calculated on the basis of the residence of the holding company or according to the source of the in- come. Furthermore, some question is raised whether a holding company in a Schedule C country could, under the regulations, have earnings or loan re- payments transferred to it from a Schedule A or B country, or whether a holding company in a Schedule B coun- try could have earnings or loan repay- ments transferred to it from a Schedule A country. This lack of clarity will im- pede compliance as well as the business operations of such holding companies. CORRECTIONS PROPOSED from countries in more than one Sched- ule. They should be subject to repatria- tion according to the rules applying to the country which is the source of the income and not simply on the basis of the residence of the holding company, on a flexible basis, preferably prorated on the basis of income rather than assets. Such holding companies if lo- cated in a Schedule C country should be authorized to transfer earnings and loan repayments from Schedule A and B countries, or if located in a Schedule B country should be authorized to trans- fer earnings and loan repayments from Schedule A countries. II. LIQUID FOREIGN BALANCES OF DIRECT INVESTORS-SECTION 1000.203 This section requires each direct investor on or before June 30, 1968 to reduce his bank deposits and other short-term financial assets in all foreign countries to an amount not in excess of the average end-of-month amounts of the same so held during 1965 and 1966. He is required to transfer the excess to a dollar account in a U.S. domestic bank. He is further required to take similar action at the end of each succeeding month. This section makes no distinction between funds resulting from current earn- ings, past earnings, foreign borrowings, depreciation or sinking funds. QUESTIONS POSED CORRECTIONS PROPOSED A. If a U.S. company borrows abroad at long term in advance of the need for funds to cover investment plans abroad and deposits such funds in banks or in- vests them in short-term financial assets abroad, they would have to be repatri- ated if, after June 30, 1968, they ex- ceeded the amounts so held in 1965 and 1966. Having been repatriated to a dol- lar account in the United States they could not be used outside of the limits fixed since any slibsequent use would constitute a dollar overflow. Repatria- tion and investment of these funds in the United States might put the foreign affiliate in a position where it failed to meet the requirement that 80 percent of its revenues accrue from foreign sources to qualify it for foreign source income tax treatment. Furthermore, funds so repatriated from corporations set up for the purpose of borrowing funds abroad for investment abroad could in many cases not be invested freely in the United States because of regulations of the Securities and Exchange Commis- sion governing such borrowing. This is inequitable because long-term foreign borrowings are not counted within the limits fixed for investments abroad in Section 1000.504. A. Amend Section 1000.203 in such a fashion that it will not be applicable to funds arising from long-term bor- rowings abroad to finance Investment abroad. PAGENO="0055" QUESTIONS POSED B. The press release concerning the regulations on foreign direct investment issued on January 2, 1968 states on page 4, "J?unds made available by de- preciation abroad are also not counted (against a direct investor's target-ed.) or required to be repatriated." Nothing is said in the regulations themselves specifically about depreciation or sink- ing funds. However, if a U.S. company had a wholly-owned affiliate abroad and that affiliate had funds, accruing under its depreciation account or from sink- ing funds, deposited in bank accounts or invested in short-term assets, Section 1000.203 might be interpreted as rèquir- ing repatriation of those balances to the extent that they exceed amounts held in 1965 and 1966. This arises from the fact that this section applies to liquid assets held by or for the accoi~nt or for the benefit of a direct investor. C. A number of American companies, in full compliance with the Voluntary Restraint Program, had, prior to De- cember 31, 1967, legally committed themselves to programs requiring con- tinued investment or had signed con- tracts so committing them. Still others had undertaken investment programs which can only be brought to fruition if further investments are made this year and in following years. Inability to ful- fill these planned investment programs will mean that such companies must violate contracts, contravene the law, or lose the value of investments already made. QUESTIONS POSED A. The provisions of the regulations create a serious problem for a company which had no base in 1965 and 1966. A small company considering a medium- size investment in a less developed country may well be put off completely by the need for long drawn out negotia- tions with the Commerce Departnient to secure an exception. Since it is our national policy to encourage the devel- opment of less developed countries, this seems unwise. The $100,000 worldwide exemption as applied to LDC's is not adequate. CORRECTIONS PROPOSED C. The regulations should be amend- ed so that where a direct investor is legally committed, contractually bound, or in the course of completion of a planned investment program, where in- ability to complete it would mean sub- stantial and irrevocable loss of existing investment, he is exempted from the provisions of Section 1000.504 insofar as the completion of such investments is concerned. 833 B. Amend section 1000.203 in such a fashion that it will not be applicable to sinking funds or to funds arising from depreciation accounts. III TRANSFE1IS OF CAPITAL-SECTION 1000 ~O4 This section fixes the extent to which direct investors may make new direct investments abroad. Direct investments are defined in Section 1000.306 as a transfer of capital or the share of a direct investor in reinvested earnings of an affiliated foreign national CORRECTIONS PROPOSED A. Amend Section 1000.503 by adding a new paragraph as follows: "During any year direct investment by any di- rect investor in Schedule A countries, not exceeding in the aggregate $5 mil- lion, is hereby authorized." PAGENO="0056" QUESTIONS POSED CORRECTIONS PROPOSED B. The practice of direct investors in lending funds to affiliated foreign na- tionals differs. Some companies use open advances or loans with no stated maturities. Others provide loans under written loan agreements with fixed maturity dates. It is not clear whether an amendment to such a loan agreement extending the maturity date of the loan constitutes a new transfer of capital under the regulations. Should this be the case it would be discriminatory toward the company which follows a formal practice of loans. B. Either through interpretive state- inent or amendment to the regulations it should be made clear that extension of the maturity date of loans from a direct investor to an affiliated foreign national does not constitute a new transfer of capital so long as the amount is not increased. iv. CURRENT TRANSACTIONS INVOLVING GOODS AND SERVICES The Summary of the regulations on foreign direct investment, issued by the Commerce Department on January 2, 1968 states, "The regulations do not place limitations on (1) current transactions involving goods or services This mat ter is not treated directly in the Foreign Direct Investment Regulations which speak rather of direct investments comprising transfers of capital or reinvested earnings. CORRECTIONS PROPOSED QUESTIONS POSED A. I)oes this exclude from the regula- Al. By interpretive memorandum or tions the following transactions of the amendment to the regulations exempt direct investor: increases in a debt of a foreign affiliate 1. Shipments of merchandise to affihi- to a direct investor as a result of the ated companies on credit? furnishing of services, payment of roy- 2. Reimbursement of the expenses of alties or other current transactions overseas research facilities? where payment terms are less, than 180 3. Equipment exports to a foreign days. affiliate on extended terms or against A.2. By interpretive memorandum or medium-term, interest-bearing loans? amendment to the regulations exempt (Section 1000.312 (d) defines a net in- reimbursement of the expenses of over- crease in loans or advances upon open seas research facilities. account to an affiliated foreign national A.3. and 4. By interpretive memoran- as a transfer of capital.) dum or amendment to the regulations 4. Equipment exports to a foreign exempt from the regulations equipment affiliate financed by an Ex-lin Bank loan exports by a direct investor to a foreign to the U.S. parent? affiliate on extended term or medium- (If transactions described in 3 and term loans or Ex-lmn Bank loans to the 4 are not excluded it would be inequita- direct investor. ble because similar transactions with A.5. and 6. Amend the regulations to third parties abroad would be con- provide an exception for a direct inves- sPhered a desirable support of the drive tor acquiring an interest in a foreign to increase exports, e.g. B707 loans to affiliate in exchange for the provision of Au l~ rance ) e lmpment material or servl( es u hei e 5. Exports of goods, material or it can be shown that the investment in equipment in exchange for an equity question would not otherwise be made. interest? 6. Exchange of stock in a foreign affiliate for services, e.g. accrual of tech- nical assistance royalties in local cur- rency under specific arrangements to apply them as partial payment for a committed investment? V. APPEALS The Foreign Direct Investment Regulations give the Secretary of Commerce broad jurisdiction to determine distribution of income for purposes of repatria- tion, to exclude persons from the authorizations or exemptions or privileges con- ferred in the regulations, and to grant specific authorizations and exemptions from the regulations. No provision is made for formal hearings Or appeals. 834 PAGENO="0057" 835 QUESTIONS POSED CORRECTIONS PROPOSED A. The regulations provide the Secre- A. Amend the regulations to provide tary of Commerce with very broad for formal bearings and appeals within powers to determine whether and to the Department and the right to appeal what extent a company may invest Department decisions to the courts. abroad. Should a company violate the regulations or orders issued by him under these regulations, it is liable to severe criminal penalties. In these cir- cumstances the failure to provide for- mal hearings and appeals procedure within the Department and a procedure for appeals to the courts from Depart- mental decisions places interested com- panies at a serious disadvantage. Mr. JiERLONG. I would like your comm~nt on. the question that if your recommendations are adopted by the Department of Commerce will they, in your opinion, in any way diminish the balance-of-pay. ments savings anticipated from the program? Mr. DANIELIAN. No, we don't believe they will have any effect on the amount of recovery of dollars. I think that they will really simplify the administration of it. For instance, there is no definition of earnings anywhere in the regu- lations. Do they mean by earnings after payment of losses incurred in prior years, carryover, carryback, payment of preferred stock divi- dends, or before or after repayment of loans or compliance with di- videndrestrictions in local countries. There is just no definition, aiid a businessman is just not able to coin- ply with regulations that are so indefinite. There is no consideration being given to legal requirements of other countries concerning cal- culation of earnings. In many countries, for instance, there are dividend payments this year on earnings last year, and yet the regulations require you to com- ply on a current basis. How can you? For instance, regulations discriminate against companies that faith- fully complied during the voluntary period of 1965-66 and they re- patriated a lot of their earnings. Now they are frozen into a limited straitjacket and it may in fact jeopardize their equity position. They may not be able to borrow money from even local sources because they are forced to repatriate an inordinate proportion of their earnings. Any owner of 10 percent or more of stock is required, under penalty of $10,000 fine and 10 years in jail, to repatriate earnings. How can they expect a company that only controls 10 percent of stock in a -for- eign subsidiary to be able to tell the company: "Please, give me some of my earnings. Otherwise I am going to jail." So there are many, wany aspects of these regulations that need to be clarified. The business community is very cooperative and so is the Department of Commerce and we are hoping that these problems will be cleared up. Mr. HERLONG. Thank you very much. If there are no qu~stions we appreciate your contribution and the great help you have been to the committee. Mr. DANIELIAN. Thank you. Mr. HERLONG. The next witness is Dr. Peter Kenen. Dr. Kenen, fOr the purpose of the record would you please identify yourself and whom you represent and then proceed in your own way. PAGENO="0058" 836 STATEMENT OF DR. PETER IçENEN, AMERICANS FOR DEMOCRATIC ACTION Dr. KENEN. My name is Peter B. Kenen. I am chairman of the De- partment of Economics, Columbia University. I appear representing Americans for Democratic Action, whose national office is located at 1223 Connecticut Avenue, NW., Washington, D.C. Although ADA and myself are in general agreement concerning the matter stated, not everything included in my testimony should necessarily be construed as ADA policy. THE BALANCE-OF-PAYMENTS PROBLEM Mr. Chairman, the travel tax proposals under review today are part of the President's program to solve our balance-of-payments problem. Under present monetary arrangements that problem is and must be a matter of urgent national concern. The United States has run a large payments deficit since 1958, add- ing to its foreign liabilities and drastically reducing its own gold stock. For a time from 1962 through 1964, there was reason to claim progress toward an equilibrium in our international accounts. From the start of our involvement in Vietnam, however, our payments def- icit has worsened, until, in 1967, it passed $3 billion and gave rise to a $1.2 billion reduction in U.S. gold holdings. The war* in Vietnam must take the blame for much of this recent deterioration. It is directly responsible insofar as it has caused~ an in- crease in our overseas military spending; it is indirectly responsible insofar as it has strained the American economy, producing inflation- ary pressures that add to our imports and slow the growth of our exports. To move from diagnosis to prescription, however, our discussion of proposals for taxes on travel must proceed on the unhappy assumption that the war will continue. We must also proceed on the premise with which I began. The United States cannot continue to run uncon- trolled deficits in its international balance of payments. The enormous gold drain that followed devaluation of the pound is apt to resume and accelerate if the United States does not demonstrate firm control over its international accounts. The temptation to speculate on a rise in the present price of gold will become irresistible if our own gold stock continues to decline. Equally important, we cannot expect early ap- proval or activation of the important international monetary plan worked out last fall at Rio de .Janeiro-the plan to create special draw- ing rights and supplement world reserves-until our payments deficit is brought under control. THE RIGHT TO TAX TRAVEL TJnder these circumstances, our Government has been compelled to ask that all of us do all we can to cut back our overseas spending and to augment our overseas earnings. No one can ask that his own activities be uniquely privileged. If restrictions or taxes on travel will help to end the payments problem, the administration has the right and obligation to ask that the Congress consider them. We ap- PAGENO="0059" 837 pear today, however, to argue that the particular tax measures pro- posed by the administration are poorly conceived and ought to be revised. THE TICKET TAX We have no strong objection to a permanent 5 percent tax on inter national air fares and a temporary tax on steamship tickets Tire ab sence of such a tax at present is a perverse incentive, favoring foreign travel over domestic travel But there is one defect in the current plan. The administration proposes to exempt from tax that part of the total fare which pays for transportation between points outside the Western Hemisphere. It seeks to avoid double taxation, as that same portion of the fare would be subject to the expenditure tax (levied at 5 percent). In our view, this same portion of the fare should be tax exempt whether or not subject to an expenditure tax A traveler wishing to avoid payment of the ticket tax on travel be- tween foreign cities could do so by purchasing a portion of his ticket outside the United States, and would not even have to sacrifice his round-trip discount. What is to prevent him from buying a ticket from New York to London, Paris, and New York, then, on arrival in London, renegotiating his ticket to include Vienna and Rome ~ A tax which invites complex transactions of this kind encourages a wasteful diversion of energy and imagination. We believe, moreover, that the ticket tax exemption should be granted regardless of the length of stay in a foreign city, not merely for stopovers exceeding 12 hours We cannot conceive of any reliable way to ascertain the length of stay at any point abroad. Taxes should be based on reliable verifiable infOrmation-a point to which we shall return later in our statement THE TOURIST EXEMPTION AND CHANGES IN DUTIES We fully support elimination of the much-abused tariff exemption for gift parcels valued under $10, and do not oppose the reduction of the duty free allowance from $100 to $10 We are concerned, however, `about the budgetary cost of enforcing these two changes The Treasury concedes that many dutiable parcels have entered tariff free bec'ruse it did not have the men required to process them It also concedes that the workload will gi ow when the gift parcel exemption is ended We urge a close look at this problem; fairness requires an equality of treatment for packages as well as people Additional men will also be needed at our major ports, as many more travelers will have to pay taxes on dutiable merchandise We do not really believe that the administration seeks to deter foreign travel by doubling the length of the lines at Kennedy Airport. We do object to the third proposed change in the treatment of mer- chandise brought back by travelers The Treasury asks for a flat 25 percent tariff on the first $500 worth of dutiable merchandise (valued at wholesale cost), arguing that this flat rate approximates the aver age rate of duty which would be collected on merchandise affected by this pi ovision Your committee should require extensive statistical support for this contention The substitution of a flat 25 percent duty will raise the U.S. tariff on a large number of items, contravening the PAGENO="0060" 838 spirit, if not the letter, of the General Agreement on Tariffs and Trade (GATT) It must therefoie be shown to ieduce the tariff on a significant number of other items. What is more important, the true change in duty proposed by the administration is a large, unambiguous incre'ise, not an averaging `iround present rates While concerned to `ivoid `my double taxation of airline tickets, the Treasury shows no such concern for the tr ivelei 5' merchandise imports Under its proposal dutiable merchandise would be t'ix'tble at 2~ percent and, as travelers' expenditure, `it an additionil 30 pei cent if brought back by someone whose tot'il expenditure exceeded $15 per day. Other countries are apt to look askance at this compounding of duties coming as it does so near to the end of the recent Kennedy Round. We oppose the expenditure tax itself. I will come to that in a moment. At this point, however, we wish only to `isk th~t the Congress exempt dutiable goods from that expenditure tax if it enicts th'tt particular tax. Before turning to the expenditure tax, we want to offer an answer to any charge that the fiat rate of duty, at 25 percent, involves an in- crease in American tariffs. A returning traveler should he given a clear, simple choice: to pay the fiat 25-percent tax on the first $500 of dutiable merchandise-which tax, incidentally, would be simpler to administer were it levied on retail value, known to the traveler-or to opt for a detailed computation of the `ipphcable tariff, using the usual rates and valuation methods. He must, of course, make his choice before he comes to customs: he could not ask for an itemized tariff calculation, then elect the fiat 25-percent rate. His choice could be expressed, most simply, by checking. the appropriate box on his cus- toms declaration. THE EXPENDITURE TAX The `idmimsti `ition p1 oposes a gradwited tax on all tr't~ el spend ing outside the Western Hemisphere It iehies on this part of its plo gi'irn for most of the reduction in tot'tl ti'ivel spending at which its piogr~m aims The expenditure tax pioposed by the freisury, how ever, violates a basic rule of tax policy, that taxes should be collect- able, and threatens to undermine taxpayers' respect for the whole of the Federal tax system. No one likes to pay taxes. But most of us pay our Federal income tax with `i minimum of grumbling, `ind moie import'inthy, `~ mini mum of cheating, because we are convinced that our neighbors are p'tying their fair sh'ue We know, moieover that fl'igr'int cbs honesty in repoiting income or claiming deductions will be c'iught sooner or later and, in this computer age, is apt to be found out very soon indeed. We also know that honesty will be rewarded. Those who report all theii income `tnd claim re'ison'ible deductions have fair assurance of freedom from harassment and invasion of privacy. The proposed expenditure tax threatens these standards and ex- pectations. Reported travel spending suh~ect to tax cannot be veri- fied without an enormous exte.nsion of Federal jurisdiction. It would require the compulsory registration of all our foreign assets and of PAGENO="0061" 839 all bank transfers to foreign accounts. It would also require a fre- quent personal search of travelers departing from and returning to the United States. * The expenditure tax is to be based on a net worth calculation. When leaving the United States, a traveler will have to declare the currency and travelers checks he is taking with him. When he re- turns, he must make a similar report. The difference between funds taken out and those brought home is to serve as the basis for the ex- penditure tax, after amendment by inclusion of funds raised abroad, and of taxable expenses incurred prior to or after the trip. How would one verify a traveler's report? We submit that there is no satisfactory way that does not entail resort to a complex of con- trols, akin to the wartime exchange controls of other countries, con- trols that we worked so hard to dismantle a decade or so ago. How can the Treasury know what assets, including bank accounts, travelers may have abroad? It can, of course, ask questions, but cannot check the answers without securing powers of subpena over foreign banks and other institutions. How can the Treasury verify a traveler's cash statement, submitted at departure, without resort to personal search? We ask that the Congress give long consideration to the implica- tions of this particular proposal. Chapter 19, section 48~ of the United States Code empowers customs officers to "stop, search, and examine" any "vehicle, beast, or person on which or whom they shall suspect there is merchandise which is subject to duty, or shall have been introduced into the United States in any manner contrary to law * * The Federal courts have held this to mean that the ordinary con- stitutional guarantees against unreasonable searches and seizures do not apply to "border search," entailing confiscation of dutiable or con- traband merchandise; mere suspicion replaces the usual requirement of probable cause. (See, e.g. Alexander v. U.S., C.A. Ariz. 1966, 362 F. 2d 379 and Rodrigue~-Gon~ales v. U.S., C.A. Cal., 1967, 398 F. 2d 256.) I claim no expertise in constitutional law, but do submit that this well-defined border-search rule, the search for contraband mer- chandise, cannot be extended, easily or naturally, to cover the verifica- tion of a cash declaration. The export of cash is not itself taxable, nor restricted or proscribed by any Federal law. It is not contraband. The export of money is not analogous to the import of dutiable merchan- dise. To put the point more generally, the proposed verification of travelers' cash reports may seriously impair constitutional guarantees. One can confidently forecast a full, accurate report of travel spend- ing by a majority of travelers, but the many opportunities for easy evasion could well tempt too large a number. And if some people think that others are cheating, they may be tempted too. Our objections, it must be stressed, address themselves to the partic- ular tax proposed by the administration. We do not oppose a broad- based travel tax designed to reduce travelers' spending in order to aid the balance of payments. We shall, in fact, propose just such a tax in a moment. Before doing so, however, let me mention further defects of the Treasury proposal. First, civilian employees of the U.S. Government should not be exempt from tax, even when traveling on official business. Such trips should be taxed, just like other business trips, so that the Federal agencies authorizing them will have a genuine incentive to limit non- PAGENO="0062" 840 essential travel, including, sir, travel by members and staff of the legislative branch. Second, the 60-day deadline for filing a final travel return is much too short. I myself Shave had to wait 3 or 4 months for the billing of ~raso1ine and auto rental charges. Third, and most importantly, the expenditure tax should not apply a flat 2-percent dutiable merchandise. We have made this point before and will not belabor it. AN ALTERNATIVE TO THE EXPENDITURE TAX As a first and fair approximation, a traveler's spending depends on his income. To be sure, low- and middle-income families may save for several years to make a single trip abroad, far beyond the reach of their annual incomes. Similarly, high-income travelers may sometimes spend less than one would forecast from a knowledge of their incomes. In most cases, however, a travel tax related to taxable income would be similar in impact to the Treasury's own expenditure tax. Such a tax, moreover, would be based on a number well-known to the taxpayer and subject to thorough verification, "adjusted gross income" on Form 1040. Hence, we propose a very simple travel tax: Take the number of days spent traveling outside the Western Heimsphere, multiply by a fixed percentage tax rate, then apply the product of this calculation to "adju~ted gross income." Alternatively, travelers might pay a per diem tax rate that would be applied to total tax liability rather than adjusted gross income. This device would furnish more progressivity. Tentatively, we propose a daily tax rate of 0.05 percent (or 0.025 percent for joint tax returns) applied to adjusted gross income. With this tax rate, a married couple reporting a joint income of $15,000 and traveling in Europe for 30 days, would pay $225 in travel tax. (T5nder the administration's plan, the same couple, spending $50 a day abroad would pay $252..) We also propose a minimum travel tax set at $1.50 or $2 per day. The taxpayer would be required to pay the larger of the two taxes. (In effect, a single taxpayer with an adjusted gross income below $4,000 would have to pay the fixed minimum daily tax if that tax were set at $2.) This supplementary proposal is designed to deal with two important cases: travel by low- to middle-income families out of ac- cumulated savings, and travel by students and other dependents. Many have objected to any travel tax as "unfair" to lower-income families that have saved for many years to take a single trip abroad. We fully sympathize with `the plight of these travelers, but must point out that their travel spending is no less costly to the balance of pay- ments, dollar for dollar, than that of other travelers. The $2 daily minimum tax would serve as some deterrent to the long-awaited splurge. Ordinarily, a taxpayer would have to pay our travel tax if anyone he claimed as a dependent had traveled during the year. But we do not want to exacerbate generational conflict-to set father against son when junior plans to go abroad. Under our proposal then, dependents aged 19 or over could file their own income tax returns, whether or not liable to ordinary income tax, could pay the fixed minimum daily tax, and could thereby relieve their parents of tax liability. PAGENO="0063" 841 One may well object that our income-based tax does not accomplish one objective of the Treasury's proposal It cannot induce the tray eler to cut his daily spending (save insofar as he must do so to pay his higher income taxes) This is admittedly a defect If our analysis is right, however, the administration's proposal may not cut actual daily expenditures. It may, instead, cut into reported expenditure. It may encourage evasion rather than frugality. A few additional points should be made: 1. Effective implementation of our tax proposal, or, for that mat- ter, the Treasury's proposal, requires an accurate check on the num her of days spent abroad. This, we believe, could be accomplished by two devices First, authorizing the Internal Revenue Service to ask any holder of a U S passport to present that passport for inspection, second, negotiating an agreement with the Canadian, Mexican, and Caribbean Governments that their officials would stamp the passports of U.S. residents leaving or arriving from third countries. 2. As in the case of the Treasury's proposal, our own income-based travel tax could be subject to tentative declaration and prepayment at the time of departure, this as an added deterrent to travel. The declara- tion of estimated tax could be based on adjusted gross income for the most recent past tax year 3 We endorse and would incorporate into our proposal the 120 day exemption suggested by the Treasury We very much hope that this alternative, along with our other sug gestions, will receive your careful consideration We thank you, Mr Chairman, for the opportunity to testify today Mi HERLONG Thank you, Doctor Are there questions ~ Mr Gilbert will inquire Mr. GILBERT. Thank you, Mr. Chairman. Dr Kenen, I appreciate your appearance here today I notice in your first paragraph you say Although ADA and myself are in general agreement concerning the matter stated, not everything included in my testimony should necessarily be construed as ADA policy. What I would like to~ know from you, Doctor, is where do you de- part from ADA policy and where does ADA policy depart from you ~ Dr KENEN I really cannot answer that question, sir, because I do not know where we might depart on details. That statement was in- chided to hedge against the possibility of differences on detail In fact, I know of none. Mr. GILBERT. Thank you very much. I have no further questions. Mr. H~ERLoNG. Mr. collier will inquire. Mr. COLLIER. .Just one question at the moment, Dr. Kenen. On page 8 of your testimony you suggest a plan whereby the tax would be im- posed based upon adjusted gross income on form 1040. You go on to elaborate. Then in the next to the last paragraph on that page you say: We fully sympathize with the plight of these travelers,- Meaning the low-income group- but must point out that their travel spending is no less costly to the balance of payments dollar for dollar * * * PAGENO="0064" 842 How do you reconcile this justification with the proposal to levy `L tax based on adiusted gross income if in f'tct v~hat is spent `ibroad is no less costly to the balance of payments ~ Dr KFNFN If I understand your question, sir, it rel'ttes to the fact th'tt a low income family with very little `idjusted gross income would not have to pay much t'ix and therefore ~aould not be deterred from tr'tvehng As a matter of fact, th'tt is why we suggested that there be a mini mum tiavel tax at $1 50 or $2 so that someone with no or low adjusted gross income would still be subject to a tax deterrent Mr COLT TEE But in justification of the statement you say it is no less costly to the balance of payments Consequently, what is spent by a person with `ilower adjusted gross income `tnd one with a higher adjusted gross income is, `tnd I quote you, "No less costly to the balance of payments." I am trying to reconcile the conclusion you reach in one inst'tnce `tnd the proposal you offer in the other In either instance it is no less costly to the balance of payments, and on th'Lt justification it would seem to me that this would tend to refute the concept of the adjusted gross income proposal Dr. KENEN. I am sorry, sir, I don't see the contradiction. What we `ire saying is that, in gener'il, expenditure abroad is related to income md therefore a tax on income is a good substitute for a tax which one might try to collect on actual expenditure abroad. Mr. COLLIER. Let me put it this way. If the purpose of any tax is to attack the balance of payments and if that, is the justification, then most certainly the question of adjusted gross income, it seems to me, would not be a factor if we are talking about the need for a tax to deal with the balance-of-payments problem. Dr. KENEN. All I can say in reply, sir, is that if I were compelled to pay a tax based on my adjusted gross income `md related to the number of days which I spent abroad I should reconsider very seriously my plan to go abroad. Mr. CoLI~IER. I have no quarrel with what the intent of this proposal is. I am merely suggesting that if we are to assume that we are dealing with the problem and that travel' spending is no less costly to the bal- ance of payments regardless of one's economic status, therefore it seems to me that this runs counterclockwise with your original state- ment. One other question, Mr. Chairman, in your opening remarks, Dr. Kenen, you suggest, and again I have no quarrel whatsoever with the statement, that the war in Vietnam must take much of the blame for deterioration. However, it seems to me that at a time when the aid bill was repeatedly and annually before the Congress and at a time when 57 percent of the aggregate appropriation for aid was for mili- tary assistance, roughly 11 percent for technical assistance, and 32 per- cent for economic assistance, the ADA was one of the ardent sup- porters of the aid bill in the package and, therefore, I find a some- what inconsistency in its support of the proposal when most of the funds involved were for military assistance at a time when some of us of a less liberal philosophy were not in accord with this package that you had to take each year on a take it or leave it basis, and I would have assumed from your statement that when `military assistance ex- PAGENO="0065" 843 ceedeci the amount of fuirids available, the amount of funds made available for aid in economic and technical assistance, there would have been some opposition to it at that time. Dr. KENEN, I do not have the ADA testimony at hand, but it is my recollection that the thrust of that testimony~ was, and has always been, to favor ecoflomic assistance and I would even in the face of the present balance-of-payments constraint, the urgent need to im- prove the balance of payments, strongly urge that the already trim- med-trimmed is not the word-deeply cut ecOnomic aid program be spared from further cuts. Mr. COLLIER. God help us. Dr. KENEN. This I believe was the thrust of the ADA testimony at that time, and I think the case holds even today. The economic aid program, development assistance, is an extremely important instru- ment of American policy and should not be sacrificed for the balance of payments. Its net cost on the balance of payments, one must add, is somewhat small because most of the aid money is spent in the United States, and even that part which is not spent within the United States goes to countries which return dollars to this country in their ordinary spending. Mr. COLLIER~ You tie into the balance-of-payments problem, and properly so, the equally critical gold drain problem, and do you at- tribute the acuteness of the gold flow to the war in Vietnam also? Dr. KENEN. The gold flow of 1967 occurred as you know, mainly in the last weeks of the year following the devaluation of the pound. The immediate cause was concern that the United States might devalue or that the price of gold might be raised. There was, in other words, a drain of gold from official hands, American and foreign, into the hands of `private purchasers. One cannot relate that drain in any direct way to the war in Viet- nam. One can say, however, that so long as we have a deficit in our balance of payments, there will be an incentive for private speculators to buy gold and, in consequence, we will lose gold, and so long as we are in Vietnam, I fear that there will be a tendency for us to run a payment deficit. Mr. COLLIER. I thank you. Dr. KENEN. The connection is indirect, but not tenuous. Mr. CONABLE. Mr. Chairman. Mr. HERLONG. Mr. Conable. Mr. CONABLE. Mr. Kenen, doesn't the ADA Sponsor European and Middle Eastern tours? Dr. KENEN. It may do so, sir. I don't know. Mr. CONABLE. I have received some literature advertising such tours by the Americans for Democratic Action. I wonder if there had been any reassessment of that policy on the part of your group. Dr. KENEN. I do not know whether there has been a revision of that policy. Excuse me. I am just told, sir, that it is under reconsideration. I would hope, in any case that members who travel will pay their taxes. Mr. CONABLE. Thank you. Mr. HERLONG. Any further question? Mr. Tlllman will inquire. Mr. ULLMAN. I want to join in welcoming you before the committee. Way back when I attended Columbia and got my master's degree there in public law I had great respect for your school of economics. 89-749-68-pt. 3-5 PAGENO="0066" 844 I am afraid what you recommend may be about as complicated as what the administration recommends. Had you considered the alterna- tive possibility of taking a flat exemption regaradless of the number of `days spent and then just apply a percentage tax above that? Dr. KENEN. A percentage tax to expenditures over a minimum? Mr. TJLLMAN. Say, exempting the first $300, or whatever other fig- ure a person might come up with, from a tax and then applying a flat 30 percent, say, above that. Dr. KENEN. Applying it to expenditure abroad in excess of some flat minimum? Mr. TJLLMAN. That's right. Dr. KENEN. Sir, our obje4~tion to the administration proposal is precisely that one cannot really ascertain what people do spend abroad. Whether or not the tax is as proposed by the administration or sub- ject to a flat exemption of $300, I don't think that the tax can be properly and thoroughly collected. Our objection, in other words, is to any kind of tax which is based on a traveler's report of his expenditure overseas, that is his expendi- ture cannot be verified, not, as I say, without a network of very com- plex controls. Mr. ULLMAN. Well, I agree it would be difficult to administer, but we have many taxes that do depend on some voluntary reporting. This obviously would have to depend upon it. Personally you haven't sold me on the two alternatives that you present. A daily tax of $1 or $2 would hurt the economy tourist, but would have no impact whatsoever on the other type of tourist who was going over for a resort type vacation. Dr. KENEN. Sir, it was not our proposal to have one or the other. It was to have the two in tandem. The presumption is that most people would pay or would be assessed at the daily rate on adjusted gross income. Our second suggestion, the daily minimum tax, was designed to get at those travelers who, for any reason whatsoever, would not have adjusted gross income subject to tax. These are not a continuation of alternatives. They are meant in combination. Mr. TJLLMAN. I had automatically ruled out the adjusted gross in- come because I just think it would be very difficult to justify it on the basis of any sound long-range tax policy. It would take a great deal of selling to convince me. You have given us a comprehensive paper. We appreciate it. Thank you. Mr. HERLONG. Any further questions? Mr. BUSH. Mr. Chairman. Mr. HERLONG. Mr. Bush. Mr. BUSH. Dr. Kenen, on the disclaimer in the beginning I just want to be sure. This tax that you propose is ADA policy, isn't it? Dr. KENEN. Yes, sir. Mr. BUSH. You differentiated between your own ideas and the ADA. Dr. KENEN. The substance of this proposal is ADA policy. There has been inadequate time, however, to consider all of the details such as the inter-city exemption from the ticket tax and a number of other PAGENO="0067" 845 lesser points, we made. The disclaimer was designed to cover any dis- agreement on some of `those technical issues. Mr. BUSH. Do you differentiate in here-if you did I missed it-be- tween the exemption for Latin America in the President's proposal and the rest of the world? Dr. KENEN. No, we didn't. Mr. BUSH. This hemisphere. Dr. KENEN. We did not. We based our own proposal on non-West- ern Hemisphere travel. Mr. BUSH. In other words, don't you `feel that the spending of a dollar in Latin America is just as detrimental to the balance of pay- ments which we are trying to do something about as spending in Europe? I didn't follow this as carefully as I might and I just won- dered if you addressed yourself in your paper to that part? Dr. KENEN. In the first instance, sir, spending by travelers in Latin America is not as costly to the balance of payments. The adminis- tration is quite right on this point because, as is true of most less de- veloped countries, Latin American countries spend almost all that they earn and a good part of it does flow back to the United States. `They are not reserve-accumulating countries that acquire and hold dollars and then convert dollars to gold. Mr. BUSH. Then come back to the part that comes to the United States. I thir~k that really is the èrux of the question. Dr. KENEN. That is the basis for the discrimination written in other parts of the President's program-discrimination as between less de- veloped countries, and essentially, Western Europe. Few economists like discrimination by region, but there are times when it is the lesser of two evils. Further, sir, tl~ie alternative would be to discriminate against some parts of Latin America and not others for the simple reason that it would be extremely difficult to collect tax on money spent in Mexico because of our common boundary. We would then be discriminating in favor of Mexico and against Mexico's near neighbors, and it seems to me that this makes even less sense. Mr. BUSH. That is all, Mr. Chairman. Mr. HERLONG. Thank you. I would, suggest to the gentlemen that in making the disclaimer at the start of his statement that I can under- stand it. There are differences within the organization even as far as our former colleague on this committee, Senator McCarthy, is con- cerned. Thank you very much for your statement. The committee will reassemble to 2 o'clock this afternoon when Mr. Bernard B. Smith will be the witness. (Whereupon, at 12:08 p.m., the committee recessed to reconvene at 2 p.m., the same day.) AFTER RECESS ` (The committee reconvened at' 2 p.m., Hon. Al Ullman presiding.) Mr. TJLLMAN. The committee will come to order. , Our first witness this afternoon' is Mr. Bernard Smith. Mr. Smith, we welcome you to the committee. Please identify your- self and proceed as you ~ee fit., PAGENO="0068" 846 STATEMENT OF BEflNARD B. SMITH, SECRETARY, IRELAND-UNITED STATES COUNCIL FOR COMMERCE AND INDUSTRY Mr. SMITH. My name is Bernard B. Smith. I am appearing in be- half of the Ireland-United States Council for Commerce and, Industry, Inc. Mr. Chairman, I would like to suggest that in place of my reading this entire statement to you, which has been somewhat corrected, I would like to have it placed in the record, and I shall try to deal with the highlights of this statement which conceivably might be more convenient for the committee. Mr. ULLMAN. Without objection, your full statement will appear in the record. (Mr. Smith's prepared statement follows:) STATEMENT OF BERNARD B. SMITH, SECRETARY, IRELAND-UNITED STATES COUNCIL FOR COMMERCE AND INDUSTRY, INC. My name is Bernard B. Smith and I am appearing in behalf of the Ireland- United States Council for Commerce and Industry, Inc. The Ireland-United States Council for Commerce and Industry, Inc. is a non- profit organization composed entirely of Americans-primarily men in the field of business and finance who are interested in fostering and developing economic ties between the United States and Ireland through trade, travel and investment. Two-way trade between the United States and Ireland has steadily increased. Travel to Ireland from the United States has also increased and the percentage of increase of the number of people of Ireland traveling to the United States ranks high among the nations of Europe. The members of this Council as American citizens are not unmindful of the bal- ance of payments problem that has prompted consideration of the proposed travel tax program. In keeping therewith we propose here to make recommendations for modifications in the travel tax program that in our opinion would not materially adversely affect the purposes to which this program is directed. On this score we would like to remind the Committee that Secretary of the Treasury Fowler in testifying before this Committee under date of February 5, 1967 made the following observations with respect to the proposed travel tax program: "The objective in the travel area, as in other parts of the balance-of-payments program, is to forge an effective device which, as far as feasible, avoids an undue burden either on those United States citizens or on those j~oreign countries least able to bear it." After careful consideration, we have concluded that the proposed travel tax program in the form in which it has been submitted to this Committee would place an "undue burden" on Ireland, a country which demonstrably is one of "those foreign countries least able to bear it." At the outset, we should like to remind the Committee that Ireland is a young and developing republic. When the twenty-six counties comprising southern Ireland emerged as a free and independent republic, the people of this new na- tion supported themselves almost entirely on the produce of relatively small individual family farms. At the time of independence, industry in all of Ireland was largely concentrated in the six northern counties' of Ireland which re- frained from joining the twenty-six counties of southern Ireland in forming the Republic of Ireland. Advances in farm technology caused an uninterrupted reduction in the num- ber of people engaged in agriculture in Ireland and as a consequence the peo- pie of Ireland living within farming communities, in increasing number found themselves obliged to leave their ancestral homes to find employment. An industrial complex cannot be rapidly built. Indeed, a nation of less than three million people having agriculture as its economic base, far removed from the great urban centres of Europe, could not be `expected to develop rapidly manufacturing industries to compete with those of the mature economies of Europe. Thus, one of the principal problems that this new nation was obliged to face was to find means of providing employment for its people in order to PAGENO="0069" 847 stem the tide of emigration for those of its peQple obliged to ie~ve* the farms- in order to find employment. While steady strides have been made in the creation of manufacturing indus- tries, Ireland has found over the years that the principal industry that could be developed and provide employment for its people was tourism which today is the leading industry of Ireland. How vital tourism is today to the economy of Ireland may be indicated by the fact that over 15% of the people of Ireland depend on tourism for their source of livelihood. On this score, we must not overlook the fact that apart from the dollars spent by tourists in Ireland, tourism indirectly contributes substantially to the economy of Ireland as the agricultural produce of its farms reach the hotels and restaurants that service the tourist. Indeed, employment in industry, particularly in service industries, also depends to a material degree on the maintenance of a -high level of tourism in the country. Member countries of the Organization for Economic Co-opera- tion and Development (hereinafter referred to as OECD) show total receipts of international tourism in 1965 represented on the average of only 0.8% of the total gross national product of the member countries. For the European mem- ber countries the average percentage share was 1.4%. However, in the case of ireland, its earnings from tourism were 5.4% of its gross national product (p. 19, Report, Tourism in OECD Member Countries, published 1967 by OECD). Moreover, we are advised that the multiple effect of the tourist dollar on the economy of a country is substantially greater than the effect of a dollar derived from exports. In 1949, Ireland became a republic. One year later the United States Coy- ernrnent with its sympathetic interests in the problems of an emerging nation, dispatched a team of economic experts to advise Ireland on the development of industry. Upon the conclusion of a comprehensive study, this team of American economic experts advised Ireland that by far the most fertile field for the de- velopment of industry in Ireland would be the development of tourism. In keeping with this advice, the government of Ireland has devoted in relation to its gross national product huge sums from its revenues to the ultimate devel- opment of tourism as the largest single industry in all of Ireland. Based on the advices received, it was altogether clear that Ireland could not create a viable tourist industry simply by the fact that Ireland as a nation exists. Indeed, Ireland is an excellent example of how constructive measures can bring about a remarkable increase in tourism revenue. In the 10-year period 1957 to 1967 approximately $44,000,000 was devoted to the development tof tourism. Largely as a result of these constructive meas- ures, tourism revenue stemming from all countries, has increased from $77,- 800,000 in 1957 to $199,200,000 in 1967, an increase of 259% (Report, Tourism in OECD Member Countries, 1967). Ireland, despite the strides it has made in the development of an export market for its products, still suffers from a chronic foreign trade deficit. For the two most recent years for which information is available, Ireland's foreign trade deficit is indicated by the following: Imports Exports Trade deficit 1965 1966 11, 040, 871, 706. 00 1,043,311,715.60 1674, 612, 400. 00 754,314,400.00 1366, 259, 306. 00 288,997,315.60 (Trade Statistics of Ireland, published by Central Statistics Office, Dublin; Annual Report, published by Irish Export Board, 1966). We have deliberately used Ireland sources of statistical information, for according to statistics pub- lished here, the trade deficit of Ireland Is substantially in excess of that herein- above set forth. The major portion of Ireland's exports still consist of the products of its farms and the end products made therefrom. It will be seen, therefore, that unlike the major countries of Continental Europe, Ireland still suffers from a trade deficit. While tourism of itself cannot bridge this gap, it does make a substantial con- tribution to reducing this trade deficit. Indeed, we are informed that 20% of the foreign exchange of Ireland is derived directly from tourism and it is with this foreign exchange that Ireland, in part at least, pays for its imports. Having made these preliminary observations, we now wish to address our- selves to the specific provisions of the proposed travel tax program. PAGENO="0070" 848 (1) (A) THE'EXTENSION OF THE TAX ON DOMESTIC TRANSPORTATION. FARES TO COVER INTERNATIONAL AIR TRANSPORTATION, ETC. We as Amerlcan'citizeflS, do not regard it as appropriate to question the policy underlying the imposition of this tax; indeed, it would seem to us altogether ap- propriate that since there is a 5% tax on domestic transportation, there should be a similar 5% tax imposed on international air transportation. (1) (B) A TEMPORARY GRADUATED TAX ON EXPENDITURES IN CONNECTION WITH TRAVEL OUTSIDE THE WESTERN HEMISPHERE Today if an American. in peak season were to purchase a round-trip economy class ticket from New York to Rome, with as long a stopover as he might wish to enjoy in Ireland, the cost of the round-trip ticket, viz., $629.90, would be the same as if he purchased the ticket for a direct round-trip ticket to Rome. Under the proposed graduated tax program, an American wishing to stop in Ireland for more than 12 hours, and then proceed to fly to Italy, would be obliged to treat the cost of air transportation from Ireland to Italy as part of the limited daily travel expenditures proposed under the travel tax program. The cost of air transportation from Ireland to Italy is somewhat in excess of $103 and accordingly, since the trip would take several hours, the traveler would definitively find that this cost of transportation would be subject to the travel expenditure tax. Thus, under the $7 expenditure allowance here proposed, an American traveling to Ireland, in order to limit the amount of his expenditure tax, would be obliged to spend all of time in Ireland. Anyone who wishes, for a relatively short trip, to spend $103 subject to the expenditure tax on a trip from Ireland to Italy, would almost certainly find himself coming within the $15 limitation and therefore would be subjected to a tax on the cost of his transportation to Italy of 30% or approximately $32.00. How serious this provision of the expenditure tax would be to tourism in Ireland is indicated by the fact that of Americans who devote part of their holi- day in Ireland, 52% of those Americans whose first port of entry is, Ireland, went onward to other countries outside the Western Hemisphere before return- ing home. It also appears that 30% of Americans who visit Ireland arrive there from the Continent of Europe. Of these, 72% then return directly to the United States after visting Ireland, and the other 28% return to Europe after con- eluding their s.tay in Ireland. (Survey of Travelers, 1964, Irish Tourist Board Publication) Ireland remains a pastoral country-a country approximating the size of the State of West Virgina. While the population of Ireland is more than 50% greater than that of West Virginia, the gross personal income of the people of West Virginia js almost 50% greater than that of Ireland, and West Virginia is not one of the affluent States of the Union. Ireland's principal attractions to tourists are the beauty of its country side and the friendliness of its people. It can pro- vide to visiting Americans neither exposure to the modern night clubs of Paris nor to the ancient ruins of Rome. It ought to be altogether clear, therefore, that if the expenditure tax is to apply to the cost of air transportation from Ireland to Rome or to Madrid or to Jerusalem, under the limitations imposed by the travel tax program that Americans tourists visiting Europe will be inclined to apend their holidays in countries on the Continent of Europe where so much can be seen and so much more experienced in the great urban centers of these countr1es and with so much to be seen within relatively short distances from these urban centers than they can experience in Ireland. One need only examine the map of Europe to realize that Ireland is more re- mote from all other centers of Europe than any other country, and so for the reasons here indicated, the effect of subjecting transportation between the first and last stop outside of the Western Hemisphere to the expenditure tax in our view will be felt infinitely more severely by Ireland than by any other European country. It has become apparent that the policy of our government is not so much to discourage travel abroad, as to discourage excess expenditures. We would suggest that the kind of American's who are attracted to visit the pastoral countryside of Ireland will wish to organize their visits within the limitations imposed by the graduated expenditure tax program. We believe it will become altogether clear that it is not the tax alone, but the fact that the United States, by imposing the tax on excess expenditures, is in effect .asking the American people to limit PAGENO="0071" 849 their expenditures that will have an adverse effect on American tourists planning to include Ireland In a visit to Europe. To subject themselves to an expenditure tax is calculated in the minds of these Americans to violate the purposes of the program and while the tax itself is calculated to reduce travel to Ireland, the fact that exceeding spending limitations Imposed by our government could be regarded as unpatriotic, will serve as an even greater deterrent to including Ireland as part of a European holiday tour. We would urge that this Committee will in its deliberations assure Americans that they may purchase interconnected transportation without limiting the period of their stay in any land to twelve hours so that an American wishing to visit Ireland en route to an ultimate destination such as Madrid, Rome or Jerusalem or any other ultimate destination, may spend part of their holi~lay in Ireland without requiring their transportation costs from Ireland to any other city of Europe to be subject to the proposed travel expenditure tax. Clearly, the failure to adopt the foregoing would in very large measure deter American travelers from including Ireland in their European trip, which would have serious consequences to the economy of Ireland. We would not be making this proposal if we were not persuaded that the application of the expenditure tax to transportation between the first stop and last Stop outside the Western Hemisphere will not materially benefit the pur- poses of the expenditure travel tax program, while conversely its enactment would place the heaviest of burdens on countries on the perimeter of Europe, particularly Ireland. The application of the proposed ecopenditure taco We have already indicated that a substantial majority of Americans who visit Ireland spend only a minority of their vacation trip in Ireland, devoting the rest of their holiday to visiting Europe. We should like here to refer to that minority of American visitors who spend all of their holiday in Ireland. We have been informed that the greater percentage of Americans who travel to Ireland are individuals largely with fixed incomes whose vacations are budgeted long in advance, and are to a large degree in the upper-age bracket, to whom the simple pastoral way of life in Ireland is particularly attractive. These then are people who will be directly affected by having to be obliged to add to the cost of their stay in Ireland, the proposed expenditure tax. Based on the information that we have obtained, it is altogether clear that the average cost of an American's vacation stay in Ireland is so far in excess of the $7 allowance proposed under the travel expenditure tax program as to render a $7 allowance purposeless. We say this not only because it is impossible for the average American who spends all of his holiday in Ireland to exist on $7.00 per day, but because these are patriotic Americans who would regard spending more than the permissive amount that is not subject to tax as unpatriotic. While this class of visitors can Ill afford the 15 to 30% travel tax, more serious still, is the fact that to incur an expenditure tax is calculated in the minds of this kind of people to induce a feeling that they are violating an American pro- gram directed toward a limitation of travel expenditures. We would reasonably expect that this Committee In its deliberations will conclude that a daily travel expenditure allowance such as that here contemplated is completely unrealistic in relation to even the most modest costs of a visit to Ireland. We would there- fore hope that the Committee will either increase the amount of the travel expenditure free of tax to a realistic amount or preferably arrive at an alter- native program directed to achieve the purposes to which this travel tax program is directed that will avoid the unnecessarily drastic and damaging effect on tourism in Ireland Implicit in the limitation on expenditures that has been proposed. This Committee, we know, recognizes the fact that many of the people who travel to Ireland are people of Irish ancestry who wish to visit the land of their ancestors and, in some cases, of their birth. From Information that we have received it would appear that 60% of Americans who currently visit Ireland are of Irish ancestry. Only 15% of visitors are, however, of Irish birth. It can be assumed, therefore, that only those of Irish birth may have parents who are still alive at whose home they may possibly stay during their visit to Ireland. We have found that some proportion of the younger people of Irish birth who visit Ireland may stay briefly at the home of their parents and some younger or older, may stay briefly at the home of a close relative. Since, however, most Americans of Irish birth or ancestry visiting Ireland are people along In years, there are rarely homes open to them which can harbor them during their visit PAGENO="0072" 850 to Ireland and these generally stay at hotels. We are also advised that. of those who visit the homes of parents or perhaps some close relatives in Ireland most stay no more than a day or two at such home and devote the rest of their holiday touring the countryside of Ireland Thus there are very few Amei icans of Ii ish ancestry that can be expected to manage a visit to Ireland and remani within the $7 00 daily limit that is free of the expenditure tax Quite apart from the observations hereinabove set forth we as Americans are concerned with the rather cumbersome method of reporting required of American citizens with respect to the proposed limitations on travel expendi- tures. If it should be decided that some form of limitations on travel expendi- tures must be provided for, we would hope that means will be in corporated in such law that while calculated to achieve the purposes of the travel tax pro- gram, can be reasonably simplified both with respect to the administration of the tax and to the specific reporting requirements of American citizens. (2) THE PROPOSED CHANGES IN CUSTOMS TREATMENT OF TOURIST EXEMPTIONS (RE- DUCTION OF DUTY-FREE EXEMPTIONS FROM $100 TO $10 FOE U.S. RESIDENT RETURN- ING TO THE UNITED STATES) We as Americans do not question the gener'il policy of reducing quantitatively the duty-free exemption. We believe there are some special categories of pur- chases abroad with respect to which in our view maintenance of the $100 duty- free exemption is not calculated to materially affect the purpose of this program while reducing some of the particularly adverse results that would stein there- from. Here we refer to the duty-free shops that are located at airports where last- minute impulse buying takes place duung the approximate half hour period be tween entry into the airport and the time of plane departures. The purchases made at these duty free shops are very small indeed in relation to the tot'il amount of purchases made abroad. We are informed however that the elimination of a $100 exemption ~ould have a diastic effect on the operation of the duty free shop located at the Shan non Airport The Shannon Airpoit h'sd its origin duiing the ery eurly d~tvs of international air transportation and the decision to establish an airport at Shan non was one in which among others the United States Government actively participated, for its basic purpose was to provide safety and, more important, to serve as a refueling airport close to the long water journey to the North Ameri- can eastern border In order to help financially support this airport Irelan I established a duty-free shop which has served not only as a means of financing the operation of the Shannon Airport hut also served to provide a fair measme of employment in an area of Ireland where for so many years underemployment had prevailed. We have been informed that the reduction in the duty free exemption from $100 to $10 will cause a reduction in the amount of purchases at the Shannon shop of approximately $2 000 000 and is calculated to result in the loss of em ployment of over 200 people This reduction in puichases will also affect the em ployment of people working on handicraft in the regions outlying Shannon whose handicrafts are sold at the Shannon duty free shop Moreoi er the profit deri\ ed from this operation forms part of the general income of the Shannon Airport. Shannon, Ireland pioneered in establishing airport duty-free shops in Europe. Since that time duty-free shops have been established in Amsterdam, in Brussels, in Frankfort in Paris and in London However ~ e are acts ised th~t most of the sales in the duty free `hops in Europe other than that in Shrnnon arise fiom international traffic within Furope as w ell as to a lesser extent from continental traffic with Africa. Asia and Australia. We are informed that, conversely, the Shannon Airport Duty Free Shop derives almost 90% of its shop sules from United States tourists returning home from Shannon on the close of their holi- days in Ireland or other parts of Europe. We have not undertaken to assemble accurate figures as to the aggregate amount of sales made to United States residents in all of these duty free shops but we are informed that in `mv event the aggregate amount of. such last minute. sales made in these airport duty-free shops throughout Europe represents an infinitesimal proportion of totql pm chases made in all Europe. The proposed reduction, therefore in the duty-free allowance to United States residents would have a drastic effect on sales at the Shannon Airport Shop but would have very little effect on the other European duty-free shops. Since these duty-free shops basically form part of the operation of airports and since these small amounts of purchases by American returning PAGENO="0073" 851 residents are not calculated to have any material adverse effect on the purpose of the travel tax program, we would hope that the Committee will give considera- tion to maintaining the $100 duty-free exemption with respect to purchases made in these airport shops. The consequent damage to the financial operation of the Shannon Airport, and more important still to employment in the west of Ireland would in our view be altogether out of proportion to the limited value to the United States of refraining from maintaining the $100 exemption with respect to purchases made in duty-free airport shops~ We would hope that the foregoing approach to the problem we have posed will be regarded as appropriate by this Committee. If for any reason this pro- posal does not recommend itself to the Committee because of the fact that it is limited to airport duty-free shops, we would propose that the duty-free exemption be less sharply reduced at this time and in addition that the amount of the reduc- tion relate itself to the level of reciprocal duty-free exemptions accorded foreign residents returning from the United States. Ireland, for example, currently grants to Irish residents returning from the United States a duty-free allowance of £20 viz., $48.00 and in addition a duty- free allowance for a quantity of tobacco, viz., cigarettes, or cigars, or tobacco, a quantity of liquor and a quantity of wine and also a certain amount of perfume. We would therefore suggest as an alternative proposal, a reduction in the duty- free exemption from $100 to $50 for United States residents returning to the United States provided the country in which they have purchased the exempted commodities provides a reciprocal duty-free allowance in at least the same amount from their residents returning from the United States. It is not so long ago that the duty-free allowance to American residents was $500. Subsequently, it was reduced to $100 of wholesale value anad a year or two ago further reduced to $100 of retail value. A reduction to $50 on a reciprocal basis, as hereinabove suggested, should on the basis of normal two-way trade have little if any affect on the purpose of the reduction in the duty-free exemption and at the same time cushion the blow to a country such as Ireland whfch demonstrably depends to a measurable degree on sales from its airport duty-free shop to returning United States residents. We would hope that this Committee, in whatever determination it may make will not overlook the fact that new emerging developing republics such as Ireland cannot be expected to reach a stage of industrialization such as exists in the developed nations of Europe, but must inevitably look to tourism as a leading source of employment for their people and as a source of obtaining the foreign exchange it requires in order to pay for its imports. We doubt that this is more clearly evident than in the developing nation such as Ireland, which has been obliged to replace steadily declining agricultural employment with tourism as a means of re-employment. A small country such as Ireland, with a population of less than 3,000,000, so far removed from the great urban centers of Europe, cannot be expected to build an industrial base remotely comparable to those of highly developed centrally located nations. The gross national product of Ireland on a per capita basis is less than $1,000 a year. If the proposed travel tax program should be adopted in its present form, its greatest industry, tourism, would suffer a material decline and thus seriously adversely affect the economy of Ireland. How vital Ireland regards American travel to Ireland to its tourist industry, is indicated by the fact that Ireland, through its agencies, is currently spending in the United States, close to $5,000,000 annually in the promotion of travel to Ireland and tourism there. We would urge that whatever decision this Committee will arrive at with re- spect to the proposed travel tax program, that such decision will be made as promptly as possible so that the Americans are advised as to the precise form of limitations or restrictions that will be imposed on American tourists who can then be guided accordingly in completing their travel planning. We have already indicated that most Americans who visit Ireland generally plan their visits long in advance aand accordingly, it is altogether necessary that a decision with respect to the final form of the travel tax program is not too long delayed. Finally, we would hope that this Committee will not be unmindful o~ the spe- cial requirements of emerging nations such as Ireland, which, by reason of the nature of their developing, as distinguished from developed economies, must de- pend on tourism as their leading industry, as a principal means of employment an as a major source of foreign currency. PAGENO="0074" 852 In concluding our observations, we should like once again to remind the Com- mittee of the statement of Secretary Fowler, namely, that the objective of the travel tax program as far as feasible, is intended to avoid undue burden "on those foreign countries least able to bear it." We believe it is altogether clear that Ireland is a country least able to bear the consequences of the travel tax pro- gram. We would respectively ask that in keeping with the foregoing, this Com- mittee, in its deliberations, will give consideration to the special needs of Ireland as a foreign counry "least able to bear" restrictions on American travel to Ireland. Mr. TJLLMAN. Proceed. Mr. SMITH. I should like at the outset to make the observation that we as American citizens are not unmindful of the balance-of-payments problem that faces the TJnited States and the observations and recom- mendations that I propose to make today are in our considered opinion not calculated in any way to materially adversely affect the balance of payments. I should like at the outset, also, to point out, too, something about Ireland as a country. It is about the size of West Virginia with a pop- ulation approximately 50 percent greater than West Virginia and with a national income approxiately half of the State of West Vir- ginia. I would like to remind the committee of the observations of Secre- tary of the Treasury Fowler when he said that the objective in the travel area is to avoid any undue burden on those foreign countries least able to bear it. I would suggest that demonstrably Ireland is a country that is least able to bear it. We should like to remind the committee that Ireland is still a young and developing Republic. `When the 26 ~counties comprising southern Ireland emerged as a free and independent republic, the people of this nation suppoited themselves almost entirely on the products of relatively small individual family farms. While steady strides have been made in the creation of manufacturing industries, Ireland has found over the years that the principal industry that could be devel oped and provide employment for its people w~s tourism, ~ hich today is the leading industry of Ireland. Indeed, I am advised that over 15 percent of the people of Ireland depend on tourism as their source of livelihood. According to the records of the OECD, while an average of only 0.8 percent of the total gross national product of the member coun- tries consisted of tourism, in the case of Ireland its earnings from tourism were 5.4 percent of its gross national product. Ireland was advised by a committee of experts of the United States that was sent over interested in this emerging Republic about a year after it was formed to advise on new industry, that the most fertile field for the development of new industry would be the field of tourism and as a consequence-and this helped serve to stem the tide of immigration as well-Ireland has developed tourism as the greatest single source of employment and industry out of which it de- rives 20 percent of its foreign exchange and which as a consequence it depends on for its economy and for its employment. Indeed, in the 10-year period from 1957 to 1967 Ireland's receipts from tourism increased from $77,800,000 to $199 million. Now, we don't, as Americans, oppose the extension of the domestic tax of 5 percent to international travel if in the considered opinion of this committee this is an appropriate approach. PAGENO="0075" 853 What does concern us particularly is that provision of the proposed tax program which provides that travel between the first and last stop in the Western Hemisphere is subject to the expenditure tax. It must be remembered on this score that a majority of people who come to Ireland devote only a minority of their trip there and, if it no longer is feasible under an expenditure tax applicable to, say, the cost of a trip from Shannon, Ireland, to Rome, Italy, to pay a tax on $103, we are going to find that travel to Ireland is a simple pastoral country that attracts people who are interested in that kind of life, but' for a limited period, and they go on to Europe because Ireland cannot offer within relatively short distances from the great urban capitals of Europe so much of the form of entertainment and sightseeing. So we have in effect our principal attractions, the beauty of the coun- tryside and the friendliness of its people and, unless this concept that air transportation between, say, Shannon, Ireland, and Rome or Jeru- salem ceases to be subject to the expenditure tax, it is virtually cer- tain that those people who do go abroad will to a large measure ex- clude Ireland from their European tour and it must be remembered on this score that Ireland lies on the perimeter of Europe. It is far from the great urban centers of Europe and as a consequence will suffer more than any other country of Europe if this concept is con- tinued. We would also like to address ourselves to the expenditure tax itself. I believe the committee may have had in mind that this $7 a day would benefit those people whose ethnic origins are in Ireland. On this score, while 60 percent of people who visit Ireland are of Irish ancestry, only 15 percent were born there and of this 15 percent we can assume that only the younger of that group would find their parents alive or a home to stay at. Now, it is absolutely impossible for anybody to go there and live on $7 a day unless he is harbored in the home of a mother or father, but that would be very few indeed. We would urge that either this sum be increased to a realistic sum or some alternate means be devised to deal with this problem such as, for example, I think one Congressman suggested in the light of the fact that the average stay of Americans going abroad is 33 days that perhaps the first 30 days might be exempted. It must be remembered, too, that the people who come to Ireland are on the whole along in years, middle or lower income people who budget long in advance. More significantly, however, it is not alone the expenditure tax that will concern this kind of people because they are patriots and however we define it the 15- to 30-percent expendi- ture tax can by no means be regarded as a revenue measure. It is a fine, and in effect I would say that the average person going abroad, of the kind that I know visit Ireland, faced with the concept that the Government of the United States has said that any expenditures over a fixed amount shall be subject to a tax, would regard it as a fine and they are too patriotic to consider paying fines for the privilege of traveling. I think, in keeping therewith, I would hope that alternative means of achieving the purposes of this program will be considered. We are mindful of the fact, and I trust the committee is, that there are certain countries which cannot be put in the same class as the matured PAGENO="0076" 854 economies of Europe, and Ireland is certainly one which, as I have already indicated, relies on tourism as its maior industry It is cur rently spending as much as $5 million a year in this country because it is so dependent on tourism and it is also recognized that the tourists' dollar does more for a country than even the export dollar. But this country, unlike the industrially developed countries, unlike the great countries of Europe, France, Germany, Italy, is a country still developing. It is too far removed from the centers of population of Europe. It is not a member of the Common Market. It doen't have access to those markets. It is a country with a population of less than 3 million, some 2,880,000 It cannot support an industri~il complex `tt this stage to compete with the mature economies of Europe It depends on tourism, and I would suggest that the United States in ex'tmining the situation and this committee consider those countries that are still developing as distinguished from being developed, consider some form of treatment, whether we call it exemption or other consideration. Actually, until this bill ~ as proposed, Ireland was still in the Western Hemisphere, but the bill specifically created a line which took Ireland out of the Western Hemisphere so that today it is neither in the Western Hemisphere or in the Eastern Hemisphere We just don't know where to put it. But, for the definition in the statute, if we include ~ll islands within the Western Hemisphere, the only ones included would be Iceland and Ireland ~n addition to Latin America. I would say this, if I may, and I say this not only with respect to Ireland in which our country has shown a consistent interest in sending teams of economists to help them set up an industrial complex and it w is on their advice they set up tourism as their principal industry, that I would hope that consideration can be given to the special requirements of a country that is in a developing stage, that relies on tourism as its principal industry, and I don't suggest that it include just Irehnd alone but whatever would fall in that category because you ~ ill find that this wifl not affect to `tny material degree our bal'rnce of payments Of the amount received on tourism, I have just been informed that Ireland receives from American residents an aggregate of $36 million So that the balance of payments is not going to be seriously affected when the consequences of not providing reliet for this kind of country is to have such an adverse effect on the economy of the country in a way that it c'in scarcely bear because it does not have the wealth It is not a surplus country It has a consistent and chronic trade deficit, and I would suggest again in the ~ oi ds of Secretary Fowler, that special consideration be given to a country such as Ireland which to use his own words, is a country "least able to bear it" Mr ULT MAN Does that conclude your statement, Mr Smith ~ Mr SMITh Yes Mr ULLMAN You have done a very excellent job of summarizing your statement, and we appreciate it Are there any questions? You suggested that Ireland and Iceland are technically in the West- ern Hemisphere Mr SMITH Yes, they are I learned this from my Irish friends who went to school there and they were very proud when they went to school to be told that they were born in the same hemisphere as the PAGENO="0077" 855 United States, but the bill before you has done a job of amputatioi~, and by fixing the Western Hemisphere 30 degrees west of the Green- wich line proceed to remove Ireland from the Western Hemisphere, as well as Iceland. Mr. ULLMAN. We might consider putting it back in the Western Hemisphere. Mr. SMITFI. We would be delighted because, quite apart from the matter of the relief we would get to be put on a parity with Canada and Mexico, we would like once again to be regarded as living in the same hemisphere as the United States. Mr. ULLMAN. What is your definition of the Western Hemisphere? Mr. SMITH. The Western 1-lemisphere is the line lying west of the zero line which cuts across the Greenwich line. The world is divided into two parts. There is the Western and the Eastern Hemisphere and zero line, the center-if you look on a map you will see~-is at the Greenwich line. This bill proceeds to define the Western Hemisphere for the purpose of this legislation as 30 degrees west of that. I only say that if you in- clude all islands and continents completely located in the Western Hemisphere, the only lands you would be adding would be Ireland and Iceland. Mr. ULLMAN, That is very interesting. Are there any further questions? Thank you very much. Our next witness is Mr. Howard Chester. Is Mr. Chester here? We welcome you before the committee, Mr. Chester. Will you please identify yourself and whom you represent, and proceed as you see fit. STATEMENT' OP KOWARD P. CEESTER, EXECUTIVE SECRETARY, STONE, GLASS & CLAY C!OORDINATING COMMITTEE Mr. CHESTER. Yes, Mr. Chairman. Mr. Chairman and members of the committee, my name is Howard P. Chester. I am the executive sec- retary of the Stone, Glass & Clay Coordinating Committee. We are composed of seven international unions, all affiliated with the AFL- ClO, who have joined together to cooperate on mutual problems that affect any one of our seven affiliates. We have a combined membership of 250,000 workers, with active locals in almost all of the 50 States. In this hearing on U.S. balance of payments we would like to reg- ister our opposition to rising private foreign investment which results in the export of American jobs. With the tremendous rise in private foreign investment of 454 percent between the years 1950 and 1966, this increased foreign capacity can only serve to decrease our exports and increase our imports, adding further distress to our balance-of- payments deficit. The United States is importing products from U.S. foreign subsidi- aries and affiliates of U.S. companies, in direct competition with their domestic operation or other domestic producers of the same product. In 1965 U.S. foreign affiliates exported products back to the United States totaling $5,133 billion. Many of these affiliates have more work- ers employed abroaa than they do in the United States, and if not re- PAGENO="0078" 856 stricted this trend of decreasing exports, increasing imports, and dis- placement of American industry and labor will continue. PRIVATE FOREIGN INVESTMENT U.S. foreign investment-and, as a substantial part of this cate- gory, U.S. private foreign investment-must be given full considera- tion as an inseparable part of our foreign trade policy. The following chart "A" will serve to show the astounding increases in our U.S. foreign investments; chart "B" the area distribution of U.S. direct private foreign investments; chart "C" the industry distribution of U.S. direct private foreign investments. (The sources of information for charts A, B, and C were the 1958 hearings by the Subcommittee on Private Foreign Investment, and the Department of Commerce Survey of Current Business, September, 1967.) U.S. CHART A.-INVESTMENTc ABIOAD tin millions of dollarsi 1950 1957 1966 Total, U.S. investments abroad 32, 844 54, 215 111, 874 Private investments 19, 004 36,81286, 235 Longterm 17,488 33,588 75,565 Direct 11,788 25,252 54,562 Portfolio 5,700 8,336 21,003 Short term 1, 516 3, 224 10, 670 U.S. Government credits and claims 13, 840 17, 403 25, 639 Long term 13, 518 15, 548 21, 182 Short term 322 1, 855 4, 457 Mr. SMITH. In chart A we find that total TJ.S. investment abroad in 1966 has increased by practically four times the 1950 figure of $32.8 bil- lion. The large share of the 1966 total figure is made up of private investments, $86.2 billion of the $111.8 billion total for 1966. The divisions of private investment are long term meaning a period in excess of 1 year, and short term. The book value of our various short-term private investments at the end of 1966 totaled $10.6 billion. Long-term private investments can be placed in two categories, portfolio and direct. Portfolio investment largely entails private own- ership of foreign government bonds and business securities, with no implication in management decisions. Portfolio investment abroad in 1966 totaled $21 billion. Direct foreign investment is ownership of 25 percent or more of a business and usually important management participation. I understand that that figure of 25 percent is somewhat less now and could be as little as 10 percent of participation. * Private direct foreign investments abroad in 1966 totaled $54.5 billion. In all divisions of private foreign investment, comparing 1950, 1957, and 1966, there have been tremendous increases in the holdings of U.S. companies and private investors abroad. PAGENO="0079" 857 CHART ~ AREA ]~ISTRIBUTI0N OF U.S. DIRECT PRIVATE FOREIGN INVESTMENTS 1957 1966 Latin America Canada Latin America Canada 35% 33% 21% 31% Middle East & Africa Western Western Europe Other Europe 16% ii% 30% ~J0 BOOICVALUES, $25.3 BILLION BOOK VALUES, .$SIi..5 BILLION In chart B comparing the area distribution of direct private foreign investment for 1957 with 1966 we fll1d that considerably more investment dollars went into Western Europe, with a 14 percent increase, so the investment flow is to the developed countries, in \\Testerii Europe and to Caimda, while the less developed and under- developed countries in Latin America, Africa, and the Middle East dropped considerably in investments to their areas. And this happened despite the emphasis, stated in the 1958 hear- ings, on the necessity of changing the private investment pattern to encourage more flow to Latin America, Middle East, and Africa to deter the Soviet economic offensive in those areas. CHART `,C" INDUSTRY DISTRIBUTION OF U.S. DIRECT PRIVATE FOREIGN INVESTMENTS 1966 Other / 9% /~s. 1957 ~~aIao~in~ Petroleum 36% BOOK VALUES," $25.~ BILLION BOOK VALUES, $5L~.5 BILLION~ PAGENO="0080" 858 Chart C compares the industry distribution of U.S. direct private foreign investments in 1957 with 1966. You will note a strong upward thrust in manufacturing investment, a 9 percent increase over 1957, a decline in petroleum, mining, and public utilities. Manufacturing leads all other industry investment with a 1966 foreign total of $22 billion in all areas, while petroleum is in second place with $16 billion. The three charts which show the increases in U.S. private foreign investment bear out a prediction made by Mr. Robert M. Mitchell, vice president of the Whirlpool Corp., in hearings held on the subject of private foreign investment by the Subcommittee on Foreign Trade Policy, December 1958. After Mr. Mitchell's testimony, questions were asked by Congressman John W. Byrnes: Mr BYRNES As I gather the basis of your concern here among othei things is the fact that you foresee a necessity as far as American business is concerned to~ Shift from an export business to manufacturing abroad, an investing and going through the manufacturing process abroad; is that right? Mr. MITCHELL. That is correct, Mr. Byrnes. Mr. BYRNES. Do you attribute that trend in part to this common market trend, the European Common Market and the proposals for a common market in other areas? Is there any other factor that gives rise to that? Mr. MITCHELL. Basically that is it, Mr. Byrnes. In many of the Latin American countries at the moment for practical purposes it is impossible to export par- ticularly consumer durable goods. There is a rising nationalism in many of these countries and they are trying to industrialize and to raise their standard of living. So that American companies, if they are going to have a part of that market at all, must invest in some form or other. Mr. BYENES. You don't see a great future then as far as the export of finished commodities from this country. You see that contracting, Igather, and an increase in manufacturing abroad and with foreign labor? Mr. MITCHELL. I think that is the way it will happen; yes, sir. Mr. BYRNES. Great emphasis has been put on the fact of the importance of the trade-agreements program and all of the rest of it, and the increase in our exports, and the developing of this freer trade. I gather that you would suggest at least by your testimony that we may be getting into a period where that is going to be reversed? Mr. MITCHELL. I think that that is quite right, sir. Mr. BYRNES. That is all. This prediction of increasing investment abroad and the decrease in the export of finished commodities from this country has come to pass This increased foreign capacity can only serve to decrease our exports and increase our imports, and since capital is mobile and labor is not, the result has been loss of American jobs and loss to those Ameri- can industries that do not choose to move or that do not have the capi- tal to make such a move. Many U.S. corporations are becoming global in their makeup, with vast holdings and assets in other nations. Consider that in 1950, in direct private foreign investment the United States had $11.8 billion invested around the world, this rose to $25.3 billion in 1957 and to 854 5 billion in 1966 Many of these global corporations are showing their concern against any restriction to their access to the U.S. market. They recognize that free access to U.S. markets is in their corporation interest, they want to invest abroad, enjoy the markets and low vvtge labor; and they also want to enjoy the U.S. market from abroad, in some cases in direct competition with their domestic operation or other domestic producers of the same product. U.S. foreign manufacturing affiliates' sales in 1965 were $42.4 bil- lion compared to $18.3 billion in 1957, for an increase of 132 percent. PAGENO="0081" 859 In 1965, $34.1 billion of such sales were within the area of plant loca- tion, however $7.7 billion represented export sales to other countries, including the United States. The products shipped to the United States amounted to 24 percent of total export sales of manufacturing affiliates, or $1.856 billion. This figure does not include exports to the United States of foreign mining affiliates of U.S. firms in the amount of $1.225 billion, nor does it include exports to the United States of petroleum and petroleum products by U.S. foreign petroleum affiliates, estimated at $2.052 billion. Combining manufacturing, mining, and petroleum export sales to the United States, by U.S. foreign affiliates in 1965, the total would be an astounding $5.133 billion. The time has come for a reevaluation of this expanded investment program in terms of the U.S. economy, employment, outflow of capital, loss of revenue to the United States and effect of imports on U.S. in- dustry and labor. Our rising deficit in our balance of payments has brought this prob- lem into focus and President Johnson has wisely issued mandatory restrictions on private foreign investment as of January 1, 1968. We heartily agree with his actions designed to preserve our country's financial strength. SUMMARY American jobs are being exported to other countries by the astound- ing increase in private foreign investment, increasing from a 1950 figure of $19.004 billion to a 1966 figure of $86.235 billion or a 454 percent increase, using American investment plus foreign labor to produce products for sale within the foreign market and for export to the United States, displacing American labor and yet expecting American workers to purchase products that are putting them out of work and destroying job potential. U.S. foreign affiliates exported products back to the United States totaling $5.133 billion, in manu- factured products, mining products, and petroleum and petroleum products. These exports flow from private direct foreign investment of $54.5 billion, as of the end of 1966, located primarily in Canada and Western. Europe. The tremendous rise in American investment and technology abroad, added to rising capacity of foreign firms-with the re- sulting decrease in exports and increase in imports-eliminates existrng jobs and job potential, and reduces domestic industry's ca- pacity to operate at a healthy level and properly share in our country's growth. On behalf of the Stone, Glass, Clay Coordinating Committee we urge legislation to combat our deficit in our balance of payments, and to regulate foreign trade and investment policy to restore the eco- nomic well-being of domestic ir~clustry and American workers. We commend President Johnson for the steps he has taken and pro- posed, to correct our huge balance-of-payments deficit. I want to thank you for this opportunity to express our position before this committee. Mr. ULLMAN. Thank you, Mr. Chester. Are there questions of Mr. Chester? 89-749-68--Pt. 3-6 PAGENO="0082" 860 Mr. BErrS. I have one question. Mr. ULLMAN. Mr. Betts. Mr. BETTS. On page 8 where you referred to~ products that are shipped back into the United States, do you know whether any of those are in direct competition with U.S. production or are they all in corn- petition or some of them products that are not made here? Mr. CHESTER. I would say that fairly generally most of the prod- ucts that I noted in this survey of current business, products coming back to this country from our foreign affiliates, contained products, automobiles, food and food products, some glass. I don't have a de- tailed account of the various products, but there were many, and I would say that they cover a quite wide scope as opposed to domestic manufacturers and what they do manufacture domestically. Mr. BETTS. So then some of them are in direct competition, is that correct? Mr. CHESTER. No, I was saying that a great many of them are. I would also presume, too, that there are many that are not, but there are a great many that are in direct competition with the domestic products. Mr. TJLLMAN. Thank you very much, Mr. Chester. Our next witness is Mr. George Marshfield. We welcome you before the committee, Mr. Marshfield. Would you please identify yourself and proceed as you see fit. STATEMENT OF GEORGE W. MARSHFIELD, DIRECTOR, SUMMER PROJECTS ABROAD, YOUTH SERVICES DIVISION, AMERICAN FRIENDS SERVICE COMMITTEE Mr. MARSHFIELD. Thank you. My name is George W. Marshfield, and I am director of Summer Projects Abroad, Youth Services Division, American Friends Service Committee. I am here today to speakS on behalf of the American Friends Service Committee. We wish to express opposition to the travel tax program proposals by the Treasury Department, dated February 5, 1968, and particularly to the travel expenditure and international ticket taxes. The American Friends Service Committee, in addition to its educa- tional and service activities within the United States, carries on a wide range of programs in 20 foreign countries, including social and tech- nical assistance, relief and rehabilitation, community development, seminars and conferences, educational exchange, and youth service programs. Its work is carried on without regard to race, creed, or na- tionality, and is supported primarily by voluntary contributions. With 127 Americans presently serving as staff in our programs abroad, there is considerable expenditure annually for placement of staff in the field and repatriation. In addition, about 250 American young people go abroad annually as summer volunteers to service proj- ects or as school exchange students in various parts of the world. Supervisory travel by program administrators is therefore worldwide. The average annual expenditures for transportation outside the United States exceed $150,000, on which amount the proposed transportation taxes would amount to what, for our organization, would be a con- siderable sum. It is difficult to estimate what the taxes might be on PAGENO="0083" 861 daily expenditures of staff while traveling abroad, but these taxes also would increase costs of operation. imposition of travel expendi- ture and international ticket taxes would have the effect of reducing the funds available for carrying on our worldwide program, and there- fore would reduce the services we could give to persons in need, as well as hampering the international exchange of persons, especially in our youth programs. We are especially concerned over the effect of such taxes on oppor- tunities for young American volunteers to engage in community serv- ice abroad in areas of social and economic need, or to take part in in- ternational conferences. In our interdependent world, mutual under- standing through international association is of crucial importance in the search for world peace. Any program of taxation which would hamper the international exchange of young people would in our opin- ion be a mistake. Young people appointed for summer voluntary serv- ice by the American Friends Service Committee, and by other organ- izations with similar aims, would not benefit from the proposed exemp- tion from taxation of expenditures abroad by students in accredited programs. This would not apply to this type of voluntary service abroad. Beyond these considerations, it is our feeling that the entire tax pro- posal is discriminatory against, those of modest means, who can least afford the taxes. I am speaking, as I said earlier, on the ticket tax and expenditures tax not on the change in the customs exemption. These taxations also are retrogressive, in that it is a form of protectionism inimical to the free exchange of persons, the free exchange of goods so needed in the world today. Such taxation might well initiate reprisals on the part of countries where income from American travelers is significant in the economy of these countries, and Ireland has just been given as an excellent example, affecting their ability to purchase American-made goods and American services. Compared to the massive Government expenditures abroad for military and other purposes, we feel that the total expenditures by traveling Americans each year are relatively in- significant. Serious concern over the problem of balance of payments we feel should be directed to the major causes of imbalance, rather than to the incidental. The administration of the proposed taxation, as outlined by the Treasury Department, would appear to be cumber- some and expensive. The net gain in revenue we feel would be small when balanced against the probable misunderstanding and resentment abroad, when balanced against the impediment to international ex- change of persons and services, and the harm to educational programs and service projects, such as those carried on by the American Friends Service `Committee, which seek to further international goodwill and voluntary service. We live in a world where citizens of various countries need to in- crease, not decrease, person-to-person associations with each other, and where the free exchange of persons as well as goods and services is essential. Therefore, we of the American Friends Service Committee wish to express our opposition to the taxation of travel abroad, includ- ing a tax on tickets as discriminatory, retrogressive, and unduly re- strictive. We urge the members of the House Ways and Means Com- mittee not to report the proposed taxation favorably. Should legisla- PAGENO="0084" 862 tion to this effect be introduced for House action, we would hope that it would be defeated.. Should it be enacted in any form, at the very least we would urge that full exemption from taxation be provided. for all persons engaging in overseas programs sponsored by schools and colleges, or by nonprofit organizations engaged in humanitarian service and/or educational programs The Friends Committee on National Legislation, which has been located in Washington since 1943 to express Friends' concern to Con gress, has informed us that it endorses the foregoing statement. Both organizations express their appreciation for this opportunity to tes- tify. Thank you very much. Mr. TJLLMAN. Thank you, Mr. Marshfield. Are there any questions? If not, we thank you for appearing before the committee. Mr. MARSHFIELD. Thank you again. Mr ULLMAN Our next witness is Mr Collingwood Harris Mr Harris, we welcome you before the committee Will you ple'tse identify yourself and proceed in any way you see fit. STATEMENT OF ~OLLINGWOOD L HARRIS, CHAIRMAN, EXPORT EXPANSION PROJECT COUNTERSURGE Mr HARRIS Thank you Mr. Chairman and members of the committee, my name is Coiling- wood J. harris. I am chairman of Export Expansion Project Counter- surge. I am also a member of the New York Regional Export Expan- sion Counãil, where I am vice chairman of the export promotion com- mittee and a member of *the council's subcommittee on East-West trade. My participation in these activities is an outgrowth of my work at Tatham Laird & Kudner Advertising Agency in New York, where I am a vice president and the account supervisor on the Pan American World Airways Clipper Cargo account. While my testimony relates in part to my work on that account, I would like to emphasize that I am appearing here on my own initiative as a representative of Coun- tersurge, and nothing I say should be taken as necessarily reflecting any official aspects of Pan Am corporate policy. Export Expansion Project Countersurge is a nonprofit, ad hoc com- mittee which has been formed to provide an organizational back- ground against which members of regional export expansion councils may take public positions on political questions relating to export ex pansion, which t.hey otherwise would be prohibited from doing. Coun- tersurge is also open to employees of companies or members of other organizations where taking a public political stance on a controver- sial issue may not be regarded as being within the best interest of the company or the organization, although it may, in fact, tacitly concur. Countersurge was originally conceived last fall as a nationwide drive to mobilize the 1,200-strong membership of the country's 42 regional export expansion councils in a fight against import quotas on chemicals, steel, textiles, and other commodities, but now we are ex- panding its activities to embrace all issues with political overtones which relate to or affect export expansion. We believe these hearings PAGENO="0085" 863 on the travel tax program of the President's balance-of-payments pro- posals bear such a relationship. We are particularly concerned at this time over aspects of the travel tax program relating to business travel and the apparent lack of provi- sion for adequate exemption from the tax for certain classes for busi- ness travel, and we believe that a failure to rectify this shortcoming would be contrary to the national interest. To support this contention, and because it constitutes the major industry effort with which I am personally familiar, I would like to make reference to the Pan American clipper cargo advertising pro- gram. For several years running now, the major portion of clipper cargo advertising has been devoted to the development and expansion of export trade. In fact, it is highly probable that there is no private enter- prise, industry organization, or Government agency within this coun- try which is engaging in any individual export promotion activity which approaches this program in terms of longevity, scope, and mon- etary investment. I would like to come around to this side of the table so that you can see what I am going to show. I would like to run through this program which I said exceeds any other in scope and monetary develop- ment. It has been running now for 4 years since I have been on the program and even considerably more than that. "Air marketing put him in the swing of things overseas." "America's swimwear makes a multimillion-dollar splash overseas." "What is their secret?" "Why is air marketing a fashion-plus for makeup makers?" Here we talk about the one manufacturer doing $63 million in exports for the preceding years: "How do packers and producers unfreeze markets overseas? How can you score in the boomingly sure market overseas? How can you get the edge on the growing overseas market for U.S. re- tail goods? Want your products in the developing nations? What is helping U.S. companies cash in on the booming electronics market over- seas?" Advertisements like these have been run in such prestigious magazines as Business Week, Newsweek, and U.S. News & World Re- port, and we are backing them up with advertising in newspapers around the country. "Europe is ripe for a retailer. Make it your plum." "The world market for U.S. meats is no longer frozen." "How Pan Am helps you bag business in Africa. A bright oppor- tunity for American exporters." "Send your product to Europe this year. Some nice family will be glad to take it in." Here we talk about how the devaluation of the pound was an oppor- tunity for American business. Here we talk about the day following the implementation of the Kennedy round: "Have you already missed 24 hours because we think this is great for American business ?" "If you were too young to get in on the gold rush, here is your second chance, the trade rush." We are doing a job on these things for good reason. Our research shows that these ads, two-page spreads like these, are read, with a high degree of interest by business leaders. PAGENO="0086" 864 The thrust of this advertising has been that there is a vast, untapped profit potential for American business in overseas markets beyond that being realized today, and, of course, there is considerable evidence to back this up. For one thing, even though we Americans worry about it, domestic inflation continues to lag that of foreign nations, making U.S. prod- ucts continuingly competitive in terms of true value. For another, U.S. technology continues to enable American manu- facturers to produce a larger variety of products at a consistently higher level of quality than most overseas competitors are capable of, thereby maintaining a preference for most of our goods. Meanwhile, some recent developments have improved the U.S.- export potential even more. And while I am certain that you are intimately familiar with all of them, I enumerate them here in order to more properly position certain subsequent remarks. For example, the Kennedy round tariff reductions went into effect January 1, 1968, with additional reductions scheduled over the next 4 years. These reductions are particularly favorable to U.S. exporters. Further, the administration has asked Congress to earmark $500 million from the Export-Import Bank for better insurance, greater guarantees and broader Government financing of exports. We understand, too, that trade promotion will be stepped up with a 5-year, $200-million Commerce Department program including U.S. exhibits at commercial fairs, product shows at U.S. trade centers- plus trade missions, sample displays and other regular Commerce Department media for sales promotion abroad. We even understand that these plans include a new cooperative pro- gram between industry associations and the Government in long-range development of export markets. And while we do not at this time advocate some of the speoifi~ means being considered, we are happy to note that Government plans are afoot to reduce or eliminate the disadvantages U.S. exporters may encounter from "border taxes" which run contrary to the spirit of the Kennedy round. We think you will agree that this is a formidable and favorable background against which to mount an export expansion program, such as I showed you in the samples just now. Yet, with all the favorable environmental factors which exist, there are some additional, equally important factors to be considered and which provide some helpful insight into the magnitude of the task at hand. If Government statistics themselves are any indication, some 80 percent of American businesses with export potential have never ven- tured into export markets. And it is estimated that some 200,000 U.S. companies currently with no foreign sales, could be exporting right now if the means could be found to show them how. To give these figures some perspective, consider that among the free nations of the world, the U.S. ranks, at about 4 percent, 20th in terms of percent of gross national product exported, lagging even Mexico to the south and falling far behind Canada to the north. Then consider for a moment the Netherland's whopping 35 percent of GNP exported. The Pan Am export expansion program which I mentioned earlier would presume a lot if it sought to change this state of affairs through PAGENO="0087" 865 advertising alone, and so Pan Am does, in fact, try to coordinate its own efforts with the kinds of Government programs described earlier. But a key aspect, and I want to repeat, a key aspect of the program's success is the company's World Wide Marketing Service, where leads developed by the advertising are followed up by actually bringing prospective exporter and prospective buyer together. Frequently this involves travel on somebody's part, for there comes a point in time when, if a deal is going to be made, the two parties have to get together. This, to us, is the point. The way the travel tax program has been outlined, people are not going to be getting together and the United States is not going to be boosting exports. Without meaning to imply through the limitation of our remarks to business travel that Countersurge necessarily support any travel tax, we do feel that in any case, if U.S. export expansion objectives are to be met, they will be better met where there are provisions in a travel tax program for business travel exemptions beyond those ap- parently contemplated. As it is now structured, the travel tax program contains graduated scale of levies based on daily expenditures while out of the country. Using the present plan as a justification if not a standard, it would not seem too unwieldly a matter to develop a simple scale of business travel exemptions. One simple rule might be that a representative of a company with no previous export experience would be eligible for exemption upon filing a document prior to departure certifying where he was going and whom he would visit. The exemption could have a practical per diem limit, as might the trip itself have a limit on the number of exempt contacts. There could even be a practical limit on the number of trips a previous nonexporter could make. As for a company already in export, it would be a simple matter to have an exemption relationship between export business volume and travel expense. There would, of course, have to be some latitude in exemption options to companies with low export revenues. Unless these things are done, however, the American exporter pres- ent and future, will find his sales expense unnecessarily and unreal- istically inflated and his sales advantage unnecessarily diminished. Exports will suffer. Unless these things are done, I sincerely believe, as an advertising man who develops export programs, it is not likely that many of the 200,000 nonexporters whom we wish to convert to exporters will re- spond to our programs just so they can be additionally taxed in the national interest for taking a risk that is essentially in the national interest to begin with. I thank you, gentlemen. Mr. TJLLMAN. Thank you, Mr. Harris. Are there any questions? Mr. Battin. Mr. BATTIN. You talked of the increase in the exports resulting from probably quite a good promotion. We had another witness this morning, also testifying on the same subject, who came up with a little different conclusion. Talking about our exports and the in- crease, he said that in a way they have been very successful soaring by $9.6 billion, almost a 50-percent increase which was indeed phe- PAGENO="0088" 866 nomenal, but imports have increased faster than this, from $14.6 bil- lion in 1960-61 to $26 6 billion in 1967, a $12 billion increase or 80 percent in 8 years. While we are going up we are still hitting an ever- increasing low factor here. Do you haw~ ~.ny recommendations 013 how that might be changed? Mr. HARRIS. I have no specific recommenautlon other than the one here which I cited, which is to say, don't make it harder. I think that business travel tax ~ ould make it harder I also think that the Ken nedy round reduction should do a lot to offset the trend where the two lines are converging because, contrary to what was said this morning, the United States came out pretty far ahead in the conces- sions th~at were made and most of the concessions were more favor- able to the United States than to other nations, contrary to what was said. Mr. BATTIN. Maybe that is the conclusion you have drawn, but some of us perhaps have a different view of how far ahead we came out because. we really have not had a chance to see it implemented as yet. How many more nontariff barriers are going to be raised by other countries who ~ ere signatories to the Kennedy round Mi HARRIS You `tre talking about border taxes Mr BAITIN Border taxes, licensing to import, and many others that have grown up as a custom through the years. That is all I have, Mr. Chairman. Mr TJLLMAN Thank you very much, Mr Harris Mr. HARRIS, Thank you, sir. (The following letter was received by the committee ) ExPORT EXPANSION PROJECT COUNTERSURGE, New York, N.Y. February 28, 1968. Hon. WILBUR P. MILLS, Chairman Committee on Ways and Means House of Representatives Wash inqton D C Daan Mr. MILLS: As a witness at yesterday's hearings on the Travel Tax Pro- gram I was asked (by Rep. Battin) 1) If. I could explain the disparity between the current rate of growth of U.S. imports and exports (Imports appear to be growing faster over the long pull) and 2) why I thought the Kennedy Round was favorable to the growth of U.S. exports. I `im not satisfied with my answers to these questions and I would like to elaborate on them as follows: 1. Imports vs. exports: In response to my specific inquiry last spring, I was advised by the Bureau of International Commerce of the U S Department of (ommerce that further escalation of hostilities in \ iet Nam (in 1967) of the type iequiriiig sizable additional expenditures for goods in this country by the U S government would, as in 1966, stimulate domestic economic activity and gen- erate higher incomes. Thus, imports of industrial materials, capital equip- ment, and consumer goods would be accelerated. On the other hand, expansion wOuld be retarded, particularly for industries directly or indirectly providing goods for military purposes. De-escalation or cessation of hostilities in Viet Nam should strengthen our export position and reduce demand for imports. As inflationary pressures on the economy weakened with reduced military outlays, a larger share of U.S. produc- tion would be available for foreign markets, and American business would be in a better position to exploit export opportunities At the same time imports of industrial `md consumer goods would rise more slowly reversing developments in 1966 when our involvement in Viet Nam had to be expanded (By extension, T think it is a fair assumption that other domestic inflationary pressures have been ha~ ing a similar effect on the trade balance over the last decade, although, as cited elsewhere in my testimony, domestic inflation in gen- er'ml continues to lag foreign inflation thereby keeping competitive the U S prod ucts that do reach foreign markets.) PAGENO="0089" 867 2. Kennedy Round-favorable or unfavorable to U.S. exports?: As stated in one of the ads I showed, "the impetus to international trade should be enormous, judging from the experience of the European Economic Community. Over a five-year period, they reduced tariffs between member nations by 50%. In the same period, world trade rose about 42%. But trade between members of the EEC during that time increased about 100%." As for how well the U.S. fared from the negotiations, I respectfully refer Com- mittee members to the "Report on United States Negotiations," General Agree- ment on Tariffs and Trade, 1964-67 Trade Conference, Geneva (U.S. Govern- ment Printing Office: 1968 0-305-215 (106)). Volume I (General Summary), Parts 3 and 4, analyses concessions granted on principal products by other countries and by the United States. With few ex- ceptions, the U.S. got more than it gave, as anyone who takes the time to read it will discover. (This is, incidentally, a beautifully organized document.) Along other lines not relating to my testimony so much as the hearings in gen- eral, I noted that there were frequent references to the overall Balance of Pay- ments problem in general, and I noted, too. that there seemed ti be agreerneiit that the Travel Tax Program was but a small contribution, if any, to its solution. In this regard, I support fully the broader recommendations outlined in "The Balance of Payments in 1968" (Salant and Associates), a study commissioned by the Brookings Institute at the behest of the Council of Economic Advisors at the request of President Kennedy in 1962 and completed in January 1963. Sincerely, COLLINGWOOD J. HAuRI5, Chairman. P.5.-I would appreciate very much your extending the above remarks into the record. Mr. TJLLMAN. Our next witness is Prof. James Weeks. C. J. H. Please identify yourself, Professor Weeks, and state whom you represent and proceed as you see fit. STATEMENT OP JAMES K. WEEKS, SECRETARY, ADVISORY COUNCIL, PROCEDURAL ASPECTS OP INTERNATIONAL LAW INSTITUTE OP NEW YORK CITY Mr. WEEKS. Mr. Chairman, my name is James K. Weeks. I am as- sociate professor of law, College of Law, Syracuse University. I am appearing on behalf of the Procedural Aspects of International Law Institute of New York City, for the advisory council of which I am secretary. Mr. ULLMAN. You may proceed. Mr. WEEKS. During the past weeks since the administration's pro- posals regarding travel curbs were announced the critical responses have been fairly narrow in scope. The majority of these have raised the fear of retaliatory measures by foreign governments, whose econ- omies are dependent in large measure upon tourism; or the specter of authoritarianism which restrictions upon travel imply. Therefore, I should like to direct this committee's atention to some of the par- ticulars of the regulations which I think demand more careful cOn- sideration than has been given to date. I. AREAS OF CONCERN CUERENTLY NEGLECTED BY PUBLICITY RE PROPOSED TRAVEL CURBS Insufficient attention has been paid to other equally important as- pects of the problem. Although the proposals contain exemptions for the less affluent traveler, they are unrealistic in both the extent of the exemption and the qualifying standards. The very concept. of exemp- PAGENO="0090" 868 tions belies the inherent discriminatory features of these proposals. The logic appears to be that travelers in lower income brackets do not appreciably contribute to the balance-of-payments deficit, but wealthier travelers do. This seems to say that the dollar is in danger when only the more affluent group is spending it. Is it any less a drain on the economy of the United States to have other groups spending fewer dollars abroad? There is a quantitive difference but hardly a qualitative one. II. POLITICAL NATURE OF THE PROPOSALS AND THE UNREALISTIC NATURE OF SAME Although I oppose the proposed curbs, it would appear more rea- sonable to permit no exemptions if a significant drop in dollar outflow is to be the result. The allowance of exemptions could be taken to signify the doubt on the part of the administration which must exist as to whether travel curbs are a reasonable or effective way of meeting our balance-of-payments problem. It would seem that proposing travel curbs as a method of correcthng the existing deficit is merely treating the politics-and then only insignificantly-rather than the substance of the problem. It is my opinion that the travel curbs were felt to be the least likely to provoke strong criticism while giving the appearance of facing and coping with the admitted monetary problems facing the United States. These proposals, if enacted, would merely disguise the deeper problem, and will focus attention away from viable alterna- tives which could substantially correct the current deficit. A number of these alternatives have already been presented to this committee and no purpose would now be served by a lengthy reiteration of them. They should, however, be given serious consideration by this com- mittee in its deliberations since they will go further in correcting the current problem than discriminatory and unwise travel restrictions. However, it is my purpose here today to point out to the committee the unfavorable side of the exemptions from the standpoint of one who would under the terms of the proposal be exempted in large measure. III. EFFECT OP PROPOSALS UPON THE ACADEMIC COMMUNITY It is unquestioned today that a large segment of the American aca- demic community finds that as a matter of necessity in the furtherance of scholarly research foreign travel outside the Western Hemisphere is required. Therefore, the proposed curbs affect directly the rights' of the academic community by constituting an interference with schol- arly research by placing unreasonable restrictions thereon. The ex- emption for teachers seems designed to accomplish nothing more than to induce feelings of guilt in those availing themselves of said exemp- tion. Certainly the exemption was not framed for the convenience of the recipients since the 120-day stay required will largely preclude exempt travel. Few school calendars permit such a lengthiy recess. In effect, by passing these proposals~ Congress will be conferring upon the academic community a privilege which is almost incapable of realization, and the net effect upon those affected will be about the same as for those for whom no exemption is' contemplated. It appears PAGENO="0091" 869 in my opinion, that the proposed exemptions are in large part merely illusory. 111-A. INCREASED COSTS OF TRAVEL MAY REDUCE RESEARCH AND SCHOLARLY WORKS Although much is made of the supposed ease with which members of the academic community obtain grants thereby inferring a special affluence to this group which the public may assume can bear the bur- dens imposed by the proposals even if members of that group cannot meet the exemption standards. This is again, in the majority of the cases, largely a myth. The greater number of funded research projects are small and barely cover transportation expenses or often exclude transportation costs arnj provide instead a small living stipend for the recipient at the site of his research. The proposed tax of air fares and of expenditures will quickly erode grant moneys, and also will increase the overall budget requirements of grants, which could ~ell reduce the number of available grants. The organization which I am representing here this afternoon is one of these that feels that their research will be sizably curtailed in order to meet the proposed cost of these proposals. Ill-B. PROPOSED CURBS CONSTITUTE INTERFERENCE WITH RESEARCH Probably most important from the standpoint of members of the academic community is the interference with scholarly research that the proposals would cause. The elements of this interference are: First The length of stay requirement will necessitate leaves of ab sence from their respective institutions, since summer vacations fall a month short of the 120 days I'Vith a shortage of teachers, institutions of higher learning frequently will be unable to grant the requested leaves Indirectly, then, the proposals can cut down the amount of re search which can be accomplished, and this can impair an individual's effectiveness as a teacher and as a scholar Second Much of the for eign travel done by members of the academic community is on the level which could best be described as low or tight budget; the in- creased cost of transportation and the limitation on expenditures may price the trip out of the reach of the teacher of average means. This particular criticism is equally true of all low budget travelei s Third Although popular guidebooks tout the ease of living in "Europe on Five Dollars a Day," the average cost is usually well above that. Even where living can be accomplished at a low figure the accommodations are well below usual American standards There seems to be no ra tionale to explain why a traveler must adopt a substandard of living as a necessary sacrifice of travel. This, if done not as a matter of choice but because of the $7-a-day ceiling, is demeaning to the individual. Particularly is this true in regard to academics traveling in Europe where academics enjoy a higher degree of prestige and status than in the United -States. Subjecting the traveling scholar to this embarrass- ment points up another objectionable aspect of the proposals Fourth Interference can be found in the necessity of even more careful and additional travel records that the proposals will require. This is cer- tainly burdensome and a hardship, albeit a minor one, but further evi dence of the picayune nature of the proposals PAGENO="0092" 870 IV. VIOLATION AND EVASION ASPE~JTS OF PROPOSED RESTRICTIONS In addition to the hardships imposed upon a not too affluent sector of our traveling public, the proposals are objectional upon the grounds that they invite evasion and violation. Specifically, the evasions will probably take three forms: (1) The misrepresentation of actual amounts of money being taken out of the country and the amount of expenditures-a great number of required receipts will probably be- come "conveniently lost." (2) Many individuals may protest the pro- posals if enacted by depositing funds in foreign banks in advance of the effective date of the new laws. Although individually many of these deposits are small, in the aggregate their total may be sizable. I suggest that it is not totally unrealistic to assume that such deposits may nearly approach the amount which the Government hopes to re- capture within the first year if the proposals become law. As with many unpopular laws, the desire to flaunt and evade them enjoys no small degree of popularity and there is no reason to believe that these proposals, if enacted into law, would be immune from that reaction. (3) Since the proposals contain only restrictions upon American dollars which may leave the country in the pockets or checkbooks of Americans, many may adopt what the English have found to be a popular practice; e.g., having a "friend" who is not subject to the regulations carry additional cash which is not reported to the authori- ties upon leaving the country. The proposals appear to be based on the premise that since Americans are honest about reporting income for tax purposes, they will comply with these requirements. However logical this assumption may he, the analog is not exact, and the cus- toms regulations have frequently been the subject of petty chiseling; this opens another arena where the citizen, bewildered by a forest of regulations, can feel he has a chance to strike back since even the most sophisticated traveler, let alone the average citizen, has a difficult time identifying with the problem of balance of payments. The in- come tax and practices associated with it have a much more familiar ring and may therefore induce a higher degree of compliance, al- though that may be open to conjecture. V. GENERAL CRITICISMS OF PROPOSALS The proposals are also subject to attack on several general grounds. They have the effect of straining, if not severing, the cultural ties that the academic profession has long had with the Academe in `Western Europe. These. proposals would tend to discourage exchange pro- grams, although a further bolstering of such programs should be con- sidered as a viable alternative to the proposals and a means of attract- ing more foreign travelers to the United States. Additionally, the United States needs all the good will throughout the world that she can obtain, and by limiting or severely restricting foreign travel, America is depriving herself of an avenue for fostering good will, which the concept of the "ugly American" to the contrary notwithstanding, does much to make this country better understood and appreciated abroad. As for the proposal to cut back or eliminate the $100 duty-free ex- emption for foreign purchases, there is absolutely no convincing evi- dence to prove that this would effect the dollar drain substantially. In fact, when the amount was reduced from $500, tourism increased PAGENO="0093" 871 and dollars flowed just as quickly Out of the United States. The tourist deprived of the right to bring duty4ree purchases home is just as likely to spend that same amount of money abroad for food, lodging, and entertainment. In fairness to the proposals it should be added that this particular feature is probably the least objectionable but also the least likely to accomplish the avowed purpose of the proposals. Furthermore, the proposals bring the sincerity and honesty of the administration into question since it appears that they may have been framed upon the basis of incorrect and inaccurate data, or at least incomplete data as to the total amount of the actual dollar drain caused by tourist travel. At best it appears that the actual effect is un- certain, and in fact may be offset by expenditures of foreign nations in this country for equipment, such as aircraft, which is associated with the tourist industry. To assume without careful investigation that tourism is the pricipal offender in the dollar drain and to take action upon that assumption may be tantamount to "burning the house to roast the pig." The proposals are also open to the charge that they are a barely dis- guised form of prçtectionism. This strikes one as rather hypocritical in light of our avowed position in the vanguard of the move to remove tariff walls and encourage free trade and the official criticism of the protective measures taken and/or threatened by other countries. Fi- nally, the administration's sincerity is open to doubt as regards the alleged temporary nature of these restrictions. Granted that the wis- dom of Congress may be that these curbs are needed as one weapon in the arsenal to combat the admittedly serious balance-of-payments problem and that their enactment is required on a short-term basis. This in itself would be a shame, but to find something eternal about them since they would always generate some additional revenue after their primary purpose had been served and to retain them for no better reason would be criminal. VI. ALTERNATIVES In conclusion, speaking for myself and as a spokesman for the aca- demic community as a whole, I would like to state that there may be more acceptable and effective ways of meeting the problems than those proposed. These alternatives are already known to this committee and need not be detailed here. The Government should do everything pos- sible to encourage travel to the United States, but we have lagged behind most nations in promoting at a government level a truly effec- tive "See America" program; this should be done immediately and the appropriate Government agencies charged with carrying this into effect should be furnished sufficient funds to accomplish this in an effective manner. Cutbacks in our military commitments overseas would certainly reduce the dollar drain. Reduced air fares for those traveling to the United States as already proposed is a hopeful sign of a more constructive approach to the problems than the narrow ap- proach envisaged by the travel curbs. We must not permit ourselves a step backward in the gains that we as a nation have made in the years since World War II and these proposals can in my opinion be viewed in no other light. I would like to thank the committee for the opportunity to appear here this afternoon. PAGENO="0094" S72 Mr. HERLONG (presiding). Thank you, Professor Weeks. You have given us a most delightful, refreshing, and I think thoughtful, paper. I appreciate your being before the committee., Mr. Battin will inquire. Mr. BATTIN. It has been mentioned time and time again by the wit- nesses that our Government has not been spending on a comparative level with other governments as far as advertising, trying to get tourists to come to the United States. Yet when we consider the fact that most of the countries that we are talking about in Western Europe either own or control the airlines that are primarily involved and the other means of transportation, when we consider that our own airlines, our rental companies, steamship lines, almost modes of transportation have been advertising in Europe to get people to come to the United States, I think the comparative factor of how much they spend, to- gether with the government, would pretty much offset what the gov- ernments are spending compared to the United States. Your statement that the American program has fallen far behind doesn't really, in my opinion, take into account the quite different forms of government and different types of ownei~ship of the various facilities involved. Mr. WEEKS. Well, I wouldn't disagree there. I might add that the encouragement of foreign travel may be subject to a criticism on an- other hand, and that is that the average foreign traveler perhaps is not in a sufficient financial position to afford extensive travel in the United States, which, having traveled extensively in this country, as I am sure this committee is well aware, can be well over $7 a day. I assume this tends to cut down on it. Yes, I would have to admit that you take in the private sector's contribution to this and you probably do. get a figure approximating that spent, say, in France or Italy. Mr. BATTIN. I think, too,. one rather important segment which we shouldn't leave out is that, of course, some of our States advertise in the European press again trying to encourage people to see America. All taken together, I think we have done our job and maybe that is why presently we are the largest host country in the world as far as foreign visitors are concerned. What we need according to the witnesses who have appeared before us so far is that we just need more of them. We might be the biggest host, but ~e need to be a bigger one. Maybe that is the proper ap- proach. I don't know. Mr. WEEKS. Yes, sir. Mr. HERLONG. Are there any further questions? If not, thank you so much for your appearance beforethe committee. Mr. WEEKS. Thank you. Mr. HERLONG. Mr. Ansel E. Talbert. Is Mr. Talbert here? Do we have a copy of your statement? STATEMENT OP ANSEL E. TALBERZ OVERSEAS PRESS CLUB OP AMERICA Mr. TALBERT. Yes, sir. Mr. HERLONG. You may identify yourself for the record and proceed in your own manner. PAGENO="0095" 873 Mr. TALBERT. Mr. Chairman and members of the committee, my name is Ansel E Talbert, and I am appearing a~ a witness at the specific request of the board of governors of the Overseas Press Club of America, one of the world's two largest press clubs, which has a membership in excess of 3,500, mostly past and present foreign corre- spondents of American-owned publications and other media. I cur- rently am a member of the board of this club residing in Washington, where I am a managing editor working for the firm Of World Avia- tion Publications, Inc., and was military and aviation editor of the old New York Herald Tribune, serving in Europe, the Far East and many other parts of the world Although the Overseas Press Club Board has gone on record offi- cially as opposing the proposed travel tax bill in its present form, I want to stress that none of us quarrels with President Johnson's objec- tives in seeking to better this Nation's trade balance and overall bal ance-of-payments situation, and to strengthen the dollar. These are objectives with which no member of the American press or American citizen should take issue. The real question in our opinion is whether the proposed travel tax in its present form actually will help the situation it is supposed to correct, or have immediate side effects promoting discontent, ill feel ing and active opposition both at home and abroad, which in the end would defeat its long range aims The Overseas Press Club particularly would like to express its appreciation and commendation to the Committee on Ways and Means for holding extensive and comprehensive hearings on the proposed travel tax in a manner certain to bring out facts of tremendous con- structive value The testimony and discussions already heard clearly are setting in motion a great many beneficial influences tending to help provide a solution to the real problem behind the travel tax proposal. This problem is how to encourage sufficient travel from abroad to the United States to balance at least in considerable and increasing part the travel of Americans who want to go overseas for business or pleasure to any part of the world, as they traditionally have done for many, many years. If the trend already in motion can be stimulated further as a result of these hearings and new and imaginative ways worked out to make the annual tourist migration abroad from the United States more of a two-way street, it may well develop that the travel gap of $2 billion which President Johnson has said he wants reduced as soon as possible by at least $500 million, muy turn out to be a steadily dis- appearing one In the interim, we of the American press might undertake to urge our colleagues from nations which for one reason or another have put the dollar under attack, to use their good offices to ease these as- saults while the United States puts its house in order with all speed possible. It is with the objective of being constructive, rather than simply expressing a negative attitude, that the Overseas Press Club has acted to send a representative to these hearings. The deep concern which club members feel over the proposed travel tax is not motivated by direct personal economic considerations PAGENO="0096" 874 Except in the case of a small minority of self-employed freelance writers, the tax as we understand it would be borne by our employers and in most cases it would be subject to the 50-percent corporate tax deduction. If we understand the proposal correctly, it would not apply to correspondents residing abroad over 120 days. It must be remembered, however, that most newspapers and maga- zines are being forced to watch expenditures increasingly during the present era of rising labor and other costs connected with production. The enormous growth and development of jet air travel has caused what you might call the overnight spot assignment of newspaper and magazine writers and of representatives of television and other media to come to the fore as never before in journalistic history. It constantly is being used to implement swift roundtrip coverage of sudden news breaks in "hot" corners of the world now only a few hours by air from such centers as New York, Washington, and Los Angeles. This Nation, I think you will agree, has a remarkable and unique asset in the largest and most talented corps of foreign correspondents in the world. Speaking only from a national point of view, it would be a tragic development indeed for freedom of the press and America's right to know, if anything was allowed to take place which would restrict, really restricted the scope of its operations even for a short period. To members of the Overseas Press Club, one of the most surprising aspects of the current travel imbalance, particularly between Western Europe and the United States, has been the low-key level of the TJ.S. Government effort to sell travel to the historic centers of American liberty. A comparison of the National Travel Budgets as disclosed by the International Union of Official Travel Organizations, reveals that the United States, with the modest $3 million budget of the U.S. Travel Service, does not even rank among the top 15 nations of the world in this activity of stimulating travel to its shores. Our expenditure for the purpose is less than one-fourth of the amount spent by the tiny Irish Republic and less than one-third that of both Greece and Turkey. It is less than one-half that of Portugal, New Zealand, or Mexico and far behind that of France, Argentina, India, and Belgium, not to mention such Iron Curtain nations as Poland and 1-lungary. We thank God for the unofficial assistance of IT.S. airlines and other private groups, and I would like to say paren- thetically that we did try to get a rough estimate and we understand that the best estimate on total expenditures by all the airlines and re- lated agencies is around $17 million, which is not a great deal more than what Poland spends. As foreign correspondents who have covered every nation of the globe and as of this moment have fellow Overseas Press Club mem- bers working in every capital city of the world, we more than any other group of newsmen in existence know of the tremendous interest in all things American, past and present, among peoples of all nations. There are American Civil War buffs in England, societies and groups devoted to study of the Old West and Indian lore in France and Ger- many, and a curiosity to see the skyscrapers of New York and Chicago, the French Quarter of New Orleans, and such natural wonders as the Grand Canyon, almost everywhere an American foreign correspond- ent is now stationed. PAGENO="0097" 875 If the United States had set to work to sell travel toward this Na- tion with one-tenth of the imagination and drive that it has sold more tangible products-but no more potentially beneficial ones to the American economy-the so-called travel gap certainly would be much narrower. There are economic and financial experts and specialists among the membership of the Overseas Press Club, as well as political and mili- tary reporters. The former have told the Board that the overseas flow of gold, which has diminished this Nation's supply from $22.1 billion to about $12 billion since 1956, cannot be allowed to continue. This obviously is true. But it must be pointed out that one of the chief pillars of America's position in relation to overall balance .of payments has been the tremendous popularity overseas of American- built aircraft, particularly jet transport equipment. During 1967 alone, deliveries amounted to about $21/4 billion. In the competition up. to now for orders for America's supersonic transport arid for the British-French SST, the Concorde, 61 SST"s to be built in the United States had been ordered at last year's end by non-U.S. carriers as com- pared with 62 by American-flag airlines. `The word is around the aircraft manufacturing industry that travel restrictions might easily cost the United States in delayed or canceled orders as much as $500 million-the amount which is the immediate aim. for reduction of the travel gap. It would be poor economics indeed if an investment of this size, along with the tremendous good will throughout the world toward American products, should be endan- gered. It would be presumptious for the Overseas Press `Club to try to present ~ detailed plan for tipping the balance of trade more in this Nation's favor and at the same time solving the balance of payments deficits. This is for Congress in its *isdoth to do with the aid of sug- gestions from both within and without the Government. We simply wish to underline the fact that considerable.thottght and most careful study should begiven to a highly complex .and potentially danger~us situation. We believe that America's future prosperity depends on expanding press and other media communications, along with people-to-people exchanges and world trade, and will not be served by measures tend- ing to restrict or shrink them, even temporarily. W~ feel that the kind of discussions being stimulated by these hear- ings are in the best American tradition and `a~re certain to produ'~e beneficial results, and, once again, we thank the c'~mmittee for allowing the Overseas Press Club to present its views.1 Mr. H1~RLONO. Thank you, Mr. Talbert. Are there questions? Mr. BYRNES. Mr. Chairman. Mr. HERLONG. Mr. Byrnes. Mr. BYRNES. Mr. Taibert, I ask you this particularly because I un- derstand you are presently managing editor for World Aviation Pub~ lication, Inc., so that 1 assume you have a personal, particular knowl- 1 Elmer Roessner, editor in chief, Bell-McClure Syndicate, indicates by hi~ letter of March 14, 1968, that he wishes to disassociate himself from the testimony of Ansel Talbert. Mr. Roessner states that he has "traveled abroad extensively, both as a newspaperman and for pleasure. I stand ready to pay any tax necessary to defend the dollar." 89-749-68-pt. 3-7 PAGENO="0098" 876 edge of what i~ called the aircraft industry and I am intrigued by what you say on the next-to-the-last page of your statement with re- spect to theaircraft industry possibly losing orders. I have read the same things in the papers a number of times and it never ceases to intrigue me. I always pve any business credit for not getting overly involved in sentimentality and doing things on a pretty cold business basis. What is the rationale for a foreign buyer of air- craft manufactured here to buy an American craft in the first instance as against buying one, let's say, manufactured in France or England? Isn't it that for the money ho is getting a better craft? 1s4't that what dictates where a person buys an aircraft, that it more meets their needs: within the framework of the value and the amount of money they have available to pay for it? Mr. TALBE1n~. I `think this is to a large degree true, but it isn't quite as simple as that, I don't believe. Mr. BYRNES. I assume that what is involved here is some commercial airline, say SAS or Air France, buying these aircraft. Who are they? We are talking about commercial craft, are we not? Mr. TALBERT. Yes. Mr. BYRNES. Who are the principal buyers of these craft as far as Western Europe is concerned? Mr. TALBERT. Well, you can almost go down the list of top foreign airlines that fly the Atlantic and you find that almost all of them favor American equipment. This was one of my big points. Mr. BYRNES. Why? That is the point. Why? Mr. TALBERT. I think it is because they first of all have been using this equipment and like it and think it is awfully good equipment. Mr. BYRNES. So that is why they are buying it. Why would they stop buying American equipment just because we put some restriction on tourism to solve our balance-of-payments problem? Why would they decide, "Now we don't think it is such a good aircraft; we had better buy someplace else"? Mr. TALBERT. I don't think they would decide that way. I think it would be much more complicated. If they made such a decision, which we certainly hope they won't, I think it would be based on something like a combination of, let us say, a pique at the United States which has a way of building up. It might be a matter of using the kind of currency which they could use to buy, let us say, the Concorde if we are speaking about supersonic transports. You can use all sorts of cur~ rency to buy the Concorde whereas they have to use dollars here. Mr. BYRNES. The reason we are in trouble is because they have a sur- plus of dollars. That is why we have the problem, because of the im- balance, because of the dollar credits that have accumulated abroad. Isn't that why we have the balance-of-payments j~roblem? Mr. TALBERT. Again I think you are oversimplifying the whole problem. Mr. BYRNES. You are oversimplifying then and some of the other newspaper reports are when they s~y there is going to be retaliation, the American industry is going to lose billions of dollars of orders. Mr. TALBERT. I haven't said that, Congressman. Mr. BYRNES. I am not being critical of you at all. I ask you simply; because yOu are the one witness who probably has some personal knowledge in this area of how this aircraft business works. PAGENO="0099" 877 Mr. TAi~nT. Well, I think that, very frankly, this is a possibility. Right now it does not appear to be a terrible one. We are suggesting simply that this is something to be strongly considered. I think there are a great many possible consequences* of a highly restrictive ban on travel. There are chauvinistic elements in a great many foreign countries that don't like the United States and might use this oppor- tunity to beat the drums for, let us say, a shift to other equipment. You have had this situation in England for many years where equipment which British transport companies did not want to buy was in many cases almost forced down the throat of certain companies, when they actually much preferred to buy American equipment. I use this as just one example. I think this could happen in certain other countries and nobody knows at this point what the permutations of the international air transport manufacturing industry are going to be. Right now for example it does not seem likely that anybody outside of the Iron Curtain would want to order the Soviet supersonic trans- port. To my personal knowledge there are a great many elements in Easteri'i' Europe which would like to dump Soviet equipment and buy American equipment, but this is under the ideal ~ituation, and it i~ subject to change according to a lot of other considerations which are involved with national pride, with artificially created rancor against the United States and a great many' other things. Mr. BYRN~S. I have to admit that you haven't gis~en me very much' help on this question. I have read it, and I think you must have read in the paper that this was going to be a consequence. Mr. TALEERT. I have done more than read it in the papers. I don't get my opinions entirely by reading it in the papers. I ~ and ask sources what they think,, and I don't ask one source. I' ask a lot of sources. Mr. BYRNES. I think you are more moderate in what' you have said here than a lot of the newspaper accounts. In other words, you don't suggest that it is actually going to happen. You just simply say the word is around that travel restrictions might easily cost the United States in the cancellation of orders fo'r aircraft as much as $~OO million, which is, I think,, more moderate than a lot of the things that I have seen in the newspapers. But the point `is why? I don't understand the industry and that is why I was asking someone who had, an `understanding of it. Frankly, I don't think you came to the point in answering why they are going to cancel orders if we put some restriction ou foreign travel. Mr. TALBERT. I think it might be a combination of cancellation and it might take the form of a delay ~at deliveries. It might be several forms. Mr. BYRNES. Why? Mr. TALBERT. Simply because, let us say,' if travel dropped off to a very large extent certain companies might decide that the equipment which they had scheduled for delivery, let us say 2 to 3 years from now, they might better use after they had improved their position if it indeed was strongly affected by a travel tax and this turned out to be very restrictive. I think, let us say, from a business standpoint they might decide it purely on profits and losses. Mr. BYRNES. In other words, they would expect that this tax or the program restriction that has been outlined by the administration PAGENO="0100" 878 to restrict trav~l would be so effective that, not oniy would it be good business for these airlines not to keep up with their current plans to expand, but it would be necessary to contract existing levels because there would be such a significant reduction in travel? Mr. TALBERT. Yes, and this might cause a deferment. I think every- body feels, frankly, barring some catastrophic occurrence, that inter- national air travel is booming at an amazing rate and should continue to do so, all things being equal, but I particularly want to stress that this is not my personal opinion. This is sort of a combination of opin- ions of a great many people in the overseas press club for whom I am speaking, but we haven't predicted that this tax necessarily is going to absolutely wreck the travel picture and is going to lead to something. We simply suggest that this is a possibility which should be con- sidered very strongly in anything that is done. Mr. BYRNES. I appreciate your testimony on this subject. I was trying to get at, I repeat, this relationship between orders that have been placed for planes to be constructed in the United States and the proposed travel restrictions. It seems to me that, unless there is some real contraction in the amount of travel, that relationship is somewhat nebulous. We are also talking in terms of an expansion of travel from West- ern Europe. If we are successful in increasing the number of people coming here from Europe the overall travel picture might not be affected very much by the proposed restrictions. Mr. TALBERT. This is the whole point of my testimony, Congress- man, that the positive things that can be put into effect are the impor- tant ones, that the stress should be upon encouraging travel here. Mr. BYRNES. Well, I will tell you this. It is certainly impossible to find out where the retaliation and retribution that is always threat- ened is really going to come from. That is my only point. I am not favoring the administration's proposals or any other pro- posals. I just want to find out what the facts are. Mr. TALBERT. I would like to know the facts frankly. If you would let me and perhaps I could, I could give you one good example of this. When the jets first came into the picture, for a while there was a terrific problem of filling up the seat capacity which was, let us say, left open by the introduction of this very fast and much larger equipment, and for a while a great many of the airlines went through rather a distressing period economically Nobody doubted that in the long end of the thing it was going to come out all right, but for a while it was pretty embarrassing to some of the airlines to try to fill up these seats. I think that this suggestion which has been around in the industry, as I have stated, and which is a very real one because I have talked to a number of top people in the industry before this statement was made, I think that the action would be to worry about filling up the seats in this .ne~~: equipment and that there might well be an attempt to defer deliveries and so on if it appeared that this was going to cause economic distress. They might want to put this over, and it would seem to me per- sonally that this would in effect defeat the purpose of the bill, which is to get immediate relief of the travel gap. PAGENO="0101" 879 It would seem to me if this happened, and I don't say it will-I say it is a possibility-this might be one of the things that would put off the good work, let me say, that the President had in mind when he suggested this in the first place. Mr. BYRNES. Thank you. Mr IJERLONG Mr Talbert, when we were questioning the Treasury Department officials in connection with our desire to get them to en- courage a fly American flagship program, they brought in a staff paper from the CAB in which they stated that one of the reasons why they did not want to encourage such a program was that they were afraid of retaliation and that they would lose the sale of American planes to other countries. I think that is a mighty weak reed to lean on, any argument like that, because if that were the case certainly they would be can ied by someone else and they would sell the planes to Americans instead of sending them overseas, and I don't think that any businessman or any company is going to buy an airplane from the United States today lust because he likes it. They are going to buy it where they can buy the cheapest and most efficient and most effective airplane and they are not going to cut off their nose to spite their face even though we do put on some restrictions. That is my feeling on it. I think Mr. Byrnes joins with me in that belief. Thank you very much for your statement. There are no further witnesses this afternoon The committee will recess until 10 o'clock tomorrow morning. (Whereupon, at 3:44 p.m., the committee adjourned to reconvene at 10 a m , Wednesday, February 28,1968) PAGENO="0102" PAGENO="0103" ADMINISTRATION'S BALANCE-OF-PAYMENTS PROPOSALS WEDNESDAY, `FEBRUARY `28, 1968 HousE O]~' REPRESENTATIVES,. Co1~MITn~E thT WAYS AND MEANS, Wa8hington, D.C. The committee met at 10 a.m., pursuant to notice, in the committee room, Lougworth House Oflice BuildI~ig, Hon. A. Sidney Herlon.g, Jr., presiding. Mr. HERL0NG. The committee will be in order. We are happy to welcome to the committee this' morning our dis- tinguished colleague from Illinois, Mr. Paul Findley. Mr. Findley, would you please take the witness stand? While we know you well and favorably, I hope that you will identify yourself or the record and proceed in,your own way. STATE~ERT OP EON. PAUL PINDLEY, A R]~PRE:s~NTATIvE IN CONGRESS PROM THE STATE `OP ILLINOIS `Mr. FINDLEY. Thank you, Mr. Chairman. My' name is Paul Findley. I represent the 20th district in Illinois. My purpose in appearing bef6ré you today is to urge that' travel financed under the existing tourist-dollar exchange ~program be exempted from, any tax or `restriction on U.S. trave' this. committee may recommend;~ and, further,. that travelbe exempted in other coun- tries which participate in the "debt-credit" arrangement which I ~,ill outline in this statement. . . ` As the result of an amendment to Public Law 480 whiëh I initiated in 1962, and two subsequent amendments of similar nature, U.S. visitors-business as well as tourist-to Israel, India, Pakistan, Tunisia, Egypt, Ceylon, or Guinea may purchase from the locaL Amer- ican embassy a supply of TJ.S.-owned local currencies equal, to their needs while in that country. The local currencies available .for purchase were a~uire~.by the United States in connection with Public Law 480 transactions. The ex- change is entirely voluntary, and :9ccurs only whGn U.S. visitors take the trouble to visit the embassy and utilize this means of easing our balance-of -payments situation. `Under this voluntary program, visitors to these countries purchased a total of $7,235,300 in local currencies between the inauguration, of the program in 1963 and November 30, 1967. ` ` Purchases and the amount of currencies still remaining `available for purchase on November 30, 1967, asreported by the U.S. `Treasury Department: (881) PAGENO="0104" 882 Purchases through November 1967 Balance available for purchases India $4, 558,700 Israel 821, 800 Pakistan 1,551,000 Egypt 286,100 Ceylon 8,900 Tunisia 8,800 Guinea $4, 439,200 8, 575, 000 1,062,600 91,048,200 81,709 1,218, 000 6,033,600 Total 7, 235, 300 112,458, 500 To the extent that this program is utilized U.S. travel in those countries does not impair the U.S. balance-of-payments position in any way whatever Indeed, under it U S citizens enjoy the advantage of travel and thereby make use of currencies which are certified to be excess__or, in a practical sense, otherwise useless It therefore makes no sense to impose penalties upon such travel or to discourage it in any way. I therefore strongly urge that it be ex- empted from any tax or proposed restriction this committee may report. In addition to the $112,458,500 presently available for tourist dollar exchange, the United States has agreements with a number of other countries where this same program could readily be established Bolivia, Morocco, Paraguay and Sudan are each classified by the U.S. Treasury as "near-excess" currency countries because our hold- ing of Public Law 480 currencies in each country is considered to be nearly in excess of the anticipated requirements of U.S. Government operations there. In each case, the local government has already agreed to cooperate in the tourist-dollar exchange program, and currencies, in varying amounts, are available for this purpose. But due to the "near-excess" classification our Government has not as yet inaugurated the exchange Under Public Law 480 agreements already consummated, local cur rencies are available for exchange in "near excess" countries under the tourist dollar program in the following amounts Bolivia $1,100,000 (Jongo1 4,000,000 Morocco 4 000 000 Sudan 1,000, 000 Paraguay (1) Total 10,100,000 I Congo is classified as "excess-currency" country. In 16 additional countries, the program has likewise been accepted by the local government and could be put into operation on short notice. In each case the holdings of local currencies are such that the country is classified as "nonexcess" and therefore the U.S. Treasury has not seen fit to inaugurate the exchange program. In view of the alarming monetary plight of our Nation, it would seem prudent for the U S Treasury to review these classifications and inaugurate the exchange program in every possible country, even though this might use up U S owned local currencies somewhat earlier than would otherwise be the case PAGENO="0105" 883 Unc~er present circumstances, the United States should seek con- version of foreign currencies into dollars at the very earliest date. It may be that planned U.S. programs will eventually use up the stock- piles of currencies, but the need for immediate improvement in our payments balance is so evident that currency needs for `future pro- grams could wisely be reviewed and met when the need or request for them actually occurs. Meanwhile, the currencies should be available for immediate con- version to dollars by means of tourist dollar exchange. Under Public Law 480 transactions already consummated, local currencies are available and approved for tourist dollar exchange in these "nonexcess" countries but our Government has nOt implemented the program. Local currencies available for tT.~. use on Jan. 1, 1967 (But tourist-exchange not implemented) Afghanistan $300, 000 Brazil2 (1) Chile 2,400, 000 China 2,800,000 Colombia (1) Ethiopia 400, 000 Ghana 600,000 Greece 400, 000 Iceland _~. 100, 000 ~Tordan (1) Korea 1, 1001, 000 Peru . - (1) Syrian Arab Republic2 100, 000 Turkey2 2,600, 000 Uruguay (1) Vietnam, 4,100,000 (16) 14,900,000 1 Less than $50,000. 2 Classified as "near-excess" currency country. To summarize currencies available for existing tourist-dollar ex- change program: TI.S.-owned local currencies presently available for purchase in a total of 7 countries by U.S. tourists and other U.S. travelers under the tourist-dollar exchange program $112,458,500 Available for purchase in 5 additional "excess or near-excess cur- rency" countries under the program but not implemented as yet by U.S. Treasury 10, 100,000 Available for purchase in 16 additional countries which have ap- proved the program but where U.S. Treasury has not implemented it because countries are classified as "nonexcess currency" coun- tries 14,000,000 28 countries 137,458,500 In three "excess currency" countries, the tourist-dollar exchange pro- gram has not been approved by the local government, as follows: Local currencies available for GiL use on Jan. 1, 1961 (But tourist-exchange not approved) Burma $11, 100,000 Poland 486,700,000 Yugoslavia 49, 00() 000 - 546,800,000 Total PAGENO="0106" 884 Yugoslavia, in lieu of entering into the program several years ago, agreed to purchase with dollars $250,000 inU.S.-owned local currency. In view of the heavy level of U S tourist and business travel to Yugo slavia and the heavy inventory of TJ.S.-owned currency, this would seem to be a bargain much to the advantage of Yugoslavia It would be' interesting to determine just~ why this compromise was accepted by our officials in consummating the Public Law 480 soft currency transaction in question. In 33 other countries our Government has local currency holdings, most of them acquired ñnder postwar programs other than Public Law 480, and under conditions which make the currencies of little ~or no prospective value to the `UnitedStates. Here is the inventory, as of January 1, 1967: Million ` Million Afghanistan $2.4 Iran $2.0 Australia G 1 Italy 6 5 Belgium 0.1 Japan 25.2 Cambodia ___.-------- -- 0.3 Jordan `~ 0.4 Cameroon 0 1 Korea 1 1 Chile ____-- 9.4 Laos 4.5 China ____-- 7.7 Libya - 0.1 Costa Rica 0.1 Mali 1.5 Cyprus 0 4 Nigeria 0 1 Czechoslovakia 1. 0 Peru 2. 2 Dominican Republic 0 6 Philippines 5 4 Ecuador 0. 1 Senegal 0.3 Ethiopia 1. 1 Somali 0.1 Gbaüa *... 4. 1 South Africa 0.1 Greece 0 4 Thailand 1 3 Guatemala 0.3 Vietnam 32.6 Iceland 0.2 (33) 111.8 RECOMMENDATIONS I recommend that, in formulating legislation on travel tax or re- striction, you exempt travel which utilizes the tourist dollar ex- change program; further, that you encourage the Treasury Depart- ment to inaugurate the tourist dollar exchange program in each of the 21 countries where the program has been accepted by the local government and where the United States owns currencies In my view, the monetary crisis is so grave"that this should be done regardless of whether our Government considers our holdings of local currency to be excess, near excess or nonexcess If the United States owns local currencies in any of these countries they should be made av~i,ilable to U.S.. visitors. In addition, I urge that you exempt travel in countries which coop- erate in a~ debt-credit or currency-credit arrangement. ~*Under" this prôpósal, the lOcal `government would `b~ required to redeem" with dollars $5 worth ~f U.S.-owned local currency-or apply a like amount on past cTi~ie çlebt~-~-for each day ~a U.S. citizen travels in that couiitry." ` ` " ` ` I have just listed 33 countries in which the United States now owns $111,800,000 in a local currency In addition, a number of countries owe us large sums dating from World War I To illustrate, Britain PAGENO="0107" 885 owes $7 billion, France $5 billion, Germany $1 billion and Italy $1 billion. U.S. travelers abroad spend an average of $18 a day. This is at- tractive business to any country. Because of this, most countries would give careful thought to cooperating in the debt-credit or cur- rency-credit arrangement, in order to keep dollars from U.S. travel coming in. Even with the $5 adjustment, representing the redemp- tion of .U.S.~-owned currency or payment on old debts to the United States, the local cbuntry would still realize an appealing net of $13 per day per U.S. visitor. Most travelers will naturally seek to avoid taxes and will therefore travel where they can do so tax free. Travel under the existing tourist-dollar program would not impair our balance of payments at all. Travel under the proposed currency-credit or debt-credit arrange- ment would substantially ease the adverse monetary impact of U.S. travel abroad and would have the further virtue of causing other governments to unfreeze a portion of presently useless U.S. currency holdings or begin a modest payment on long overdue debt. Either de- velopment would be propitious, and serve as a precedent for further unfreezing of currency and debt payment in time to come. These exemptions would also protect, to an important extent, the basic right of individual U.S. citizens to travel abroad without pen- alty. The debt-credit or currency-credit arrangement 1 suggest could be administered in any of several ways. To me, the most efficient arrange- ment would be settlement of accounts when the U.S. traveler returns. On checking through customs, he would pay the per diem tax for travel in countries not cooperating in either the tourist-dollar, or in the currency-credit and debt-credit arrangement. For travel in other countries customs officials would establish the correct dollar claim to be paid by the appropriate governments. When the government-to-government account is. paid, credit would be made against U.S. holdings of local currencies or other obligations to the United States. Travel could be verified by passport endorsements or other documentation approved by mutual agreement. If this committee should decide against reporting a bill taxing or restricting U.S. travel abroad, I hope you will give consideration to a proposal I made to you 3 years ago. At that time I noted that the tourist-dollar exchange program, like today, was not being utilized nearly to the maximum extent, and sug- gested that travelers be given an incentive to use it. My suggestion was that travelers making full use of this program be given a bonus in tax-free allowance for goods brought back to this country. This would give them a special incentive to visit countries where the program is in operation and there to take the trouble to utilize the program. Funds used for the bonus purchases would be U.S.-ownecl local currencies, so the tax-free bonus would not actually be a dollar loss to the U.S. Treasury. In this connection I call to your attention the operative part of H.R. 6474,89th Congress, which r~ads as follOws: PAGENO="0108" 886 Be it enacted by the t~enate and ll1ouse of Representatives of the United ~8tates of America in Congress assembled, That item 915.30 of title I of the Tariff., Act of 1930 (Tariff Schedules of the United States 28 F R part II Aug 17 1963; 77A Stat. 434; 19 U.S.C. 1202) is amended by inserting after "acquired abroad as an incident of the journey from which he is returning," the following: and articles other than alcoholic beverages and cigars not over $500 in ag gregate value acquired with currencies of the countries in which such articles were purchased if such currencies were sold to such person by the Secretary ot the Treasury under section 104(s) or section 104(t) of the Agricultural Trade Development and Assistance Act of 1954 (7 U S C 1704) Snc 2 The amendment made by the first section of this Act shall apply only ~ ith respect to articles purchased with currencies sold after the date of the enactment of this Act Unless by some means the United States motivates travelers to utilize the tourist dollar exchange progr'tm, a valuable opportunity to improve our balance-of-payments position will be lost. Thank you. for your consideration. I thank you very much, Mr Chairman, for your patient considera tion of this Mr HERLONG Thank you very much, Mr Findley Are there ques tions ~ Mr Burke will inquire Mr BURKE Congressman Findley, I want to compliment you on this excellent statement you have made here this morning Of course you have always been a constructive Congressrn'in I think you have opened a field here on something that should be looked into Do you know of any real objections on the part of the Treasury or our Government to putting this type of program into effect? Mr. FINDLEY. Over the past 4 years I have had a number of con- versations with officials of the Treasury Department trying to find out why it is that they have not pressed forward to utilize this program and they explain they have gone ahead with authorl7lng this program in countries where they felt our holdings of local currencies were in excess of what they expected would be required in the course of time under the programs that are in being or expected to be put in operation. Now, if we didn't have any balance-of-payments program that would be I think an acceptable attitude, but we face a very serious crisis today, one that has been building over these recent years, and I don't believe their argument is valid any more. My theory is that if we own local currencies which are approved by the local government as being available for purchase by U.S. visitors we ought to encourage our visitors to buy them at the earliest possible date and not simply hold these currencies in reserve for some expected need by our Government. When such need does actually occur and there is a need for money to cover the need that will be time enough for us to provide the funds for it. Meanwhile we ought to utilize this means of easing our pay- ments deficit. Mr. BURKE. In other words, if a commitment has been made for the use of those funds in some of these countries in some program that is going to be carried out there, you wouldn't want to touch those funds? It is the funds that there is no commitment made for? In other words, if there is no program that is in existence or that has been established, that would call for the use of these funds and pay for these programs that might be put into action in those countries? PAGENO="0109" 887 Mr. FINDLEY. My feeling, Mr. Burke, is that even though we thay have a need for local currencies, let's say, a year from now and 2 years from now, we have a greater need to meet our balance-of-pay- ments crisis. I say let's use the local currencies for immediate sale to U.S. visitors, and then when the other need arises for currency let's face up to it at that time. Let's utilize every means of reducing the payments balance right now. In fact it might be wise in view of our payments plight to review `some of the programs using local currencies that are in operation or planned. Maybe we could wisely make some adjustments and put some of them on the shelf or even cancel some of them in order to ease the payments deficit. If we proceed with the philosophy that has recently prevailed in the U.S. Treasury Department we tend to keep these programs in being and out of critical review. I can think of several good reasons why we should free these local currencies immediately for purchase by U.S. visitors. I can't think of any real valid reason to deny U.S. visitors the op- portunity to buy those currencies right now. Mr. BURKE. Thank you very much. Mr. HERLONG. Mr. Byrnes. Mr. BYRNES. Mr. Chairman, I want to say that I believe the gentle- man from Illinois, Mr. Findley, in his usual constructive fashion has made a real contribution to the work of the committee in facing up to the problem we have before us. I want to compliment the gentleman for his work in the original enactment of the legislation which permits tourists to use foreign currencies in their travels and for his followup work on that legisla- tion. The very idea that we have to restrict that program until we get into a near-excess classification or an excess classification just doesn't make any sense. Why shouldn't the currency be converted into dollars at the earliest opportunity? There is no loss to us. There may be a real benefit in that our balance of payments will be improved. Let me ask this, though. You mention some 33 countries in which our Government has local currency holdings, most of them acquired, you state, "under postwar programs other than Public Law 480, and under conditions which make the currencies of little or no pro- spective value to the United States." Do we have freedom of action with respect to the use of these currencies? Mr. FINDLEY. No, sir. Mr. BYRNES. I was under the impression that the basic agreement under which we acquire such currencies limit the uses to which they may be put. Is that correct? Mr. FINDLEY. That is absolutely true. Mr. BYRNES. So that it would be unlikely that we could obtain the approval of the local governments to use them other than for the restricted purposes specified in the agreements. What did the gentle- man's study reveal with respect to this area? Mr. FINDLEY. In my statement I perhaps didn't make my suggestion clear. I recognize that these particular currencies are frozen and frankly of no prospective use to the United States. But if we should PAGENO="0110" 888 establish a tourist tax, for. travel abroad we could wisely establish a strong incentive under which these countries where we own some frozen currencies would be exempted from the travel tax. Now, U.S. travelers spend an average of $18 a day. Let's take Aus- tralia where we own lust $100,000 in frozen currency If Australia felt the travel tax might discourage U.S. travel there the Government might agree to unfreeze this holding of currency at the rate of $5 per U S visitor per day in order to avoid the tax That is the type of arrangement that I think we could wisely offer to supplement the operation of the tourist dollar exchange program This would have not only the immediate benefit to our monetary situation but would serve as `a precedent in future years, and hopefully in time the local government would unfreeze the rest of the currency. Each of these countries, even though they recognize that the cur- rency was acquired under terms which make it virtually useless to us now, still surely feels some sense of obligation, recognize this cur- rency as something of an obligation. By this program we could pry some of this frozen currency loose. At least I would hope so Even if the program wasn't utilized, nothing would be lost. At least we could say, "Well, we offered you an arrangement to keep the door of tourism open and you saw fit not to cooperate." Mr. BYnNES. The gentleman presents a most ingenious idea. I think certainly the committee should, to the extent that it seriously considers imposing a tax such as that recommended by the administration, give this matter sympathetic consideration. I thank the gentleman very much for bringing it to the attention of the committee Mr. FINDLEY. Mr. Byrnes, I appreciate that. May I underscore one other thought ~ If the committee does pass a ti avel tax, I would certainly hope that it would exempt travel which is financed uiider the existing tourist-dollar arrangement because `that type. of travel does not impair our balance qf payments at all and it ought to be encouraged Mr. BYRNES. I have reference to the full program that the gentleman has presented to us this morning for the' use of the tourist-dollar, foreign currency program Mr FINDLEY Thank you Mr. HEIRLONG. Mrs. Griffiths. Mrs GRIFFITH5 I would like to commend the gentleman too Ever since I found out how Public Law 480 money is handled I have per sonally agreed with Adam Clayton Powell that the first person over there ought to spend it all because I think that it is really nonsense to hold this money. FurthermOre, the way in which it has been done permits Govern- ment spending of the money. We control to some extent the budget of the countries holding Public Law 480 money because they can only spend it if we agree that they can spend it Frankly, I think that is one reason for those countries disliking us How would we like to have somebody tell us "Well, yes, you can spend your money on this or that or something else" I think there would be one tremendous advantage in permitting tourists to spend this money You would create private purchasing power. You would encourage people to use the money and to create a further consumer market. PAGENO="0111" 889 I too want to commend you. I think you have dane a fine job. Mr. FINDLEY. Thank you very much. Mr. HERLONG. Mr. Utt. Mr. UTT. Mr. Findley, I too want to compliment you. This has been a very intriguing matter to me for years. I thought we had far more counterpart funds than you have listed here. I thought it ran into the billions. Mr. FINDLEY. I don't pretend that my list is absolutely complete and accurate and I might say also that in these countries which are listed on the first page of. my statement, the seven which are now cooperating in the tourist~do1lar exchange program, the $112 million there of U.S. currency is only that portion of our holdings which is set aside for U.S. uses. . . There are tremendous sums beyond that wl4ch the local government has not agreed are available for U.S. uses. Mr. UTT. This is what you refer to as excess funds? Mr. FINDLEY. Yes, it is a part. Mr. UTT. Excess of the programs that they have? Mr. FINDLEY. Yes, Frankly, it is even more than that. In the early Public Law 480 transactions; very few of them provided more than 10 percent of the proceeds as set aside for U.S. use. That percentage has been increased somewhat in recent years, but at the outset just a tiny fraction was made available under the terms of the contract for U.S. use. The rest of the currency could not be used for anything except local, public works and even then just what the local govern- ment wanted. Mr. UT.T. My main purpose of inquiry here is that I have had a number of complaints from tourists in my disti~ict over the redtape and delay in getting `the counterpart funds and their trip is over be- fore they get them. Is there any way `that they can be speeded up? Mr. FINDLEY. I must say that our Government has been anything but imaginative about prompting the existing tourist dollars program. At one point I asked the Department to supply me with a copy of the literature that they had at passport offices in order to explain the idea so that if some tourist would aecidently pick up `a sheet of paper he might find out about it.' ` ` They had none, so I wrote a suggested bit of copy, and the last I knew this was still the only promotion item being used. The. Govern- ment has not really attempted to sell it. If I may add one other item, you will see a rather considerable sum purchased by U.S. visitors in India and Pakistan under this program, $4'/2 million in India and $11/2 million in Pakistan. Most of that frankly was no't tourism. It was purchased by the Ford Foundation and Rockefeller Foundation, U.S. enterprises which utilize this program, buying local currencies with dollars. The currencies were then spent in India and Pakistan. Un- happily our State Department has promoted this program hardly at all. It is a `tragedy. Mr. UTT. I can go to my bank and I can buy foreign' currencies if I am getting ready to take a trip. Why shouldn't the State Department gather in these funds that are available and that can be used where the program is implemented so that a bank in Los Angeles can call on the State Department for so many dollars worth of counterpart funds in Cairo and deliver it to me within a reasonable time. PAGENO="0112" 890 Mr. FINDLEY. Mr. IJtt, I am sure that could be negotiated in almost every case. There might be some reluctance on the part of governments to see the transfer actually occur outside their country, but I think that problem can be overcome, and in any case, we can surely make arrange- ments for the exchange to occur in circumstances convenient to the U S traveler when he lands and not require that he hunt up the American Embassy and try to get there within certain limited hours in order to complete this transaction. We ought to make it easy for the U.S. traveler. Mr. UTT. That is the complaint I have had. Thank you. Mr. HERLONG. Mr. Schneebeli will inquire. Mr. SCHNEEBELI. Congressman Findley, I too think you have had a very responsible and intelligent approach. I can understand your frustration, dealing with the State Department, in trying to publicize the availability of these funds. Have you ever approached Treasury to see whether they would cooperate? Mr. FINDLEY. I should not have directed my criticism only at State. Treasury has been the Department where I have had the greatest communication because it is the one that has been in charge of the implementation of the tourist-dollar exchange program. Mr. SCHNEEBELI. And they are rather reluctant to make available to the public the dollars available for counterpart use? Mr FINDL1r~ Yes, that is right It is sad to report but I am afraid true that our Government by and large has been more concerned about the currency problems of other countries rather than our own. Mr. SOHNEEBELI. In view of their stated concern about the balance- of payments deficit you would think that they would be the ones most interested in using the money available in this area Mr. FINDLEY. Yes. Mr. SCHNEEBELI. I think they certainly can be in a position to be criticized for their reluctance to solve some of their own problems. Mr. FINDLEY. I agree. This ought to be the day and the hour for them to recant and take a different approach. Mr. SCHNEEBELI. I am glad we agree.. Thank you very much. Mr. HERLONG. Any further questions? I want to thank the gentleman for his statement. I would like to sug- gest that in my opinion, and I hope and I believe, the committee will give careful consideration to this constructive suggestion the gentle man has made. Thank you very much. Mr. FINDLEY. Thank you very much, Mr. `Chairman. Mr. HERLONG. The next witness is Mr. Albert Keenan. STATEMENT OP ALBERT J. KEENAN, MEMBER, PASSENGER SHIP COMMITTEES, COM1\IITTEE OP AMERICAN STEAMSHIP LINES (CASL) AND AMERICAN MERCHANT MARINE~ INSTITUTE (AMMI); ACCOMPANIED' BY REAR ADM. RALPH K. J~AMES, USN (RET.), EXECUTIVE DIRECTOR, COMMITTEE OP AMERICAN STEAMSHIP LINES Mr. KEENAN. Mr. Chairman, I have with me today Admiral James of the CASL, Committee of American Steamship Lines. May I have him sit with me? Mr. HERLONG. Be happy to have you both. If you will identify your- PAGENO="0113" 891 self and the gentleman with you for the record you `may `proceed in your own way. Mr. KEENAN. Thank you, sir. Mr. Chairman and members of the committee, my name is Albert J. Keenan. I am vice president, pas- senger traffic, Moore-McCormack Lines, Inc., and I am appearing here today as a member of the Passenger Ship Committees of the Commit- tee of `American Steamship Lines-CASL-and the American Mer- `chant Marine' Institut&-AMMI. The ~ombined membership of these associations includes all passenger ship operators flying the American flag and serving the international trade. Mr. Chairman, I was to have been accompanied by Mr. Ralph Casey, president of the American Merchant Marine Institute~ Unfortunately, Mr. Casey had a personal tragedy that' prevents h~s being here today. Rear Adm. Ralph K. James, USN (retired), executive director of the Committee of American Steamship' Lines, is with me here,~ CASL and AMMI fundamentally are opposed to the provisions of the proposed administration plan for travel taxes which was pre- sented to your committee by the, Secretary of the Treasury in testi'- mony given on February 5 and 6, 1968. In that testimony the admin- `istra~tion proposed (1) a ticket tax of 5 percent on steamship passenger tickets for travel outside the Western Hemisphere-this tax to be imposed until October 1, 1969; (2) a graduated tax on a traveler's expenditures abroad; and (3) a reduction in the amount of duty-free purchases which could be returned by the traveler to the United States. The latest figures, for 1966, show that the private sector of our economy. exported $30 billion worth of goods and sdrvices and im- ported $25.5 billion. This resulted in a favorable trade balance of $4.5 billion. The deficit in our balance of payments stems largely from our commitments in Vietnam and our military and aid expenditures else- where. The U.S. sector of the transportation industry contributes signifi- cantly to favorable net balance of payments through the services it renders in moving cargoes and passengers in foreign commerce abroad U.S.-flag ships and airplanes. We believe a more positive approach to the problem would be to stimulate travel and cargo shipment aboard Americ~n ships rather than to effect measures which would tend to weaken or destroy the travel industry as a whole. We think it is eco- nomically demonstrable that the results of such efforts would improve our balance-of-payments position. We are convinced that the results of the proposal now before this committee would not improve our balance-of-payments position. On February 8, 1968, members of the Senate Committee on Com- merce and the House Merchant Marine and Fisheries `Committee rec- ognized the importance to the U.S. balance of trade and balance of payments of the contributions b'y the TJ.S.-flag merchant marine. The chairmen of each of these committees supported by additional Members of each House, introduced Senate Concurrent Resolution 58 and H.R. 640. This resolution reviews the impOrtance of stimulat- ing travel in American-flag ships and movement of export cargoes in American-flag freighters to achieve a significant improvement in our balance-of-payments position. As stated by Chairman Garmatz while introducing this resolution; "The Concurrent Resolution we are introducing today is intended to emphasize that a nation's shipping services is an export commodity and this American patronage of American ships for travel and transportation of goods can make a significant contribution to the reduction of our balance of payments deficit. 89-749---68-pt. 3-8 PAGENO="0114" 892 American-flag passenger shi1)S, which contribute substantial sums to a favorable balance of trade, are presently in a fight for economic survival. To maintain the high quality services in the face of rising costs and expanding foreign competition is a never-ending battle. The proposed travel tax, if enacted, would clearly result in a sig- nificant drop in passenger trade. Such losses might be enough to drive American-flag ships operating outside the Western Hemisphere from the high seas. This will have a twofold negative effect on our balance of payments. It will then not be possible to attract either American or foreign travelers to our ships and those same travelers will become the permanent customers of foreign ships. Concurrently, with the proposal to impose travel taxes the admin- istration is developing a program to stimulate travel of foreigners to the United States, in the interest of reducing the balance-of-payments deficit. If we were to reduce our own travel abroad by imposition of a variety of taxes, we feel that almost certainly reciprocal action might be generated in foreign countries outside of the Western Hemisphere. It is felt, therefore, that the proposed travel restrictions are negative and self-defeating aii.d the oi~ly reasonable approach to improving the balance-of-payments picture in respect to travel must he achieved through the Positive stimulation of travel from abroad and greater utilization of U.S.-flag ships. This would include accelera- tion of promotion activity by carriers, by the IJ.S. Travel Service and travel groups such as "Discover America, Inc." The belief that our U.S.-flag steamship industry is contributing significantly to the improvement of our balance-of-payments position has only very recently been affirmed by an economic study just com- pleted by Dr. Paul Cherington, Hill Professor of Transportation at Harvard Graduate School, who was assisted by Harbridge House, a management consultant firm in Boston, Mass. This study also includes the contribution of Dr. Eli Shapiro, an eminent economist of Harvard University. A copy of this study is offered for review by this committee in its full detail. (A copy of the study entitled, "The Balance of Payments and the U.S. Merchant Marine," is in the committee files.) Essentially, it concludes that the American-flag merchant fleet con- tributes approximately $900 million annually toward the improve- ment of our national balance-of-payments account. The indications are clearcut that of every passenger travel dollar spent aboard American- flag passenger ships for transportation, food and entertainment, over 90 cents remains in the United Stat.es. These sums are not to be considered lightly in weighing the matter of solving our balance-of-payments problem. Therefore, it would seem that any action by taxes or otherwise which would reduce traffic in American-flag ships is clearly working to accentuate the already seri- ous balance-of-payments deficit. From the purely mechanical aspects, the proposed new tourist taxes would seem to crea.te an environment for a variety of evasive practices by travelers in declaring their daily expenditures. This aspect of the proposed taxes would also inwose a fantastically awkward paperwork arid pohcmg burden in. the collection of taxes which might well exceed the income gained by additional taxes. We call your particular attention to the matter of cruise ships. A passenger crusing on a TJ.S.-flag vessel is effectively spending most of 1ij~ moirey in the United States regardless of the area in which he is PAGENO="0115" 893 cruising. The converse is true when a passenger travels on a foreign vessel. An analysis of the three cruises which Moore-McOormack Lines op.erated to Scandinavia in 1967 showed that only 6.3 percent of passenger revent~ was `spent in. the countries visited. As we have ~stated, we are opposed, to any form 9f travel tax, but if in the wisdom of Congress a tax is deemed. essential it should not depend upon the area in which a ship is cruising. It should also be noted that the proposal of the Secretary of the Treasury to apply a 5-percent transportation tax for part of a crUise and an expenditure tax for the balance is cumbersome and imprac- ticable. According to the technical explanation of the travel tax pro- gram the higher rate of the expenditure tax would becom~ applicable when the vessel makes its first stop outside of the Western Hemisphere of more than 12 hours. The duration ofa cruise calli is determined by tourist attracti.ons, but passenger economic interest thight require the curtailment of ,a call by a few hours just for the tax advantage. Clearly the proposed dual form of taxing cruises might~ result in undersirably bizarre schedulh~g. We must also oppose the proposed taxes because they would result in discrimination against the American-flag steamship lines who nor- mally operate to points outside the Western Hemisphere. As you know, Mr. Chairman, the passenger lines of CASL and AMMI o - erate under operating differential subsidy contracts with the U. Government requiring a specific amount of service on assigned trade routes. Any loss of traffic resulting from imposition of the proposed taxes would inevitably hurt those American Lines while foreign com- petitors are free to offer service solely within the Western Hemisphere completely at will.. Thus the loss of traffic due to these restrictions will not only adversely affect the American Merchant Marine but will in fact~ compound the situation this proposal was designed to remedy. In lieu of restrictive taxes on American travelers it would seem, therefore, that a more logical and more effective program would be first to encourage travel in American-flag passenger ships, andsecond to stimulate by all devices possible travel to the United States by foreign nationals. In the broader field of improvement of our national balance-of- payments position would be a program (1) to encourage movement of U.S. exports in U.S.-fiag shipping, and (2) to stimulate export trade expansion by U.S. manufacturers. To this end', the COmmittee of' American Steamship Lines for nearly 3 years has undertaken a major program of export expansion amongst American manufacturers. We have offered to these manufacturers, at `no cost, many services that would `facilitate the entry of a new manufacturer into `the export trade. This program has received high commendation from the Secretary of Commerce and is now showing great dividends. All of it is performed as a service to the Nation by the steamship operators who are members of the Committee of American Steamship Lines. To conclude this statemetit, I would like to quote a paragraph from a communication sent to President Johnson on January 26, 1968, by Robert E. Short, national chairman of "Discover America, Inc.," on the occasion of their board meeting in St. Thomas: Since its inception in 1965, Discover America, Inc., has supported a policy of travel freedom by all citizens. It still adheres to the belief that travel makes its greatest contribution to social and economic progress when there is complete PAGENO="0116" 894 freedom of travel with' a minimum of restraint on the choice of destination. Improving our nation's balance of payments position requires vigOrous efforts to increase our earnings from the sale abroad of goods and services, including travel to the United States by foreign visitors. Travel to the United States can- not be increased while United States travel abroad is being restricted, any more than exports can be expanded while imports are being restricted. An expanded and sustained growth of foreign visitor travel to the United States can be achieved as long as the philosophy of travel freedom Is honored. In summary, Mr. Chairman and members of this committee, I would like to urge that the proposed tourist taxes be rejected by this com- mittee and that other avenues available to our Nation be utilized in re- ducing the balance-ofpayments deficit. I would like to thank the gentlemen. Mr. HRRLONG. Thank you, Mr. Keenan, for your statement. Are there questions? Mr. Curtis will inquire. Mr. Cuirns. First, let me commend you on your statement. You have been very helpful. Maybe through your organization I can get some additional data. Do you have the figures of how many of the ~ million people who came to the United States last year, came by ship? Do you have those figures? Mr. KEENAN. I don't have those figures, thr. The proportion is pre- dominantly by air, very substantially. Mr. CURTIS. I wanted to get the figure first. Can you get it? Mr. KEENAN. Yes, I have them in my office. Mr. CURTIS. Then I would want to know how many come-I am talking about those who come to the United States-by ship and then those that came on Atinerican-flag ships vis-a-vis foreign ships. I would also like the reverse of this, how many Americans go abroad and how. I have the total, but I don't have the total of how many go by ship, and how many of those go on American-flag ships and how many go on foreign ships. You have brought in a very important pOint in respect to cruises. How much of this travel we have been talking about is in the cruise area? First, do you have the figure of the total travel, then the travel by ship, and then what percentage of that travel is cruise travel? Could you get that? Mr. KEENAN. I have that, sir. I would like to make a comment in this respect if I might. Mr. CURTIS. Certainly. Mr. KEENAN. The nature of steamship travel has changed from being predominantly one of transportation to one of predominantly visiting the world by cruise ship. In other words, it is a way of seeing the world. More and more of the people who go by ship arer going for this purpose. It is a convenient way of seeing the world. Mr. CURTIS. I thought that was probably the case. Incidentally, any data you have on cruise travel I would appreciate. Take the period from 1960 to the present or any timespan which would serve the purpose of giving us the increase in Americans who use ships, the ratio of cruises to the total, and then give us what the total cruise picture is. Mr. KEENAN. It is a startling trend. (The following information was received by the committee:) PAGENO="0117" (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Fiscal year Total By air Percent of col. (2) U.S. flag Percent of coL (3) Foreign flag By sea ~ Percent of cot. (2) U.S. flag Percent of cot. (8) Foreign flag 1946 389,584 252,539 64 217,364 86 35,175 137,045 36 78,253 57 58,792 1947 695,441 400,178 57 339,206 84 60,972 295,263 43 168 322 57 126,941 1948 786,319 411, 104 52 321,063 78 90,021 375,215 48 181,953 48 193,262 1949 863,951 455,870 52 354,005 77 101,865 408 061. 48 173,687 42 234,394 1950 981,124 514,019 52 393,830 76 120,189 467, 10& 48 183,528 39 283,577 1951 991,574 600,945 60 431,089 71 169,856 398 629 40 137, 128 34 261, 501 1952 1, 198, 503 709,036 59 496,352 70 222,684 479,467 41 193~755 4fl 285,712 ç~ 1953 1,340,295 804,566 60 547, 321 68 257, 245 535, 729 40 233,234 43 302,490 ~ 1954 1,411,963 846,625 59 561,999 66 284,626 565 338 41 232,936 41 332,402 1955 1,582,755 1,028,264 64 696,523 67 329,741 554,491 36 201, 511 36 352,890 1956 1,813,498 1,235,846 68 821,123 66 414,723 577,652 32 191,736 33 385, 916 1957 1,976,715 1,396,698 70 869,421 62 527,277 580,017 30 183,489 31 396,528 1958 2, 194,343 1,609,437 73 952,650 59 656,787 584,906 27 164,034 28 420,872 1959 2,624,959 1,945,270 74 1,115,968 57 829,302 679 689 26 162, 01$ 23 517, 671 1960 2,939,330 2,218,860 75 1,212, 134 54 1,006,726 720 470 25 165, 884 23 554, 586 1961 3,063,056 2,344,845 76 1,151,777 49 1,193,068 718,211 24 151,046 21 567,163 1962 3,318,817 2,547,246 76 1,232,885 48 1,314,361 771,571 24 155,470 20 616,101 1963 3,689, 191 2,882,803 78 1,433,676 49 1,449, 127 805, 388 22 159, 802 19 645, 586 1964 4, 139,932 3,306,921 79 1,628,007 49 1,678,914 833 011 21 157, 290 18 675,721 1965 5, 159,627 4,381, 142 85 2,178,626 50 2, 202,516 778,485 15 112, 187 14 666,298 1966 5, 856,512 5,092,986 87 2,605,713 51 2, 487,273 763, 526 13 124, 530 16 638,996 Source: U.S. Department of Justice, Immigration and Naturalization Service tables dated June 16, 1961, through January 1967. PASSENGERS (INCLUDING CRUISE) DEPARTED FROM UNITED STATES TO FOREIGN COUNTRIES PAGENO="0118" 896 PASSENGERS DEI~ARTED U NITED STATE S ON CRUISES (TA BLE 7 OF 1MM IGRATION PACKAGE) ICalendar yearsJ 1962 1963 1964 1965 1966 Bermuda 30,355 33,189 32,518 38,126 30,949 Caribbean 230,986 217,773 72,489 71,968 117,329 Europe and Mediterranean l3~695 15,604 16,527 22,105 16,494 Far East 1 086 670 5 774 5 196 4 947 Nassau Bahamas 68 024 192 428 211 574 184 635 Southern South America 807 300 2 050 2,718 4,720 World 3,331 2,072 1,873 1,817 4,471 Other 3, 653 5, 297 1,025 2, 3~4 3, 763 Total 283 913 342 929 324 684 355 808 367 308 PASSENGERS DEPARTED THE UNITED S TATES BY SEA ON CRUISES (TA BLE 2 OF IMMIGRATION PACKAGE) Total Calendar year U.S. flag Foreign 1962 40,539 243,374 283,913 1963 32,893 310,036 342,929 1964 37,689 286,995 324,684 1965 35,906 319,902 355,808 1966 50,409 316,899 367,308 Mr. CURTIS. Yes. I am now repeating. I think you make a very good pomt., and I suspect you can substantiate it, when you say that 90 cents out of the dollar spent on these kinds of cruises probably remains in the American economy. Mr. KEENAN. I am talking here of cruising aboard American-flag ships where your crew is paid in dollars but they are paying their taxes here and supporting their families here. Mr. CURTIS. That is right. Mr. KEENAN. And we are repairing our ships in American yards. We made an analysis of three trips last year to Scandaiiavia and we found that of the passenger revenue-dollar only 6.3 percent was used abroad. I don't know what they spent for short excursions and this type of thing but it is comparatively insignificant. Mr. Cun'ns. But you have the subsistence on board which is probably American food. This become significant, and if the committee were so foolish as to go ahead and do anything in this area, which I hope it won't, a distinction might well be made in this area of cruises for the reasons you point out. At least I would like to have the data so we know what we are talk- ing about. There is one other area I would like to just briefly explore. You state on page 3: This would include acceleration of promotion activity by carriers. Do you have any idea how much American-flag passenger ships do spend in proinotmg tourism into the United States ~ Mr. KEENAN. I don't have those figures. I could get them. (The following information was received by the committee:) The Committee on American Steamship Lines is soliciting from the American- Flag passenger operators data to answer the question of Mr. Curtis expressed above. It will take some additional time to collect these data. They will be fur- nislied as soon as received. PAGENO="0119" 897 Mr. CURTIS. Please do, becattse I think it is very important. I wish we had the complete picture because I frankly have been unimpressed, and I notice you say it too, by talk of accelerating spending by the U.S. Travel' Service. Until I see the total amount we spend in this area of promotion, which I `want to see increased-let me make that very clear, I view with a jaundiced eye the concept that the Federal Government, through some bureau, the U.S. Travel Service or whatever you call it, can spend the promotion dollar more intelligently than it can be spent in the private sector. I suspect that, thank God, for every dollar the U.S. Travel Service spends in promotion, there `are $20 spent in the private sector. There- f ore, when the administration corn~s in and recommends cutting back on `private investment abroad, which would include investment in `pro- motion, and at the same time talks about increasing what Government is going to spend abroad for travel promotion, all in the guise of assist- ing the balance of payments, I wonder who has done a very clear analysis of ho~ a doll~r is spent. I want to increase the amount of travel in the United States but I keep pointing out it should be in ccontext with the fact that the United States is the `largest' host nation in the world and that the increase in foreigners traveling in the United States in the past decade has gone up considerably. We are not talking about something that is anemic. We are talking about a very rapid growth. The ques- tion is, and it is a `legitimate question, of whether we can increase this rate of growth. `But, if we don't recognize our very rapid rate of growth, we can stout it `in our desire to increase the rate of growth. I have seen that happen so often and there is no better way of doing it than getting the Government into the act. The Government can stunt economic growth faster than any mechanism that I know of in our society. So, I would like to get data on what moneys are being spent by American-flag passenger lines abroad for promotion, what plans are for' increasing that amount. `I suspect you had projected plans to increase this amount. I would also like to know what impact this Executive order putting the Commerce Department in the busi- ness of restricting private investment abroad is going to have on the planned expansion of promoting travel in the United States. Do you follow what I am trying to get at? `Mr. KEENAN. I follow it. (The following information was receive'd by the committee:) Information on the funds being expended abroad by American-Flag passenger lines for promotion of travel to the United States is being solicitedas referred to on the bottom of page 896, and wlll be furnished later. It is not believed, how- ever, `that executive order by the Department of Commerce to restrict private investment abroad will have any effect on travel promotion by United States firms abroad. Funds used for advertising and promotion abroad is gènérally in proportion to and paid out of funds collected by sales of tickets in foreign nations. Mr. Cuirns, One final thing if I may. You haven't distinguished very clearly between the ticket tax and what could be called the travel tax. I separate the two. I have said that I am not adverse to extending our excise tax on the domestic travel ticket to travel abroad if one thing could be satisfied, namely, that this would not put a burden on our domestic carriers, ships or airhues, because pi~ our inability from a practical standpoint to enforce this against the foreign carriers. PAGENO="0120" 898 Now, as I recall, the reason we took off the excise tax on tickets of foreign travel was because we found out we couldn't enforce it and it was a burden on our domestic lines. The Secretary of the Treasury and Mr. Surrey, when I cross-ex- amined them on this said, "Well, we think we can enforce it because of the travel tax." Well, maybe I could see that if their theories on the. travel tax were sound I think they are very unsound I don't know how we would ever enforce such a thing itself, but then I raised the question another way. I said, "Well, I don't think you are going to get any travel tax and if you don't get it would you still think you could enforce the ticket tax and would you still want that ~" And they said, "Yes," and I said, "Well, please tell me how you think you could enforce it" Well, there was no answer to that because I don't think they had thought of it. I said at the time that,I was going to ask your group and the airline group what they thought Maybe you have had a change in mind as to whether it can be enforced. I don't think you would object to it, or maybe you would, if it could be equitably enforced against your competitors so that they were really paying the same excise on tickets. Am I clear in what I am getting at? 0 Mr. KEENAN. I think here it would be more inequitable for the air- lines than for the steamship lines Steamship lines are cruising pri manly out of the U S ports The market is in the United States and you are not going to run a ship up to Canada to avoid a 5-percent tax. However, the airlines could conceivably lose quite a bit where a man would fly to Can'tda and then buy his transatlantic ticket Mr. Cuniis. Suppose we talk about ocean passage other than cruises. Suppose someone just wants to go over to London or to go over to France and does decide to go by boat Is it possible that he could go on a British line or Norwegian and .avoid paying this ticket tax? Mr. KEENAN. I don't think it would be any problem to enforce the ticket tax on departures from the United States. Mr. CURTIS. You don't? What if they went up to Canada? I remem- ber what happened. If you could put a little statement in the record, it would help refresh my memory, and others too, as to why we did repeal the excise on tickets for foreign travel. My memory may not be good on it, but I thought we did it because we found that there was so much evasion or avoidance-let's not say. evasion, which is a violation of the law and might well have occurred-but avoidance, which is equally bad from the standpoint of the effect it has on American carriers because there are ways people have of avoiding this travel tax If you could review that for us and then tell us what your views are as to what would happen if this committee were to give an extension of the excise tax on tickets to include foreign travel. This would be helpful. Mr. KEENAN. Yes, sir. (The following information was received by the committee ) In response to Mr. Curtis' question as to whether It would be possible to go to a foreign line and avoid paying a ticket tax, this would be largely a matter of how the law were structured. The excise tax law applied in 1941 to all freight and PAGENO="0121" 899 passenger transport movements provided: for a tax on amounts paid in the United ,States on any form of transportation such as rail, bus, sea, etc. This provided the opportunity for evasive practices by peop1~e purchasing their transportation in Canada or Mexico for travel within the United States. While this was a factor in the 1950's that was advanced in urging repe~d of these excise taxes, the basic reason for their repeal was that they had been levied in ~iartime to discourage unnecessary travel. With the termination of the war emergency, this was no longer an objective. In fact, the reverse was true, namely, the desire to stimulate travel by all possible transportation media. In successive steps the travel tax was first reduced then removed from certain geographic areas until finally removed from all areas on all carriers except air- line travel within the United States. A five percent ticket is retained here and is applied as a form of "user tax." Mr. HERLOTSO. Any further questions Mr. BYRNES. Mr. Chairman. Mr. ITERLONG. Mr. Byrnes. Mr. BYRNES. Refresh my memory. Did the transportation tax, when we did it, apply to ships? Mr. KEENAN. Yes, sir. Mr. BYRNES. And it was on the basic fare? Was there any allocation of cost between food and- Mr. KEENAN. No. Immediately after the war, 1947, 1946, the tax, which was supposed to be a temporary war measure, I think was then 10 percent and was reduced to 5 percent and then was cut back to apply only in the northern portion of the Western Hemisphere, which created a little more confusion as to how to administer it, and finally it was repealed entirely, 1 think very likely for the reason that Mr. Curtis indicated, that it was being avoided. Mr. BYRNES. But as related to ships you had the same tax although, as you point out, the possibility of avoidance was much less than with the airlines. However, a tax on transportation when it applies to ocean travel is. more than just a tax on transportation because people travel by ship for reasons other than mere transportation. They want to be between two points but they also want some of the multitude of other services that are a part of ocean travel. Part of their vacation is living abroad the ship, enjoying the room, the meals, and the other facilities that are offered. As a result when you tax the purchase of a steamship ticket you also tax, it seems to me, the whole vacation, particularly in the case of a cruise ship. As I recall however, there was never any real objection with that as far as steamships were concerned when we did have the transportation tax on, is that correct? Of course you `didn't have very many cruise ships at that time. Mr. KEENA~. No. Mr. BYRNES. Because they were still all in Government service carrying troops I guess. Mr. KEENAN. It didn't make much difference, anyway. You pay 5 percent tax on your ticket which includes the hotel services, and entertainment, and all the rest of that, but this was not a major problem. People were used to paying 5 percent at that time. They accepted it. Mr. BYRNES. Thank you very much. Mr. HERLONG. Any further questions? If not, we thank you, Mr. Keenun, and you, Admiral James for your appearance before the committee. PAGENO="0122" 900 Admiral JAMES. Mr. Chairman, Mr. Keenan drew your attention to a balance-of-payments study recently completed by Dr. Cherington and suggested that you might wish to review this and possibly include it in your report. May I offer this to the committee for `their consideration. Mr. HERLONG. Thank you. We will take it unider consideration for the record. Thank you very much. Admiral JAMES. Thank you. Mr. KEENAN. Thank you, Mr. Chairman. Mr. HERLONG. The next witness is Stanley J. McFarland. Mr. Mc- Farland, will you please i'dentify your'~lf and the lady accompanying you for the record and please proëeed in your own way. STATEMENT' `OP STANLEY J. McFARLAND, ASSISTANT TO THE AS- SISTANT `SECRETARY FOR LEGISLATION, NATIONAL EDUCATION ASSOCIATION; ACCOMPANIED' BY MRS. MARY `CONDON GEItEAU, LEtUSLATIVE CONSULTANT Mr. MCFARLAND. Mr. Chairman and ~members of the committee, I am Stanley J. McFarland, assistant to the assistant executive secre- tary for legislation and Federal relations of the National Education Association. I am accompanied by Mrs. Mary `Condon `Gereau, legis- la'tive consniltant, NEA. Mr. HERLONG. You are recognized. Mr. MCFARLAND. I am pleased to express the views of the association and `other related groups, including the American Association of School Administrators, the Association of Classroom Teachers, the Association for Health, Physical Education, and Recreation, the As- sociation for Higher Education, the Music `Educators National Con- ference, the National Art Education Association, and the `Overseas Education Association. As citizens `we share the President's and this committee's concern over the unfavorable balance-of-payments situation that currently ethsts. We recognize that sacrifices are necessary and `believe that the welfare of the country `should take precedence over the immediate pleasure of individual citizens.' However, we have reóommendations for the committee's cOnsidera- tion of the travel tax proposal as it relates to teachers and students. The extension of the 5 percent tax on `domestic air transportation could be extended to all overseas air travel. The proposal places this tax on only the portion of travel between the point of embarkation from the United States to the point `of debarkation outside of the Western Hemisphere as a tempo'ray measure, with extension of this tax `to all air travel a~fter the temporary expenditure tax expires. The proposal, by limiting the 5 percent travel tax to only the first and last portions of a trip, subjects the rest `of `the cost of transporta- tion `to the proposed daily expenditures tax. This would be exç~essively expensive for those teachers who plan a 21- or 30-day educational trip which would take them to several countries; on the other hand, it PAGENO="0123" 901 would favOr the vacationer who travels to one place for 2 or 3 weeks of sunbathing or yatching. A large number of teachers who travel abroad pursue a program of foreign travel on an organized tour of specific galleries, concert halls, or historical sites. Subjecting the cost of travel inside Europe to a 30-percent tax-and thi~ in effect is what would happen-would be a severe penalty. We were pleased by the President's comment in his state of the Union message that the proposal to reducethe travel deficit ". . . with- out unduly penalizing travel of students and teachers." However, the proposal as presented to this committee on February 5, 1968, does penalize the travel of students and teachers. Despite the current frustrations that we all suffer in the present international climate, we as a nation ar~ dedicated to the pursuit of world peace. This can only be accomplished by mutual understanding and respect not only among governments, but primarily by encourag- ing people-to-people contacts among the citizens of all walks of life in the various countries. The Congress recognized this specifically when it passed the International Education Act of 1966. This act, now Public Law 89-698, states, in section 2: The Oongress hereby finds and declares that a knowledge of Other countries is of the utmost importance In promoting mutual understanding and cooperation between nations . . . that this and future generations of Americans should be assured ample opportunity to d~velop to the fullest extent possible their intel- lectual capacities in all areas of knowledge pertaining to other countries, peoples, and cultures The bill also authorized, for fiscal 1969, an appropriation of $90 million, a feature of the Act which regrettably, but for understand- able reasons in light of the current budget situation, has not been implemented. Nevertheless, section 2 of the International Education Act as quoted above still stands as the intent of Congress. We strongly urge that it not be repudiated by unduly penalizing those students, teachers, and other scholars who pursue travel as a means of achieving international understanding for themselves and for those they teach. The expenditure tax proposal, when applied to persons on legiti- mate programs of educational travel, is a severe penalty. The NE.A Educational Travel Division estimates that teachers who have taken NEA tours spend from an average of $13 to $21 per day, depending on the country, for meals, lodging, admissions to galleries, concerts, et cetera, and personal services such as laundry, haircuts, et cetera. Last year an estimated 6,000 teachers traveled under programs as de- fined above. There is a relatively small but important group of U.S. persons who will travel abroad for specific international education meetings this summer. For example, approximately 70 U.S. educators will be dele- gates or observers to the World Confederation of Organizations of the Teaching Profession which meets in Dublin, Ireland, from .July 22 through July 30. The International Society for Music Educators meets in Dijon July 2-9. The Internatlonal Council for Health, Physi- cal Education, and Recreation meets in Dublin July 17-22. There are PAGENO="0124" 902 others, but these illustrate the' point.. These `meetings have been sched- uled several years in advance and involve delegates from. many coun- tries, including the United States. We believe that `it is clearly not in the national interest that the day's spent by U.S. participants in attend- ing these and similai professional meetings be subject to any expendi tures tax. The number of people involved will be minimal as far as the tax revenue is concerned. . But the application of the restrictive expenditure tax to participants in such important educational meetings implies that these productive international relations events for educators are of no concern or inter- est to the American Government. Delegates from countries other than the United States are very frequently official representatives 9f their governments. Because of the unique system of education in this coun- try delegates are not financed by Federal or other public funds, except for the few who may represent the U.S. Office of Education or `the Department of State. The official application `of the expenditures tax to U S participants would indicate that the United States places no value on `such opportunities to ath~ance internatiOnal understanding. We are not suggesting that persons who are teachers be given special consideration for personal financial reason's. Rather, the `imposition of the travel expenditure tax .would indicate to the teachers of this coun- try, and in other countries, that the United States does not value .`the international understanding gained through travel and association with these representatives of other countries The organizations for which I speak are confident that the Congress will find more effective ways to meet the balance-of-payments problem without unduly penal- izing teachers and students who travel abroad The exemption already provided in the proposals for long term (120 days) travel of this group should be extended to cover comparable travel for a shorter duration We emphasi7e that this exemption for teachers and students for professional travel is in the national interest We can accept the 5 percent tax on the transportation fares but be lieve that subjecting the European part of travel costs to the daily allowance tax would be unjust Further, we urge that the expenditure exemption be raised to at least $15 per day This would prevent unfair treatment of travelei s on modest budgets We appreciate the opportunity to express to the committee views of the National Education Association and the other organizations listed at the beginning of this statement Thank you very much Mr. HERLONG. Thank you, Mr. McFarland, for your `statement. Do you have a statement you wish to make? Mrs. `GEREATJ. No, sir. I was just here in case there were questions. Mr HERLONG Are there questions ~ Mr Curtis will inquire Mr CURTIS I was looking to see if you had any of the aggregate figures of the dollar amount of the travel you are talking about for the students and the `scholars. Mr. MCFARLAND. The NEA travel operation, which is `a nonprofit operation, would represent only a part of the means by which students and teachers travel overseas. PAGENO="0125" 903 Mr. Ctntns. I kiiw that, but I am trying to g~t~a dollar figure-it is gojug to be an estimate at best--of~how much you are talking about in this area. Mr. MdFARLAND. We understand that teachers and students who travel represent approximately ~ percent of those who do go overseas. Mr. Cumris. Five percent? Mr. MCFARLAND. Of the total. Mr. CURTIS. And that probably wouldn't be 5 percent of the dollar expendittires becaus~ probably they would average a little less. Mr. MCFARLAND. Y~s. Mr. CURTIs. Do you know whether the Treasury has any figures on this? Have you eveieeen them? I haven't. Mr. MàFARLAND. No. Mr. Cmrris. This is a problem that disturbs me because tins com- mittee, as far as I am concerned, deals, and should be dealing, more in arithmetic than rhetoric. Yet we don't get much arithmetic to help us. it wotild be very helpful to have whatever estimates you do have of what this amount is. I also need to know, of course, what total this is based on. What is the total amount of travel we are talking about to start with and then howmuch of that total is represented by the group that you are talking about here? I mean more than just those you are representing, hut also all students that you refer to. Certainly, if we do anything in this area, as far as I am concerned we ought to leave this group as undisturbed as possible and I would go a long way to do that. This is purely collateral, but on page 5 you refer to the number of foreign students who are inthe United States, 100,000, and the Amer.. icans abroad, ~b,000. Incidentally, you use the term "student" there. Does that mean just students ~ Mr. MCFARLAND. Where are you referring to, sir? Mr. CURTIS. On page 5, at the bottom of the page. The annual census, published by the Institute of International Education re- ports lO0,2d9 foreign students in TIM. institutions of higher education. . . and only 24,900- I am sorry, I have the wrong statement. Well, do you have those figures, though? Mr. MCFARLAND. No, sir. Mr. CURTIS. You don't. W~ll~ I got the wrong paper. However, to the extent that you can give us any data in that area that I inquired about I woul~i'appreciate it. Mr. MCL~RLAND. Yes, sir. (Information not received at time of printing) Mr. ITERLONG. Any further questions? If not, ~ve thatik both of you very much for your appearance and your c~utribution. Mr. MdFARLAND. Thank you very much. Mr. TIERLONq. The next witness is Mr. J. Ralph Murray. Mr. Murray; if you will please identify yourself and those with whom you are associated for the record we will appreciate it. Then you may proceed in your Own way. PAGENO="0126" 904 STATEMENT OP L RALPH MURRAY, CHAIRMAN OP TEE BOARD, COUNCIL ON INTERNATIONAL EDUCATIONAL EXCHANGE; AC- COMPA}IIED BY JOHN E. BOWMAN, EXEGUTIVE DIRECTOR; P. GORDON BOYC1~, COUNCIL MEMBER; AND' RUSSELL T. WElL, WASHINGTON COUNCIL Mr. MURRAY. Mr. Ohairman and members of the committee, I am J. Ralph Murray. On my immediate left is Mr. John Bowman, the executive director of the Council on International Educational Exchange, and Mr. Russell T. Weil, who is the council's Washington counsel, and on my right is Dr. Gordon Boyce, who is president of the Experiment in International Living, formerly president of the Council on Student Travel, which is now the Council on International Educa- tional Exchange, and a member of the council. I want to express my deep appreciation for the opportunity to con- tribute to the discussion of the important problem which is now before the. committee. I am here to speak to the committee on behalf of theCouncil on Inter- national Educational Exchange. In addition, I am president of Elmira College, Elmira, N.Y., an institution which has been sponsoring study programs at foreign universities for its students since 1958; Elmira College is a member of the Council on International Educational Exchange and I have represented the college on the council's board of directors for 10 years and have served as chairman of the board since 1961. I am also the chairman of the Committee on International Under- standing of the American Association of Colleges, which also is pre- senting a joint statement of its concern; along with several other bodies in higher education. Any of these gentlemen will be very happy to answer questions which the committee might have regarding the activities which would be affected by the proposals which are presently before the committee. PART I. ~ENERAL COMMENTS A. About the Council on International Educational E~rc1iange The Council on International Educational Exchange is a cooperative membership organization that was established to assist its members in the administration of programs of educational exchange which involve the sending of American students and teachers abroad and, in most cases, the bringing of similar groups to the United States. Its member- ship consists solely of nonprofit institutions and organizations. At present the council has in its membership 101 U.S. colleges, universities, and secondary schools, and 51 national educational and religious orga- nizations, all of which sponsor exchange programs. These institutions and organizations send about 20,000 students and teachers overseas each year in organized programs of educational exchange and they receive about 35,000 students from abroad, most of them enrolled in colleges, universities, or secondary schools. A complete list of the mem- bership is attached. This you will find on the back of the document. Mr. HERLONG. Is it your desire to have that list a part of the record? Mr. MURRAY. Yes, it is. PAGENO="0127" ~O5 Mr. HEItun~o. Without objection' it will be included at the end of your statement. Mr. Muim~y. The council provides a number of technical services to a:s~i~t the exchange programs sponsor~d by its meniibers. It arranges overseas transportation and conducts orientation programs for stu- dents traveling abroad from, as well as coming to the United States. One of `its, largest operations is the annual charter of a ship for the transatlantic transportation of students during the summer `months on which shipboard orientation programs are conducted by the coun- cil during these voyages. The council's offices abroad and in the United States assist in arranging accommodations, travel, and educational programs for student groups. The organization also serves as a cen- tral agency `for the educational exchange field-planning professional workshops and seminars, providing informational services, and main- taining liaison between exchange organizations in the United States and throad. " The. recommendations put forth in this statement `have been ap- proved by the executive' committee of the' Council on Intetnational Educational Exchange and represent, in that committee's best jiidg- ment, the point of view of the' organization's membership.' B. The iimportance o/ educational exchange The `educators' and administrators of exchange programs are, of cour~e, keenly aware of the financial `difficulties which are created for our country by the adverse trend in international payments. We recog- nize the necessity for actions aimed at the relief of this problem, and we are deeply gratified that so many Members of Congress and officials m the executive branch have taken note of the special difficulty that might be created for students and teachers should the remedial actions include the introduction of restrictive taxes on foreign travel, We ivere pleased that the President mentioned this prthlem in the state of the Union message, that Secretary Fowler made note of this in his pre- sentation to the Ways' and Means Committee `and the proposals for- warded from the Treasury Department make some specifió provision to ameliorate the'effect o'f'.the proposed taxes on students and teachers studying and traveling outside of the United States. We are eepecially appreciative that this committee has' provided time ~o tl~at we might dis~iiss brieffly the `pr~blems of educational instittulons and o~ganiza- tions~ which sponsor exchange programs as they are related to these proposed taxes. ` The concern that overseas study and travel fOr students and teachers not `be interrupted by actions taken to improve our financ'iai situation is, we think, an accurate reflection of the high value placed on educa- tional exchange for students by t'he people of the United States. There is `widespread recognition that each and every action in the United States is profoundly affected by' `events' arbund the world and that every major decision made in the United States `has profound inter- national implications. In such an age it is `essential that students acquire a `realistic understanding of peoples around the world and it is incumbent upon governmental agencies and private and public educational institutions and' organization's to facilitate this in every way possible, which will promulgate such understanding. The number of secondary schools, colleges, and universities which sponsor' ex- PAGENO="0128" 906 change programs is evidence of the agreement of the educational community on this point. The wide range of educational and religious organizations certifies to the agreement among `persons of widely varying points of view that educational exchange provides a foreign experience of significant value to individuals. Congress, itself, has recognized the importance of educational ex- change by enacting into law during the last 20 years enabling legisla- tion for a number of significant educational exchange programs. These programs are administered by the Bureau of Educational and Cultural Affairs of the Department of State, by the Office of Education of the Department of Health, Education, and Welfare, and by the Agency `for International Development. A large number of other governmental agencies have used educational exchange as an effective way to develop individual `skills needed for `service to the community and the Nation. The preservation of educational exchange programs is therefore clearly in the national interest,, and it is certainly desirable that we resolve the problem of our international payments in ways that cause the minimum disruption to overseas exchange programs. C. Educational ecrclvange and international travel tarnes Recognizing the importance of educational exchange, we therefore come before the committee `to comment on the. `degree to which the proposals before it exempt educational exchange `from the `restrictive effect of the proposed taxes, and to make `some suggestions as to `ways in which important educational progra'ms' `can be further" protected from hardship that might be created by enactment of the proposed legislation. Before proceeding into more detulled discussion, I would like to point~ out several factors which are relevant to the proposal that foreign travel be delayed `for several years to relieve' `our balance-of- payments problem. ` 1. First I would note that students are not as flexible in thefr travel plan's as adult Am'erimrns. They can defer their foreign `travel plans less easily than those who are going abroad as tourists. Many students find `their travel opportunities extremely limited following completion of their education. This may be because of liability for military service, because of the fact that beginning employees in many profes- sions ~re limited to short vacation periods or because financial and child-care responsibilities `curtail travel opportunities for those who marry and start families. 2. We `think it is not wise public policy to ask'teachers to defer plans for a summer of travel or study abroad. Such' a foreign experience is frequently needed to enable the teacher to `improve his or her compe- tence as a teacher of European languages' or world history. Many teachers' traveling abroad during the summer are' earning academic credit toward' an A.M. degree. `Others may be fulfil]ing requirements for the renewal or improvement of their certification as~ teachers. (Several States now require language teachers to live for a period in a country where the language they teach is spoken.) Similarly professors may need to travel abroad during a summer to study or to secure documentation essential `to the completion of research projects. These tasks are important. These professions are not highly paid, and I am sure there is every desire to exempt such travel from any restrictive effect the proposed legislation might have. PAGENO="0129" 907 3. Educational exchange programs aregenerally reciprocal in nature and this is one area in which there are more visitors from abroad than there are U.S. citizens going abroad. There are, for instance, almost four times as many foreign students studying at U.S. colleges and universities as there are U.S. students studying at foreign institutions. The annual census published by the Institute of International Educa- tion reports 100,269 foreign students in U.S. institutions of higher education in the academic year 1966-67, and only 24,900 Americans at foreign universities in 1965-66. Since some of these arrangements are reciprocal, the curtailment of study abroad by American students would tend to have a negative effect on the increase in the number of foreign visitors coming to the United States. 4. It is germane to note that a higher percentage of students and teachers use U.S. carriers than other travelers, thereby making less of a dent in our foreign exchange credits. The council's office has estimated that over two-thirds of the American students who go abroad under the sponsorships of educational exchange organizations travel on U.S. carriers. This compares with an estimated 50 percent of general trav- elers who utilize U.S. airlines and shiplines. 5. Significant numbers of participants in educational programs are already receiving financial aid because of their limited ability to pay. For some students, therefore, the proposed taxes will need to be paid from scholarship funds. This will reduce scholarship or loan assistance to other needy students. The scholarship moneys may come from con- tributed funds (in the case of private organizations), from endowment funds (in the case of private colleges), or from public funds (in the case of State universities). 6. Significant numbers of students, teachers, and professors will be prevented from going abroad if proposals currently before the corn- mittee were to be enacted into law. In our judgment, the proposed taxes would force some students and teachers to cancel their trips when the combined cost of the transportation tax and foreign expenditures tax reached $50. On the basis of the data we now have, it appears the taxes would reach this level for about 50 percent of the students and teachers going abroad in educational programs sponsored by the council's membership. PART 11-RECOMMENDATIONS I now turn to the recommendations which we should like to suggest to the committee for changes in the proposed taxation plan. For the most part these recommendations will pertain to the operation of edu- cational exchange programs by U.S. colleges, universities and second- ary schools and by nonprofit organizations of an educational or re- ligious nature, and to the individuals who are enrolled in, and partiëi- pating in, these programs. Some reference will be made, however, to the individual student, teacher, and professor traveling abroad quite independently of any group program. Many of these individuals are engaged in educational missions of importance equal to those who go abroad in organized groups. It is our judgment that the taxes outlined in the proposal made by the Treasury Department fail to exempt many valuable overseas edu- cational experiences for teachers and students from the restrictive effects of the proposed taxes. 89-749-68-pt. 3-9 PAGENO="0130" 908 A. Presently planned exemptions There are basically three exemptions in the present proposals which are intended to benefit overseas educational programs and activities for students, teachers, and professors. These are: 1. In relation to the transportation tax: (a) the proposed legislation extends to international travel the exemptions existing under the 5- percent domestic excise transportation tax, and this presumably in- cludes the exemption granted to institutions having a regular educa- tional program with a faculty and student body on their premises.. Under existing regulations governing domestic transportation, these institutions are exempt from the 5-percent tax insofar as the trans- portation which they purchase is for the benefit of the institution. 2. In relation to the foreign expenditure tax: (a) The exemption of persons who remain abroad for longer than 120 days will serve to pro- vide exemption for those programs in which students are enrolled at a foreign university for a full year or for one semester (but will not exempt those who are abroad for a quarter term or a summer pro- gram.) (b) The exemption of $7 a day is cited as a benefit for educational experiences abroad although the number of students, teachers, and professors who can cite expenditures as low as this figure is extremely small. However, these exemptions are inadequate. They actually exempt from the proposed taxes only a minority of the overseas programs sponsored by colleges, universities, secondary schools, and nonprofit organizations. These exemptions may result in the heaviest taxes being assessed on those students who are participating in the most serious and best-planned educational activities. We believe that the best way in which such educational activities can be protected is to provide direct exemption from both the trans- portation and foreign expenditure tax for overseas educational ac- tivities which are sponsored, administered and supervised by U.S~ colleges, universities, and secondary schools and nonprofit organiza- tions whose status is recognized by the Internal Revenue Service. We have considered proposals to increase the exempt expenditures to a figure higher than $7 a day and to reduce the time needed to establish status as a nontaxable trip to a figure less than 120 days. While we will favor adjustments of this kind, it may not be logical to use the cost or duration of a program as a measure of its educational value. Programs costing less than $7 per day or lasting more than 120 days are not in- herently more valuable than those programs which are costlier or shorter. We therefore believe it is necessary to provide a direct exemp- tion for those overseas activities of educational importance to the Na- tion, and we believe that IRS certification of the nonprofit status of the sponsoring organization or institution represents the fairest method of determining whether the sponsor of a bone fide educational program may claim exemption from these taxes. B. Recommendations regarding transportation taa~ proposal 1. As has been noted above, an educational institution may now be exempt from the domestic transportation tax provided it "maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance where its educational activ- ities are regularly carried on." (See section 4294 of Internal Revenue PAGENO="0131" 909 Code). In practice, institutions have been exempted from the domestic tax when they charter buses for field trips for their students, send students or teachers to conferences or seminars, and send professors on research assignments. We agree with the Treasury Department's proposal that this exemp- tion be extended to international travel and, in addition, we recommend that this exemption be broadened to make all organizations, recognized by the Internal Revenue Service as nonprofit, exempt from the 5-per- cent transportation tax on international transportation necessary for their educational exchange programs. We believe that appropriate definitions can be found to accomplish this objective. The broader exemption is clearly needed in order to preclude heavy taxation on educational travel on an international scale. Domestic field trips or conferences for students may be normally arranged by the institution itself, but for purely administrative reasons an overseas educational experience may need to be arranged by a national educa- tional organization with overseas contacts rather than by a local high school, college or university. The institution, therefore, will normally turn to the type of nonprofit organization represented in the Council's membership. Thus, a local high school may arrange an educational trip for its students to Washington, D.C., but if their students are to go abroad, they will need to go through a national agency such as American Field Service. Teachers may. be sent to national conferences by their schools, but may need to arrange an overseas educational pro- gram through national organizations, such as the National Education Association. Professors may secure funds from their university for trips within the United States, but may need the support of founda- tions or national orga.ydzations for overseas study or research. We therefore strongly recommend that all nonprofit organizations and institutions arranging educational activities overseas be exempt from the proposed international transportation tax on such interna- tional transportation as is essential to the completion of these educa- tional activities. 2. A second problem relating to the transportation tax has to do with transportation of foreign students and professors who are visiting the United States. It is clearly not the intent of the proposed legislation to restrict or handicap visitors to the United States. There are, however, certain situations not specifically `covered in the present regulation which would operate to the disadvantage of students and professors coming from abroad. (a) In a number of programs students, teachers and professors who come to the'United States for educational visits have their interna- tional transportation purchased for them in the United States by U.S. educational institutions or organizations. We recommend that such transportation be exempt from the international transportation tax. (b) Foreign students who are studying at U.S. universities may desire to return to their home countries for visits during the summer vacation period. The source of such funds normally lies outside the United States and these students should be allowed to purchase their transportation in the United States rather than having it purchased for them abroad. We would recommend that such transportation be exempt from the proposed international transportation tax. (c) Foreign students and professors studying or teaching in the United States may wish to purchase their return transportation in PAGENO="0132" 910 the United States, and `we would recommend that such purchases also be exempt from the proposed transportation tax. C. Com,ment$ and recommendations on the foreign expenditure tax it is our judgment that the present provisions of the foreign ex- penditure tax do not exempt students and teachers engaged in edu- cational programs overseas from the restrictive effect of the proposed tax and it is our recommendation that there be a general exemption for moneys spent abroad by colleges, universities, secondary schools and nonprofit organizations on bona fide educational activities It is clear that the exemption of expenditures of up to $7 a day will not exempt any significant number of students, teachers and professors from this tax. No overseas educational program for students or teach- ers costs less than $7 a day unless a large share of the overseas ex- penses is provided by foreign families, foreign governments, or for- eign educational organizations. An example of a program costing less than $7 a day is the American Field Service, in the AFS programs, foreign families and foreign organizations provide hospitality for the American student and thus keep the U S expenditures for that stu dent at a very low level Youth hostel trips are frequently cited at the least expensive way for students to travel abroad, and yet the Amer- ican Youth Hostels Association estimates `that 60 percent of its over- seas programs will cost more than $7 a day The Experiment in International Living, which also places American students in foreign families during the summer, estimates that the average overseas pro- gram under its sponsorship costs well in excess of $7 a day. (See attachment.) Even the student traveling independently pays more than this The European Travel Commission's study in 1967 showed an average ex penditure by students of $9 a day Secretary Fowler's presentation to this committee referred to an expenditure rate of $9 63 per day for those with incomes under $5,000 per year These figures are probably understated for European prices have risen significantly in the last few years and these figures `include `students spending a full year abroad who spend much less per day than those who are abroad for shorter periods of time. Taxes would be particularly burdensome' in overseas educational programs for teachers These programs are frequently set up by uni versities and educational organizations and the National Education Association estimates an average cost of $26 per day on overseas travel programs for teachers arranged by its division of travel services You will notice that this is slightly at variance with Mr McFar land's testimony, but in arriving at Mr McFarland's figures there was not included land travel nor intercity travel, so that this is not a real variance. Ours includes the total picture. Such a program would result in a heavy tax on educational activi- ties important to our national interest Organized educational travel programs for students woi~d also be heavily taxed The council's own staff arranged overseas programs for 43 universities in 1967, and the average daily cost for those pro grams in which hotels were used came to $15 per day Factors which tend to keep this cost high include extensive land travel to less visited parts of Europe and Asia, fees to foreign universities or salaries to PAGENO="0133" 911 foreign professors, and the administrative costs of making arrange- ments abroad. Thus the proposed tax would fall heavily upon some programs where a substantial investment had been made to insure the educational quality of the program. The tax would tend to force discontinuance of such well-planned and carefully arranged activities. The exemption of programs of over 120 days in length is also inade- quate to exempt many of the sound educational programs sponsored abroad by American institutions. There are many U.S. educational institutions (see attachmbnt) which provide 6 or 8 week intensive study programs abroad during the summer months, particularly in the field of language training, and these are highly regarded as edu- cational programs, and I would call the committee's attention to the attachment of some of these institutions which shows all of them with fewer than 120 days where the tax would vary from roughly $40 to as much as $291. A program like Miami University's, which is in contemporary social problems in 14 countries, the last item on page 2 of the part I attachment, indicates that this would be severely handicapping to the program and to the education of the youngsters involved. There is something too that is very significant about the benefit of the short-term programs from the point of view of language and the competency to teach that language. A recent study by Dr. John B. Carroll of the Educational Testing Service, Princeton, N.J., points to the unique value of study and travel abroad in language learning. After an extensive survey of college seniors supported by the U.S. Office of Education under NDEA. title VI, Dr. Carroll concluded: Time spent abroad is clearly one of the most potent variables (associated with foreign language proficiency). Certainly our results provide a strong justification for a "year abroad" as one of the experiences to be recommended for language majors. Even a tour abroad or a summer school course abroad, is useful ap- parently in improving the student's skill. In certain key tests given to 2,532 students, students who had never been abroad had a mean score of 40.65; those who had had a summer tour or course abroad scored 45.35 and those who had been abroad for a full year scored 50.11. Longer programs are regarded as having a greater value, naturally enough, but there are many students who are unable to be away from their home campuses for any period of time other than during the Summer months. Students in pre-med courses and pre-engmeering courses, or science majors, have a heavy schedule of courses with lab- oratory requirements, and since such laboratory facilities are generally not available at foreign universities they can only secure an overseas educational experience during the summer months. Other students may be unable to go abroad except in the summer because of academic defi- ciencies, part-time work during their school year and so forth. We believe that students who study abroad during the summer should be exempt from the taxes just as those are exempt who study abroad for a full semester or a full year. Some further comment is also needed regarding the definition of the type of educational activity which will entitle students to exemp- tion under the proposals in the Treasury Department's presentation of February 5. That document proposed exemption for students abroad for more than 120 days who are "enrolled in a full course of study" at a foreign university or engaged in full-time study "directly re- PAGENO="0134" 912 lated to a course of study leading to a degree" at a U.S. institution. We would point out that there are some valid educational programs that may not be covered by these terms. A student may spend one or more months living with a foreign family as a means of understanding the culture or learning to speak the language, and I can attest that this is a very fine way to do so from my own daughters, having spent the summer in France in the Experiment in International Living pro- gram last summer. A student may learn about foreign industry or business by serving as a trainee with a foreign company. Another stu- dent may work in an urban slum in order to study foreign urban problems. Educational exchange programs of these types might not be exempted under the present language but would be covered by the broader exemption which we are recommending. For these reasons, we strongly recommend that students or teachers going abroad for even a short period of time not be required to pay taxes on any sums expended on their behalf by colleges, universities, secondary schools and organizations recognized as nonprofit by the Internal Revenue Service whenever these expenditures constitute part of the arrangement for bona fide educational exchange. This exemp- tion should include payments for meals, housing, transportation, fac- ulty salaries, instructional costs or administrative expenditures. We feel that this is the only sound way to protect such programs from severe damage by the proposed taxation. There are three other recommendations which we would like to suggest t'o the committee. The first is a substantive recommendation and the second and third are technical in nature. 1. Many students, teachers, and professors travel abroad on educa- tional missions (less than 120 days in length) which are of vital importance to their work but which are not sponsored by an institution or organization and therefore not covered by the exemption recom- mended previously, and I would point to the council's program this summer of securing $100,000 from the various prefectures in Japan to provide scholarship programs to bring Japanese teachers to America to study English as the particular kind of thing that I am talking about. In order to protect such missions from the restrictive effect of the proposed taxes we would recommend that such students, `teachers and professors be exempted for all expenditures up to $15 per day. It may not be feasible nor desirable to develop any system to `certify the edu- cational validity of these individual missions and therefore `we hope that the committee will also find `it desirable to extend this $15 per day `exemption to the general public as well. Such an exemption would be crucial to educational exchange programs should the committee, for any reason, not see fit tO grant the general exemptions recommended in `the previous paragraph. 2. Under present regulation the 5 percent transportation tax termi- nates at the first overseas destination at which the traveler spends more than 12 hours, and the cost of his transportation beyond this point is taxable as part of the per diem foreign expenditure tax at the i ate of 15 percent and 30 percent This places a very heavy tax burden on a student, teacher or professor or member of `the general public who might find it necessary to lay over at a European or Asian gateway city en route to a more distant destrnation in Africa, the Middle East or A'sia. A person traveling to Africa, Israel, India or Australia, for PAGENO="0135" 913 instance, might lay over at some European gateway city such as Lon- don or Amsterdam, or some Asian gateway city such as Tokyo or Manila. He might need to remain longer than 12 hours due to diffi- culties in connections or because of the necessity to rest during the long trip. We would recommend that this problem be alleviated by allowing stopovers of 3 or 4 days where the onward journey cont.inues for 1,000 miles or more beyond the first lay-over point. 3. There are certain other sources of income for students while over- seas which, if they have not otherwise. been provided for, should clearly be exempted from the category of taxable expenditures. Tills should include hospitality pro viclecl by foie.ig'n institutions or individuals, scholarships from govermnent.al or private sources, and maintenance allowances provided to individuals participating in trainee programs by the corporations with which they were training. SUMMARY AND CONCLUSION In summary, the ~Quncil on International Educational Exchange wishes to reaffirm the importance of educational exchange as a funcla- mental part of our educational system. We feel that enactment of `the proposed taxes on international travel as presently outlined would result in significant disruption of a num- ber of important exchange programs. These programs would be heavily taxed because t.hey may cost much more than $7 per day and may be less than 120 days in length. The council recommends that expenditures for educational ex- change programs by secondary schools, colleges, universities and non- profit organizations be exempt from the proposed 5 percent interna- tional transportation tax and from `the proposed foreign expenditure tax. The council further recommends that: 1. All international transportation purchased for use by non-U.S. students or professors be exempt from the 5 percent transportation tax whether purchased in the United Stat.es or abroad. 2. Daily expenditures by students, teachers and professors up to $15 a day be exempted from the foreign expenditure tax. 3. On international transportation, a stop-over of 3 days should be permitted at the first point of arrival where subsequent travel amounts to 1,000 miles `or more without making such subsequent travel subject to a per diem tax rather than the 5 percent transportation tax. 4. Certain forms of ove'rseas income such as family `hospitality, scholarships and maintenance allowances for trainees should be spe- cifically exempted from the foreign expenditure t.ax. Although we have not made an exten~ive study of the way in which these taxes would `be collected, our staff does `handle large numbers of students who are leaving from and returning `to the United States. We feel that the proposed procedures could cause `serious congestion at air- ports and piers and might interfere with operating schedules at these facilities. We urge that a careful study be made as to the number of agents needed to handle these administrative functions expeditiously. In conclusion we believe that students, teachers, and professors should be given every encouragement by the Government and by the educational community to pursue imowiedge through international traveL PAGENO="0136" 914 We strongly urge that if the proposed tax legislation i~ enacted it should be given every encouragement by the Government and by the should provide the most adequate exemption possible for those for- eign travelers whose journeys abroad are most clearly defined as educational. Mr Chairman, I thank you for allowing this presentation and I hope there will be some questions. (The attachments referred to in the statement follow:) MEMBEES OF THE COUNCIL ON INTERNATIONAL EDUCATIONAL E~RCHANGE, 1968 ACADEMIC INSTITUTIONS Adeiphi University. Adventist Colleges Abroad. Antioch College. Associated Colleges of the Midwest. Associated Mid-Florida Colleges. *The Avon Public Schools. Bates College. Beaver College. Beloit College. Bennett College. Boston College. *Brethren Colleges Abroad. Brigham Young University. Bryn Mawr College. University of California. The California State Colleges. California Western University. Carleton Outlege. *Central College. *C~ha~an College. The Choate School. The ~iity University of New York. University of Colorado. *Unjversjty of Connecticut. Council of Mennonite Colleges. Dartmouth College. Davidson College. Earlh'am College. Elmira College. Finch College. Florida Presbyterian College. Fordham University. *Franeonia College. Friends World Institute. Georgetown University. Georgia College at Millegeville. Go:nzaga University. Hamilton College. Heidelberg College. Hollins College. *flood College. Hope College. *Ifflnois State University. *In.dependent Schools Overseas. Indiana University. Johns Hopkins University School of Advanced International Studies. Kalamazoo College. University of Kansas. Keuka College. Lake Erie College. Lancaster Theological Seminary. *professjonal members. La Salle College. *Lehigh University. University of Louisville. Loyola University. Marquette University. Mary Baldwin `College. Miami University. University of Michigan. Michigan State University. Middlebury College. Miller'sville State College. Morehouse College. *Mount Hermon SchooL University of New Hampshire. New York University. University of North Carolina. Northern Illinois University. University of Notre Dame. Oberlin College. University of Oklahoma. The Pennsylvania State University. Phillips Academy. Pomfret School. *portland State College. Purdue University. University of Redlands. Rhode Island School of Design. Rollins College. Rosary College. *Rutgers_The State University. `St. Lawrence University. St. Peter's College. Sarah Lawrence College. Springfield College. Stanford University. State University of New York. Stephens College. Syracuse University. Tulane University. Vanderbilt University. *~njversity of Vermont. Wayne State University. Wesleyan University. Western College for Women. Western Michigan University. *wilmington College. University of Wisconsin. Wisconsin State University- River Falls. *~ittenberg University. College of Wooster. PAGENO="0137" 915 EDUOATIONAL AND RELIGIOUS ORGANIZATIONS African-American Institute. AIESEC-U.S. Alliance Francaise de New York. American Baptist; `Convention. American Field Service. American Friends of the Hebrew University. American Friends of the Middle East. American Friend's Service `Committee. American National Red Cross. American Youth Hostels, Inc. American Zionist Youth Foundation. Boy Scouts `of America. Brethren Service Commission. `*Camp Fi're `Girls, Inc. `Canadian Union of Students. `Canadian Youth Hostels As'sociation. Council on International Relations and United Nations Affairs. Ecumenical Voluntary Service. The Experiment in International Living. IAESPE/U.S. Institute of International Education. International Christian Youth Exchange. International Council on Social Welfare. International House. *Jntern,ational School of America. International Student Service. The Jewish Agency. Language Abroad Institute. Lisle Fellowship. Mennonite Central Committee. Minnesota `SPAN Association. Modern Language Association. National B'oard of YMCA's. National 4-H Club Foundation. National Grange. National Student YWCA. *Ohi,o Council of Farmer Cooperatives. Operation Crossroads Africa. *peopletope~ople Regional Council for International Education. Scandanavian Seminar. Unitarian Universalist Service Committee. United Church of Christ. United Presbyterian Church in the U.S.A. U.S. National Student Association. *Volun,teers in Asia. World University Service. World University Service of Canada. World Youth Forum. Youth For Understanding, Inc. Yo'uth Workshop in Israel. ASSOCIATES American Friends of the College Cevenol. Fountaine'bieau Fine Arts and Music Schools Association. The Japan International Christian University Foundation, Inc. National Association for FOreign Student Affairs. Near East College Association. University of Oslo International `Summer School. `Sophia University Associates of America. `Spelman College. United Negro College Fund. PARTIAL LIST OF SHORT-TERM Ovansn~s EDUCATIONAL EXCHANGE PROGRAMS SPONSORED BY U.S. NONPROFIT ORGANIZATIONS AND INSTITUTIONS The following chart has been prepared `to show the type of program~ which would be affected by the proposed taxes on foreign travel and the amount of tax each individual would need to pay if the proposal were enacted as outlined on February 5 by the Treasury Department. `Computation of the estimated tax is difficult because many of the details have not been spelled out. The following should be noted: 1. According to present plans, the programs listed below will all be In operation in 1968 but the cost figures are from similar programs in 1967. Nothing has been added to compensate for increases in costs during the past year. 2. Cost figures reflect cost only during the organized part of the trip. Most participants will have a few days of independent vacation travel after the completion of their course of study. `Taxes on expenditure during these days are not included in the estimates given in the chart. 3. The sum of $15-$20 per week has been Included for incidental expenses in addition to the basic travel and accomodations arranged as a part of the program. This is intended to include books, laundry, personal supplies and expenses, entertainment, etc. *professjonal members. PAGENO="0138" Sponsoring institution Subject studied Location Number of Estimated days abroad tax Hope College European history and culture~ Vienna 112 YMCA (national) Community service program - - - Hong Kong 60 Universities of Kansas and Russian language program Leningrad 83 Colorado. $90.00 153. 00 190. 00 Br n Mawr Colle e fFrench language Avignon 45 y g iSpanish language Madrid 50 University of Oklahoma French language Grenoble 64 California State Colleges Scandinavian studies and Uppsala 40 Swedish language. Carleton College Japanese culture Kyoto 60 University of Colorado Classical studies and Greek Athens 60 language. Geor etown Unive ~ fFrench language Dijon 35 g r y ~Japanese culture Tokyo 40 Indiana University Russian language U.S.S.R 35 IFrench language Paris 1 University of Kansas ~Spanish language Barcelona 60 fGerman language Eutin and Holzkirchen fGerman language Singen 1 University of Louisville French language Montpellinr and Paris 60 ~Spanish language Madrid Loyola University French language and civiliza- Paris and touring in Europe 56 finn. 70.00 70. 00 64. 00 50. 00 190. 00 180. 00 25. 00 165.00 240.00 48. 00 55. 00 150. 00 Marquette University German language Hildesheim 60 Michigan State University_ -- jSpanish language Madrid ~. 45 ~French language Lausanne J IFrench languag4 Aix-en-Provence and Paris 1 Oberlin College IGerman language Vienna 63 tSpanish language Granada fGerman language Freiburg 1 Woman's College of Georgia4French language Dijon 81 ISpanish language Salamanca Queens College Italian language Pisa 56 Rosary College Etruscan studies Tuscany 45 Iltalian Renaissance Florence 42 Sarah Lawrence College ~17th century French classicism Paris 42 U8th- and 19th-century England London 42 College of Wooster German language Vienna 84 Beloit College International organizations Geneva 56 Miami University Contemporary social problems_ - 14 countries 54 72. 50 48 00 . 96. 00 45.00 66. 00 130. 00 122. 00 122 00 122. 00 79. 00 160.00 291. 00 PART li-PROGRAMS SPONSORED BY NONPROFIT ORGANIZATIONS Number Number Estimated Sponsoring organization Nature of program of par- of ticipants days tax 1 National Education Association Educational tours for teachers 600 56 American Youth Hostels Hostel trips for young people 522 56 National Student Association Educational tours for students 800 42 Experiment in International Living Living with foreign families 2 000 56 American Field Service do 933 56 $210 66 115 66 40 IAESTE Trainee exchange program 179 80 45 1 Tax estimates are based on a trip of average cost outside the Western Hemisphere in 1967. Mr. HERLONG. Thank you, Dr. Murray. Mrs. Griffi'th~. Mrs. GiUFFITHs. Thank you. I would like to ask you a question deal- ing more with the brain drain from other countries than the travel tax. Of the more than 100,000 foreign students studying in the United States, how many of them become permanent residents or citizens? Mr BOWMAN I think perhaps I can respond to that question I think the fact is that our educational agencies do not know the answer to that question. There are underway some studies to try to find out how many of them do stay. We do know that there is a great increase in the number of students who study in the United States for 3 or 4 years, or 1 or 2 years as in past years, but we do not yet 916 PART 1.-PROGRAMS SPONSORED BY COLLEGES AND UNIVERSITIES PAGENO="0139" 917 have any real accurate statistics on the number who become permanent residents in the united States Mrs GRIFFIPHS How does the 100,000 break down ~ How many are men and how many are women ~ Mr BOWMAN I am speaking from memory of the statistics I believe it is about 60 percent men. Mrs GRIFFITHS It has been my personal observation that it is the men who stay on, not the women. Mr BOWMAN I think that is correct Mrs GRII3TITHS I have quite a few of these problems A man barely gets here and he marries an American girl and he wants to remain, and this isn't generally true of women. Women return. But I would be interested in knowing, if you have some facts, how many of them remain in the United States Thank you Mr. HERLONG. Mr. Curtis. Mr CURTIS I will ask the question I asked the previous witness thinking it was you who was testifying Do you have any estimates of the total dollar amount that is encompassed in this area of educa tional travel which includes students, professors, and I guess research also would be included in this education bundle The total figure we start from is probably the $3 9 billion figure that the Treasury gave us as to the total number of American travel abroad. First, do you have any rough estimate as to what we are talking about in this education segment ~ Mr MURRAY For the total number of institutions that there are in the United States the answer to that question is that we do not have it, we have what we think is a reasonable estimate from the membership of the Council on International Educational Exchange We estimate on the low side and we put this figure at about $40 giillion, plus the cost of transportation. Mr CURTIS About $40 million Do you know whether Treasury has made any such estimates? I have not seen them so I simplyask whether you have seen any Mr MUPRAY I have not Have you, Mr Bowman ~ Mr BOWMAN I think the problem is that we are speaking here about students th'Lt go abroad under exchange programs operated by non profit edue~tional institutions and organizations, whereas the broader problem that you are getting at is how many in this age group, and I have not seen any competent statistics dealing with all of the expenses of travelers in this age group This includes many dependents of people who are assigned to over seas duty by business and Government as well Mr CURTIS You are very responsive because I wasn't just limiting it to what your group represents I was trying to get quantitative data in the broad area of what we might call educational international exchange. The other breakdown I would like is how much of that is in Western Europe-I guess the bulk of it is-as opposed to in the less developed countries where there might be a different treatment by the Government. PAGENO="0140" 918 In fact, the Western Hemisphere has been sep'irated in the total figures Would you hazard a guess as to whatever that figure is Am I correct in assuming that the bulk of that would be to Western Europe~ Well, maybe not if we consider Canada and Mexico, which many Americans visit. Mr. BOWMAN. Yes. Mr. CURTIS. In fact, do you have any figures that will give us this kind of information? Mr. BOWMAN. Yes. I believe that the statistics show that about 65 to 70 percent of the students who go abroad do go to Western Europe and there are also significant numbers to Canada and Mexico, as you ind1cate Mr. CtmTIs. Yes. You see, up to date the administration has not presented data on the breakdown of this $3.9 billion. The good bulk of this is business travel. I don't know what that figure is. And that relates directly `to our exports and our private investments abroad. Another sizable portion-I don't know what it is~-is education, using it in a broad sense. Then we would then come down to the third area of `recreation travel, which would in turn `be broken down into the let set, all others than the let set All the public attention by the admin istration `has been directed to this very narrow area of the jet set which I don't think amounts to anything. In the process of getting at the jet set, though, we could be badly damaging the area that you point up, that of education travel. We could also be badly damaging `the private sector itself-the busi- ness area. I have one collateral question. It doesn't pertain to this subject. Well, it does in a way How much of these 100,000 foreign students in the ITnited States and 25,000 Americans in foreign universities-those figures are just students; aren't they ?- Mr. BOWMAN. Yes, sir. Mr CURTIS - is financed by our Government and how much by the private sector? Mr. BOWMAN. Of the 100,000 students at an American university approximately 50 percent of these are what we call self-supporting students; that is, most of their income comes from family or them- selves. The remaining 50 percent are supported by their Government, our Government, foundations, or the institutions which they are attending. Mr. CURTIS. I am trying to get the breakdown of what the U.S. Gov- ernment does. If it is 10 percent I would be surprised, but it may be. Mr. BOWMAN. Yes; I think it is less than 10 percent. I think there are only about 5 percent that have significant amounts of support by the U.S. Government. Of course some of these' are through binational educational commissions, the Fulbright commissions in foreign coun tries, which are binational operations rather than just U.S. operations in some cases. Mr. CURTIS. Yes. I am trying to discover the Federal dollar expen- ditures. Of the 25,000-you use the figure 24,900 instead of 25,000- Americans in foreign universities, how many are Government-fi- nanced? Private spending there again is heavily predominant; is it not? PAGENO="0141" 919 Mr. BOWMAN. I believe the only significant Government program is the Fuibright program again, and I believe this comes to about 3,000 total, but that is several years old. I think it may be even smaller now. Mr. Cuirns. I think that too is below 10 percent. The reason I em- phasize this every chance I get is that unfortunately the Government spends an awful lot of money propagandizing what it does. Very little of this data is placed in context. The real efforts are being made in the private sector. The American people have an unbalanced view of what is being done. You ask about student exchange and others say, "Oh, you mean the Fulbright program." I say, "No. I am talking about the nine for every one, or whatever it might be, that we are talking about here." Now, the only reason I bring this up, for it is a minor way, is that the Federal Government hasn't talked about cutting back on its ex- penditures in this area. I am not necessarily arguing they should, but they haven't talked about it. When the Government buys tickets, it does not pay taxes? Mr. BOWMAN. That is correct. Mr. CURTIs. Even in domestic travel it doesn't. I was just trying to put this relatively small factor into this study. Well, thank you very much. Mr. HERLONG. Are there further questions? Mr. UTT. Mr. Chairman. Mr. HERLONG. Mr. Utit. Mr. UTT. I want to direct your attention to your attachment in the last two or three pages of the number of places they go to and the num- ber of days they remain abroad at the estimated tax and ask you why with the 35 days in Russia the estimated tax is $240, and then with 83 days in Leningrad, which also is Russia, it is only $190, and why other areas are as low as $35 and $40 for a longer period of time. Why is there this great variation in the estimated tax? Mr. BOWMAN. On the two programs in the U.S.S.R., the short pro- gram is a program arranged through Intourist which travels from city to city and has a good bit of intercity travel. That is the reason why the per-day cost of this program in the U.S.S.R. is very high. On the other hand, the Leningrad program is a program in which students are studying and live in the university dormitories for a period of 6 weeks and their costs there are, therefore, much lower than those who are traveling about and living in hotels. As for other programs in other countries, I think there are many factors that go into the cost of the program, including the type of accommodations used and the amount of expenditure. While I am com- menting on this I might add that there is a factor that is also involved which is that the number of professors who go with the program con- tribute to the cost of the program because the Treasury Department at present is saying that all of the money that would be paid to U.S. uni- versity or educational organizations arranging foreign travel would be part of the figure in computing the overseas cost, even though it applied principally to expenses that the university might have in the United States. Mr. UTT. Isn't this last column a cost per student? PAGENO="0142" 920 Mr. BOWMAN. Yes; that is an estimated tax per student. Mr. tTTT. Why would they take more for professors? That is just an additional number of persons. Why does the additional professor cost the student more in taxes? Mr. BOWMAN. Because the travel of the professor and perhaps his salary are part of the figure which the student pays to the sponsoring university in the United States and the present interpretation of the Treasury Deparment is that the total amount paid to a university in the'TJnited States or to a travel agent or anyone who arranges an over- seas program is part of the taxable cost rather than the amount that that university or organization actually spends overseas. Mr. UTT. Thank you. Mr. HERLONG. Any further questions? If not, we thank all of you for your appearance before the committee and for your contribution to the committee. Mr. Muamar. Thank you very much, sir. (The following letter and supplemental statement was received by the committee:) CoUNCIL ON INTERNATIONAL EDUCATIONAL EXCHANGE, New York, N.Y., March 11, 1968. Hon. WILBUR D. MrLL5, Chairman, Committee on Ways and Means, Longworth Hoase Office Building, Washington, D.C. DEAR CONGRESSMAN MILLS: Following the presentation by Dr. J. Ralph Murray before the House Ways and Means Committee on February 28, Congresswoman Martha W~ Griffiths and Congressman Thomas B. Curtis asked several questions about student exchange statistics' which Dr. Murray and I were unable to answer fully at the time. Both Committee members requested that we furnish such infor- mation in order to assist the Committee in its study of the travel tax proposal. Accordingly, we have prepared some additional information which I am. sending with this letter. We would appreciate your incorporating this document into the record as an appendix to our testimony. As stated in Dr. Murray's testimony, the organizations and institutions repre- sented in the Council are much concerned that adequate exemptions from any travel taxes be provided for educational exchange programs. We recommend that these exemptions apply to all educational exchange programs administered by colleges, universities, secondary schools and non-profit organizations. Our attor- ney in Washington, Mr. Russell Weil of Kirlin, Campbell and Keating, would be prepared to make further suggestions on the legal nature of the exemptions should such comments be deemed helpful and appropriate. We are extremely appreciative of the Committee's careful consideration of the problems of educational exchange and are grateful to have had an opportunity to appear before the Committee to express the concerns of our members. Sincerely yours, JOHN E. BOWMAN, Eeecutive Director. SUPPLEMENT TO THE STATEMENTS OF THE COUNcIL ON INTERNATIONAL E~UCATIONAL EXCHANGE The following information supplements the testimony presented by Dr. J. Ralph Murray, President of Elmira College and ~Jhairman of the Council on Interna- tional Educational Exchange, to the Ways and Means Committee on February 28, 1968. It is intended to provide fuller responses to questions asked by Committee members following Dr. Murray's testimony. PAGENO="0143" 921 PART 1.-Data regarding foreign stndents studying in the United States at U.S. cotleges, universities, and other institutions of higher education A. Total number of students studying at U.S. instiutions of higher educa- tion in the academic year 1966-671 100,262 B. Division by sex :1 Number of men (77 percent) 76, 873 Number of women (23 percent) 23, 389 C. Geographic area from which foreign students come: 1 Canada (and Bermuda) 12,230 Latin America 18, 182 Western Hemisphere 30,412 Africa 7 170 Far East 33 570 Europe -~ 14,207 Near and Middle East 12, 830 Oceania 1, 635 Outside Western ~Iemisphere 69,412 Other 438 Total D. Sources from which foreign students obtain major part of their financial support and the percentage of all students receiving major support from each source :1 Self-supporting 40. 3 Support from U.S. Institution 17. 7 Support from private organization 8. 0 Support from U.S. Government 5. 8 Support from foreign government 4~ 7 Mixedsupport 4.3 Not known 18.3 E. Percentages of students from different areas of the world who are self-supporting :1 Canada (and J3ermuda) 47.0 Latin America 44.0 Africa 17.0 Europe 35. 0 Far East 28. 0 Near and Middle East 45. 0 Oceania 33.0 1 Open Doors 1967: Report on International Exchange. New York: Institute of Inter- national EducatIon, July 1967. NoTz.-The source for this data (Open Doors 1967), published by the ftstitute of Inter- national Eilucation defines a foreign student as any student with non-U.S. citizenship. Approximately 13,000 (13 percent) of those so classified Indicated they did not intend to return to their home countries. PART 11.-Data on U.S. students and teachers trave'ing abroad in 1957 A. Total number of passports issued during 1967 (1) To persons classifying themselves as students 292,070 (2) To persons classifying themselves as teachers 88,490 Total 380, 580 1 Summary of Passport Statistics. U.S. Passport Office. Washington, D.C.: U.S. Depart. meat of State, January 1968. PAGENO="0144" PART IL-Data on U.S. students and teachers travel'ing abroad in l967-Oontinued~ B. Estimated total number traveling abroad in 1967: 2 (1) Students 350, 000~ (2) Teachers 145,000 Total 495, 000 C Estimate of average time spent abroad and estimated average expenditures (1) U.S. students: Average time spent alroad8 (days)__ 95- Average expenditures at $9 per day8 $870 Total estimated expenditure4 $304 500 000 (2) U.S. Teachers: Average time spent abroad2 (days)__~_ 35 Average expenditures at $15 per day2 $535 Total estimated expenditure4 $77, 575 ,000 2 Projections from above-mentioned sources and estimates from unpublished data by the Council on International Educationai Exchange. 8 Youth Travel Study. The Gallup Organization, Inc. New York: the European Travel Commission, 1967. Not including transportation. Norz.-The above reflects the statements which passport applicants made about their occupations. When asked about the object of their trip only 61,270 or 4 percent of all appli~ cants In 1967 Indicated they were traveling for educational purposes. However, some of those going abroad to study may have been included under other types of objectives such as "personal reasons" (38 percent) or "pleasure" (40 percent).' PART 111.-Data on U.S. students studying at foreign universities during the' regular school year 1~65-66 A. Total number of U.S. students studying at foreign universities ~__ 24, 900~ B. Geographic area of study:1 Canada Latin A inericiI Western Hen~'~e~ 3,946~ 7,092 Africa 270k Far East 1, 979 Europe 14, 079 Near and Middle East 713 Oceania 167 Outside Western Hemisphere 17, 808 C. Estimated average time spent abroad and estimated average expenditures: 2 (1) Estimated average number of days abroad 300 * Estimated average expenditures abroad $1, 800 (2) Estimated total overseas expenditures-1965-662 $43, 820, 000 Adjustment for estimated 12 percent increase in 1966_672 $49078400 1 Open Doors 1967: Report on International Exchange. New York: Institute of Inter. national Education, July 1967. 2 Projections from above-mentioned sources and estimates from unpublished data by the Council on International Educational Exchange. PART IV.-Data on U.S. college or university faculty traveling abroad on educa-- tional missions during the 1966-67 school year A. Total number of U.S. faculty traveling ` 4, 674 B. Geographic area to which traveling' Percent Canada 1 Latin America 15 Western Hemisphere 16~ `Open Doors 1967: Report on International Exchange. New York: Institute of Inter- national Education, July 1967. Norz.-There are no reliable figures `showing the number of days which the average U.S.. faculty member spends abroad or on his average daily expenditure. nspuei PAGENO="0145" 923 PART IV.-~Data on U.~5. college or university faculty traveling abroad on eduoa- tional missions during the 1966-67 school year-4Jontinued B. Geographic area to which traveling 1-Continued Africa 11 Far East 1~ Europe Near and Middle East 6 Oceania 2 Outside Western Hemisphere 82 PART V.-Overseas travel by students and teachers in educational ezchange pro- grams sponsored by U.S~. colleges, universities, secondary schools, and nonprofit organizations in 1966-67 A. Year-long enrollment in overseas universities (average 300 days): In Western Hemisphere, number of students 500 Outside Western Hemisphere: Number of students 15,000 Average per capita overseas expenditure $1, 800 Total overseas expenditure $27, 000,000 B. Enrollment in short-term educational exchange programs in- cluding attendance at special summer sessions, traveling seminars, and social service projects (average 60 days): In Western Hemisphere, number of participants 2, 500 Outside Wesieru Hemisphere: Number of participants 25,000 Average per capital overseas expenditure $720 Total overseas expenditure $18,000,000 Mr. HERLONG. The next witness is Mr. Carl J. Megel. Mr. Megel, we appreciate your coming before the committee and for the record will you identify yourself and whom you represent and proceed in your own way. STATEMENT OF CARL J. MEGEL, DIRECTOR OP LEGISLATION, AMERICAN FEDERATION OP TEACHERS~ AFL-CIO Mr. MEGEL. Thank you very much, Mr. Chairman. My name j~ Carl J. Megel. I am the Director of Legislation of the American Federation of Teachers, a national, professional union of more than 150,000 classroom teachers, affiliated with the AFL-CIO. Our organization embraces more than 760 teacher locals, including locals in the Department of Defense Overseas Dependents Schools, in the Department of the Interior Indian Schools, and in the Territories. As the representative of the American Federation of Teachers, I am appearing before this committee to register our opposition to the proposed travel restrictions as submitted by the Secretary of the Treas- ury. In doing so we are not unmindful of the existing balance-of-pay- ments deficit which the administration and the Treasury are hoping to correct. We commend them for their efforts. Unfortunately, we believe their proposal for travel restrictions is ill-advised, self-defeat- ing, and discriminatory. I should like to direct your attention to these three points, but in reverse order: First, the proposal is discriminatory. The proposal states than an individual shall be considered on a nontaxable trip if he is outside the Western Hemisphere for at least 120 consecutive days. A student or a teacher never has more than 8 to 12 weeks, at the very most, summer 89-749-68-pt. 3-10 PAGENO="0146" 924 vacation to travel for self-improvement or study. Conversely, a tourist who can afford to spend the summer at the French Riviera or on a round-the-world cruise could easily vacation for ~i2O or more days and do so entirely tax-free. This discrimination between the haves and have-nots is further aggravated by the proposed travel restrictions since they violate the ideal that citizens in a democratic society have the inherent right to travel without restrictions. Our second contention is that the travel restriction proposals are self-defeating. Treasury figures show that in 1967, American tourists spent $3.9 billion in contrast to the $1.8 billion spent by foreign tourists in the United States. This accounted for a $2.1-billion deficit in our balance of payments. The Treasury proposal hopes to reduce this deficit by $500 million. We contend that this figure is highly specula- tive, but even were it to materialize it would be obtained at a tremen- dous cost. More than 2 million Americans have been and are planning to travel to foreign countries during this summer. Most of these prospective travelers will consider the proposals as an unnecessary aggravation im- posed upon middle-income tourists. Many who saved nickels and dimes for years in order to take that one long-awaited trip to Europe may decide to go anyway and pay the tax or try to find methods of evasion. Our memory of the chaos created by attempts to enforce the Volstead Act is too vivid to lead us to believe that these travel restrictions would not be accorded the same disdain. Since the close of World War IT, the United States has provided more than $100 billion to rehabilitate the nations of the world. As a result, the economies of many nations have improved to an extent that far exceeds our wildest expectations. Certainly, any decrease in the dollars which Americans spent abroad in 1967 will seriously affect the economies of these nations, thereby defeating the very purpose of our foreign aid program, deflating the economies which we built up, and projecting the possibility of further and more extended devalua- tions of currencies. Certainly, if the restrictions are effective, in their own self-interest other nations would be compelled to retaliate, thereby nullifying any advantages we may have gained. We need only to recall that it was the United States that first imposed a tax on visas. Subsequently, practically all the nations of Europe imposed visa taxes so that in the end the United States was a loser. Fortunately, when the Marshall plan was instituted these taxes were removed from visas. While it is doubtful that the new restrictions would produce the desired results so far as balance of payments are concerned, there is no doubt that the increased cost of collection will be substantial. Such monies could be utilized to better advantage in promoting foreign tourist travel in the United States. As a Nation we have spent very little compared to the expenditures of many smaller nations in promoting their natural beauty and points- of-interest. With little effort on our part we could very easily increase foreign travel to this Nation, not only to equalize but, perhaps, even to exceed American tourist expenditures overseas. The recent action to reduce air and rail travel costs in the United States of America for foreign visitors is a step in the right direction. Far more can be done, including an easing of the visa restrictions for PAGENO="0147" 925 foreign visitors. It is far easier for an American tourist to travel abroad free from visa restrictions than it is for foreign guests to travel as tourists in the United States of America. At a time when our Nation sorely needs friends and allies, a good public relations program emphasizing foreign travel in the United States would pay great dividends. Furthermore, the proposed travel restrictions place an emotional and financial burden upon the thousands and thousands of teachers and students who annually participate in study tours. In 1967, pass- port records show that 24 percent of all foreign travelers were students and teachers. In addition, the American Federation of Teachers is opposed to re- strictions from a purely educational point-of-view. It is our experience that each year more teachers find it important to travel abroad in order to supplement their knowledge of the subjects which they teach. In 1965, 57,030 teachers went a)broad; in 1966, 76,230 and in the first three quarters of 1967, 81,750. Theirs is a professional judgment that must be respected if the factual and cultural quality of education in America is to be maintained and improved. At this critical period in our history when the needs for educational advancements are unchallenged, deterrents must not stalemate educa- tional opportunities. Teachers who must pay for travel and study tours out of their own pocket should not be subjected to a further indignity to their already generally poor economic status by being required to pay a food, lodging, and transportation tax. Any travel tax would fall disproportionately heavy upon teachers as regressive taxes always do upon all but the wealthy. The American Federation of Teachers has just published the "17th Annual Summary of International Study and Travel Opportunities," prepared by AFT International Relations Committee Chairman, Rich- ard J. Brett, a copy of which I have distributed, Mr. Chairman, and which I would like to insert in the record. We got it this morning from' the printer and I couldn't put it in my report. Mr. HERL0NG. We will take it up for consideration in the record. Mr. MEGEI4. This is the only study of its kind. It has a circulation of' somewhere near 200,000 and this is the 17th year that we have been publishing this study tour. It also contains a compilation of Federal and State grants for teachers compiled by David Ebner. I might also say parenthetically this does not include the many, many tours that are conducted by the American Federation of Teachers, by the various locals of the American Federation of Teachers, and by other education and philanthropic organizations. These are study tours only conducted by colleges and universities. The number of summer study tours in this year's summary estab- lishes a new record. More that 200 study tours, an increase of 25 percent over the 1967 listing, are outlined in t~his year's summary. The study tours are offered by 104 U.S. colleges and universities, with plans to visit 82 countries and 16 islands in all parts of the world. The chart appended to this statement shows the breakdown of study tours by areas of the world and by countries, for the years 1962 to 1968, inclusive. May I now refer you to the chart at the back. We show here on page 6, first, the breakdown of study tours by areas of the world, and there are 123 tours this year to Europe. Then the next one is a breakdown of PAGENO="0148" 926 study tours by countries of the world and you have here the breakdown f or France, England, and so on on down to Singapore with 10 at the very bottom This is the breakdown of the tours Mr HERLONG Without objection this entire chart that you attach will be included as part of your statement Mr. M1~oEL. Thank you. We have been encouraged by the steady growth of these tours during the past 17 years Certainly, any reduc tion in the number of study tours or in the number of participants would produce an undeniable cultural gap which is unmeasurable in dollars and cents. History has shown that a cultural lag is the first rung of a ladder to dictatorship, soon followed by other educational deficiencies, breed- ing ignorance and producing poverty which are the spawning-grounds of dictatorship. In conclusion, I am delighted to havt~ the opportunity to be here, and it is our considered opinion that the proposed travel restrictions. are discriminatory, that they are self defeating, and that they may very well cause a retardation of the intellectual and cultural values of students and teachers which will far exceed any monetary coniputa- tions. For these reasons, we register our opposition to the proposed travel restrictions. (The chart referred to follows:) BREAKDOWN OFSTUDY TOURS BY AREAS OF WORLD Area 1962 1963 1964 1965 1966 1967 1968 World 8 6 12 8 10 9 7 Africa 2 1 1 1 2 2 4 Asia-Pacific 10 12 8 11 11 12 21 Middle East 4 4 6 3 6 9 5 Europe 63 65 62 75 94 106 123 Latin America 6 4 5 6 9 7 19 Mexico 11 4 6 5 11 15 17 Canada-Alaska 3 0 4 3 6 5 4 Total 107 96 108 112 149 165 200 BREAKDOWN OF STUDY TOURS BY COUNTRIES OF WORLD [Arranged according to frequency of listing in the annual summaryl 1968 rank Country 1962 1963 1964 1965 1966 1967 1968 1 France 57 59 56 64 74 81 81 2 England 51 49 46 54 60 74 75 4 Italy 49 50 50 50 62 73 64 3 Germany 43 44 40 47 60 62 67 5 Austria 35 39 35 37 42 46 57 6 Switzerland 41 37 35 40 44 49 54 7 Netherlands 39 34 23 31 46 47 52 8 Denmark 15 18 10 17 23 28 29 9 Spain 15 17 24 12 20 25 28 10 Greece 16 18 21 10 24 26 22 11 Japan 15 12 17 15 16 16 21 11 Belgium 24 24 19 22 27 28 21 11 Scotland 14 13 8 14 14 15 21 14 Mexico - 13 5 9 7 17 17 20 15 Portugal -- 10 7 18 4 11 12 18 16 Hong Kowg 11 11 15 14 11 11 16 17 Swedep 12 13 5 11 14 17 14 18 Thailand 8 7 13 9 10 11 13 19 U.S.S.R 4 6 4 5 12 11 12 19 Taiwan 9 6 6 7 8 9 12 19 Hawaii 11 9 13 12 11 8 12 22 Hungary 1 2 0 2 5 8 11 22 Israel 5 5 14 7 11 14 11 24 Norway 9 12 4 10 8 18 10 24 Yugoslavia 4 8 7 6 9 13 10 24 Singapore 5 6 14 14 8 8 10 lSingapore was a part of Malaysia. PAGENO="0149" 927 Mr. HERLONG. Thank you so much for your statement and for your contribution to the committee. Are there questions ~ Mr. curtis. Mr. Omrns. Just a comment. I just want to commend you highly for this kind of presentation and data and information that you have ~given to the committee. There is not a thing in here that I have read and listened to that I don't agree with thoroughly. I wish and I hope maybe some of these organizations that are putting together package tours in the United States will get hold of your booklet and try to encourage teachers in Europe to do what you have done. I just agree with the way you point up the essentiality of this and the value of travel. I will ask you a question. Are there any of these kinds of tours `being conducted in the United States by foreign teachers comparable to what your group has done concerning American teachers going abroad ~ Mr. MEGEL. Not that I know of, nor has there been a compilation made if there were. So I don't know of any. Mr. CURTIs. Such data ought to give some suggestions to these peG- pie who have been testifying before our committee in regard to work- ing out package tours in the United States itself. Such data would be very good. Thank you. Mr. MEGEL. Thank you very much. Mr. HERLONG. Thank you. Thank you very much for your state- ment. Mr. MEGEL. Thank you. Mr. HERLONG. The next witness is Prof. Emmet V. Mittlebeeler. Professor Mittlebeeler, we appreciate your appearance `before the com- mittee and ask you to identify yourself and the gentleman with whom you are associated with for the record. STATEMENT OP PROP. E~MET V. MITTLEBEELLER, ASSOCIATION POR ACADEMIC TRAVEL ABROAD, INC.; ACCOMPANIED BY LEO L WOL- LEMBORG, ASSISTANT' TO DIRECTOR Mr. MITTLEBEELER. Yes. My name is Emmet V. Mittlebeeler, profes- sor of government and `pii~blic administration at the American Univer- sity, Washington, D.C., and I am speaking for the Association of Academic Travel Abroad, Inc., of New York City, as well as for my- self. My colleague is Mr. Leo R. Wollemborg, who is assistant to the director of the association. Now in its 19th year, the association is one of the oldest nonprofit American educational travel associations, and is engaged both in pre- senting its own study tours and in arranging tours for academic insti- tutions. Under auspices of the American University I have directed eight study tours of government and politics to Europe, both Eastern and Western, since 195~'. We are opposed to restrictions on travel generally, for reasons which other witnesses have presented: restrictions may lead to retaliation~ so that the policy of attracting foreigners here, reflected in establish- ment of the ES. Travel Service several years ago, will be frustrated; they will reduce only a small part of the deficit and will cause more trouble `than they avert; they are a violation of the time-honored prin- PAGENO="0150" 928 ciple of freedom of movement; and in the long run everyone profits from increased travel-a lesson now being learned even by eastern Europe. More specifically, while we recognize that the balance-of-payments deficit seriously threatens the economy, we feel that placing restrictions on student and teacher travel is an unwise policy. As one who has been overseas as a soldier, a visiting professor, and a tour leader, I can testify that the serious student or teacher is the best unofficial ambas- sador America could have. We ask the committee to consider the possible effects of the proposal on students and teachers. Most students have little to spend. They travel at a highly impressionable period in their lives, and look upon travel as a vital part of their education. Most of them will never go back to Europe again; or, if they do, they might go as government officials, educators, or business representatives, where their original European experience will react to the benefit of the United States. Others of them may, some day, be sitting just where you committee members are sitting. Educational travel assumes many forms. Some American students and teachers travel to Europe and enroll in European or American- supported institutions there; others travel on programs sponsored by American institutions, under the direction of American professors, and may or may not receive credit from those institutions (it is with this type that I have been associated) ; others, especially teachers, proceed in groups, sponsored by nonprofit educational associations and led `by authorities in certain fields, even though there is no formal registration at an American college or university, and participate in discussions and seminars abroad; and some go as individuals to do research. Some programs, like junior years abroad and Fuibright scholarships run for a whole academic year, but `this committee will note the fact that a large proportion, possible `a majority of students and teachers engaged in study tours, travel to Europe during the summer vacation period, because that is the only time they can get away. The cost of such tours varies according to length of the tour, countries visited and educational program, but it is a rare tour that costs less than $15 per day. May we point out to the distinguished committee members that many of our university sponsored programs, outlined in our bulletin before you, cost between $15 and $20 `a day, which includes not oniy the necessary transportation within Europe, but also the complete educa- tional program and the cost of teaching staff expenses-expenses which are not incurred in `a regular `tourist trip. It would be more than unjust to tax these expenses. The proposal to `tax a traveler's expenditure at 15 percent in excess of $7 per day, and 30 percent after $15, is unrealistic. It strikes di- rectly at responsible and `academically respectable tours, and in most cases will spell the difference to the ordinary student `and teacher be- tween go'ing `and not going. Exemption for perio'ds lasting longer than 120 days discriminates' against the summer travelers. Every meaningful s'tu'dy tour presented by `a reputable educational travel organization or by `a university or college runs in the neighborhood `of 6 weeks, and the period of 120 days extends beyond the length of 1 summer. This committee might PAGENO="0151" 929 consider shortening the exemption period to 20. or 3O~ days, or better still, exempting student and teacher travel generally Rather than restrict student and teacher travel, our government should encourage, even subsidize it-which is the philosophy of the International Education Act of 1966 Being fully cognizant of the financial crisis the country faces, and eager to assist in meeting it, we endorse the proposed reduction of the $100 duty free exemption We respectfully request the committee to bear in mind the special status of students and teachers, and to give effect to the pronounce- ment of Secretary of the Treasury Fowler on February 5, 1968: The free interchange of people is a basic tenet of democratic life and an in- grethent of an expanding free world In conclusion I should. like to thank Congressman Mills and the members of the Committee on Ways and Mean's for the opportunity of presenting our views on this issue. Thank you, sir. Mr. HERLONG. Thank you very much, ProfessorS We appreciate your `contribution to `the committee. Are there questions? If not, we do appreciate your being here'and thank you so much. Mr MITTLEBEELiR Thank you, Mr Chairman Mr HERLONG The next witness is Mr Eldridge B Plowden The Chair will yield to Mr TJtt for the purpose of presenting this witness Mr. TJTT. Mr. Chairman, `I take this opportunity to welcome Dr. Plowden to this committee He comes from Chapman College, which is in' `my district, and I feel very fortunate that I `have a grandson who is a junior in this coll~ge although he has never'taken this tour that is represented here, so Dr. Pl'owden, I `ath very `happy to have you here before our committee STATEMENT OP ELD'RIDGE B PLO WDEN, PROVOST, CEAPMA1'T COLLEGE, ORANGE, CALIP Mr PLowmmi Thank you very much Mr HERLONG Dr Plowden, will you please identify yourself for the record and proceed in your own way Mr PLOWDEN Mr Chairman and gentlemen, my name is Eldridge B Plowden I am the provost of Chapman College, Orange, Calif Thank you very much for the opportunity to make this brief statement Chapman College is the only institution of higher learning in the world which conducts a bona fide, fully accredited college program while students are voyaging around the world The ship isth~ 15,000 ton S S Byndam~ which Chapman uses under contract with the Holland America Line It is a vessel fully refitted and properly equipped to conduct an appropriate instructional pro gram, equivalent in every way to what is done on the land campus of our college at Orange, Calif This world campus afloat carries a corn plement of about 540 carefully selected students from approximately 200 American campuses, and about 80 professors chosen with equal care At present we are on the high seas and in foreign ports from 10~ to 103 days each semester To assemble the students, to give necessary orientation to enable them to creditably represent American students abroad; to d'is'perse them to campuses throughout the coun'try on re- PAGENO="0152" 930 turn in time to enroll for the next semester, necessarily limits the shipboard experience to approximately 100 days per semester. If we are required to remain outside the Western Hemisphere `on such voyages the 120 days now proposed by the pending Treasury recommendations, the cost to the college and to the individual student would increase to the point where few students could afford it evon if exempt from the travel tax proposed by the Treasury. We do no't understand the educational justification for establishing a minimum of 120 days for a college course. This would make it im- possible for any institution operating on a trimester or quarter basis to conduct any program whatever. Furthermore, under the proposed Treasury provisions, our pro- fessors could not accompany the students since our professors do not teach in foreign universities nor conduct research projects abroad- they are full-time American college teachers temporarily conducting ~classes of American students outside of the United States. They are not exempted under the proposed regulations. Chapman College is fully sympathetic with the very serious bal- ance of payments problem which this proposed legislation is intended `to address. We do respectfully submit, however, that the advantages accruing to the United States from the landing of over 1,000 of our best and most representative young men and women each year, in from 30 to 35 of the world's principal ports, where they project the true image of what is best in American student behavior to the people, `and especially the students, or many countries, on all five continents; we think may be worth vastly more to the United States than the `small amount keeping them at home could possibly contribute to the ~balance of payments problem. Chapman College undertook and continues this program in the firm ~belief that th'e times and the position of this Nation in the world to- day, requires that American students in increasing numbers be given a firsthand knowledge of other peoples and cultures, and some knowl- `edge of other countries' problems and aspirations. After the passage of the International Education Act by the Con- ~gress, we threw ourselves into the development of this program with added vigor. An experiment in intern'ati'oia~al education, undertaken with con- siderable trepidation 3 years ago, has become au outstanding success. This is attested not only by the greatly enlarged awareness of our students in world affairs and increased motivation in college studies and by a highly favorable foreign press, but also by the fact that the Japanese Ministry of Education, which, after having care- fully studied our program, is now building a ship, `specifically de- signed for similar use by Japanese students. Since this is the only such program in America at present, we felt `the committee would be interested in knowing that under the pro- posed Treasury regulation's it probably cannot be continued. Chapman College therefore respectfully ask's the committee to con- "sider reducing the time required to be `spent abroad from 120 days to `not more than 100 day's, and further, to `change the wording relating `to professor and staff exemptions to permit full-time teaching and `staff `servicing of American student's for an American college while a component of its campus is abroad for 100 days We pray your favorable consideration of these matters. PAGENO="0153" 931 Thank you. Mr. HERLONG. Thank you very much, Dr. Plowden. We appreciate your statement. This is certainly an innovation in the educational field and we are happy to have it described for us. Mr. PLOWDEN. Thank you. Mr. HERLONG. Do you have any questions? Mr. Urr. No. I do want to say, Dr. Plowden, that several members of the committee have expressed themselves that it certainly was not their personal idea, nor did they think the idea of the Treasury, to injure such types of educational tours and this being an innovation and prob- ably one of the most exciting campuses in the world, it receives great flattery and I am glad to say they concur in what you are doing. I don't believe there will be any legislation that will destroy this cruise. Mr. PLOWDEN. Thank you very, very much, Congressman Utt. Mr. HERLONG. Colonel Kieffer. Colonel Kieffer, if you will please identify yourself for the record and the gentleman with whom you are associated you may proceed in your own way. STATEMENT OP COL. JOHN E. KIEPPER, HEADMASTER, KARKER PREPARATORY SCHOOL POR BOYS, POTOMAC, MD., AND DEAN OP THE ACADEMY, WORlD ACADEMY SOHOOLS, OINCINNATI, OHIO; ACCOMPANIED' BY MICHAEL YOUNG, STUDENT INTERN Colonel KIEFFER. Yes, sir. I am John E. Kieffer, colonel, U.S. Air Force (retired), headmaster of the Harker Preparatory School of Potomac, Md., dean of the academy, World Academy Schools of Cin- cinnati, Ohio. The young gentleman with me is Michael Young, a student intern in government and public administration. I ask the committee's indulgence in permitting him to enjoy the ex- perience of sitting in the uneasy chair of a witness before a committee as part of his education. Mr. HERLONG. We are happy to have you here, Mr. Young. Mr. YOUNG. Thank you. Colonel KIEFFER. The committee has heard much testimony on high levels. I would like to take this opportunity to present the position of a working agency in the field which is actually operating summer schools in Europe as part of a regular educational program. Mr. HERLONG. As I understand it, Colonel, you want your entirer statement to appear in the record and you are going to talk from that,. is that right? Colonel KIEFFER. Yes. Mr. }IERLONG. Without objection it will so appear. (Colonel Kieffer's prepared statement follows :~ STATEMENT OF COL. JoHN E. KIEFFER, USAF (RET.), HEADMASTER OF THE HARKER PREPARATORY ScHooL, POTOMAC, MD., AND DEAN OF THE ACADEMY, WORLD~ ACADEMY SCHooLS, CINCINNATI, OHIO Mr. Chairman, Gentlemen of the Committee. Introduction I am grateful for the opportunity to be heard by the committee on behalf of~ Harker Preparatory School of Potomac, Maryland, The World Academy Schools For Foreign Study of Cincinnati, Ohio, the 2500 high school and college studenta PAGENO="0154" 932 and teachers who will constitute our summer session in Europe in 1968 and all students and teachers who devote their summers to formal study in Europe. My purpose in requesting this time is not to testify in opposition to the pro- posed Travel Tax Program but to seek a realistic modification of its provisions in the interests of serious American students and teachers. Tinder its present terms, the proposed Travel Tax Program will, if adopted, impose inequities and hard- ships on such students and teachers. In just the few months since the President announced his Intention of asking for the Travel Tax, our experiences have indicated that a serious curtailment of valuable study abroad has and will continue to take place, if the proposed pro- visions are adopted. Such curtailment would have serious repercussions not only on educational development in our country but, also, in the careers of the indi- vidual students and teachers involved. I. BACKGROUND The organizations represented I am appearing in the capacity of Headmaster of Harker Preparatory School and Dean of World Academy Schools, which, under a cooperative arrangement, operate bonafide, accredited, credit-granting summer schools in Europe. During the summer of 1968 at leas't seventeen of these schools will be in operation. Harker Preparatory School is a duly accredited secondary school for boys located in Potomac, Maryland. It is chartered by the State of Maryland and is accredited by the Maryland State Department of Education to train students and issue recognized and official credit and diplomas for courses extending from the 1~th grade to the 12th grade and a Post Graduate year. Chartered by the State of Maryland as a non-profit Educational Institution, it has been declared a tax exempt institution by the Internal Revenue Service, under provisions of the Internal Revenue Code sections 501(c) (3). The provi- sions of sections 170, 2055, 2106 and 2522 apply. Its certificate number is A-324482, dated July 16, 1965. Harker operates a regular school year, has a per- manent faculty, issues diplomas which are recognized by all colleges and uni- versities and has a maximum enrollment of 125 students during its regular session. In addition to, and as part of, its regular program it is responsible for all the academic aspects of the seventeen European summer schools it operates. World Academy Schools of Cincinnati is an Ohio Corporation composed of col- lege professors, teachers and other educators, organized for the purpose of pro- moting study in Europe, and other overseas areas, during the summer months. It is responsible for nfl the administrative non-academic functions of the schools. lJha.racter of European summer schools There are two general types of summer programs offered in Europe. The first type is offered by an agency employing the words "School", "Study", "Educa- tion", etc. in their names. These are not schools in the educational sense. They are not authorized to issue credit nor are their certificates accepted for credit. They hold very few, if any, formal classes and are, in effect, summer tourist agencies existing for the purpose of conducting summer tours of Europe for students who either do not wish to pursue academic work or do not realize any work they may do will not be accepted for credit. Students enrolled in these so-called "Schools" are tourists, nothing more. The second type is conducted by an accredited school or college, authorized to issue credit and diplomas. This type offers a truly educational program, con- ducting formal classes under competent, qualified and approved instructors. The subject matter taught is based on accepted educational standards, is con- tained within an approved curriculum and has a definite planned syllabus of instruction. The hours of instruction are in agreement with those prescribed by most states and Institutions of higher learning. Official, accepted and recognized credit is granted to successful students. In summary the first type is a form of tourist agency catering to vacationers and tourists who are basically not seeking education. This type should be subject to the provisions of the proposed Travel Tax. The second type is a bona fide school operated solely for purposes of education and recognized as such by all other American schools and colleges. This type should not be subjected to taxes imposed on tourists. The Harker-World Academy Summer Schools are of the second type for which I am seeking consideration. It is concerning this second type alone that further remarks will be made. PAGENO="0155" 933 Purpose and advantages of Enropean snmn~er schools rrlle general purpose of bona fide European Summer Schools is to offer the serious studeiit an opportunity to increase his knowledge by first hand, on-the- spot contact with the Old World and to better prepare him to render a greater contribution to his community and to education. The obvious advantages are: 1. Certain subjects are studied to greater advantage and more efficiently in Europe than in United States. Subjects such as French, German and Spanish can be studied more effectively in the country where the language is spoken than by tapes, records and under American teachers. Art 1-listory, Fashion Design, Creative Design, Painting and Drawing can be studied much more effectively in Paris, Rome, Florence and Madrid where students of Art can see the actual originals rather than study such as must be employed in United States color slides, photographs and written descriptions. (Attached herewith, as Annex A is a complete list of courses offered by I-Iarker-World Academy.) ~. The student is enabled to study under experts with whom he would have lltti~ opportunity to work in United States. Our course in Art History, for example, receives its instruction from six European experts, five of whom have won the Prix Dc Rome. The cost of assembling such a faculty in an American college would be prohibitive. 3. The student is enabled to develop a deeper appreciation and knowledge of the diverse cultures and civilizations from which our own country emerged. Personal contacts with these sources develops a much better understanding of European living and cultures and serves to prepare his mind to grasp the basis of the essential differences. 4. Exposure to m~tru~tioii by European instructors gives the studen.t a new ap- proach to education and enables him to better evaluate that instruction which lie receives in his own school or college. 5. A European summer school enables the entering freshman and the college student. alike, to extend his field of major interest, increase his knowledge and take additional courses which he might not he able to take in his normal college career. Some students are able to meet the entire requirement for foreign lan- guage in a single summer, thus enabling them to add from two to four courses in other areas in their American college. (A list of colleges recognizing the value of this summer sessioii and granting credit or advanced placement for work done by students in the Harker-Worid Academy program is at~,aclied as Annex B.) Requ iremcn ts of the program To accomplish these and other objectives the following are required: 1. A well-planned and organized program, credit-granting and recognized, with a superior faculty, capable of producmg the maximum results in the mini- mum of time. 2. Preseiìtation of such a program at a price available to most students com- big from moderate income families, and in a period of time which will permit the s~ udent to still have some substantial part of a summer vacation period for gainful employment, attendance at an American summer school or a few weeks of rest and relaxation between sessions. Cost of the Worker-World Academy programs Within the framework of reference given above the Harker-Worid Academy Program has produced a six weeks program which meets the requirements of American education. It includes 17 courses which vary in price from $795. to $990. (An experimental program in Ancient Civilization offering 2 weeks in Israel, 2 weeks in Athens and 2 weeks in Rome cost $1,385. Further comment will be made on this in a later section.) The price of each program includes air transportation, tuition, books, board and room, all travel in Europe, insurance and virtually every other expense which may arise during the session. Not included are passport fees and laundry. II. THE PROPOSED TRAVEL TAX PROGRAM After careful study we have concluded that the proposed Travel Tax Program, if made into law. will seriously retard any bona fide European education en- richment program and may even cause the abandonment of these programs by the accredited schools now conducting them. We arrived at these conclusions PAGENO="0156" 934 on the basis of the immediate effects and an analysis of the Travel T'ax Program provisions. Immediate effects 1. Since the announcement of the proposed tax we have received 25 cancella- tions of registration from the first 500 applicants accepted. Most of the stmients in this 5 percent cancelled because they or their families feared the tax would place the cost `of the session plus allowance beyond the financial ability of the family `budget for education. We have not analyzed the remaining registrations at the time this is being prepared. 2. Prior to the announcement of the proposed Travel Tax we averaged about 25 applications per day. Since the announcement these have dropped to about 10 per day. 3. Since the announcement, approximately 1/3 of our correspondence and tele- phone calls deal with the effects the proposed Travel Tax will have on our pro- gram, if it is adopted. 4. Our representatives report a large number of prospective students holding back registrations until ~a definite decision i's made cOncerning the proposed tax. Presumably a large percentage of this group will not enroll or will not `be able to enroll if the tax is applied. Long-range effects 1. Any increase in the cost of the `summer schools will cause `a marked decrease in enrollment. We know by experience, that any summer school program exceed- ing a $1,000. in cost Will attract the absolute minimum in registration. Our records to date indicate the average enrollment in courses costing $990, such `as European Government, is 250 students per course. In the experimental Ancient Civilization course, costing $1,385, we have received only 5 enrollments from the entire country, even though this is part of a course taught in every high school and required for graduation from most colleges. Therefore, if the tax is borne by the student and increases the cost of the program, we estimate at least a 50% reduction ii~ enrollment. 2. Since our present charges allow only a bare minimum beyond actual cost, any tax which is borne by the program must necessarily produce a corresponding decrease in the quality of transportation, living standards and faculty in order to absorb the tax. This could bring the program into disrepute. Rather than sacrifice standards, some which may be required by various state laws, we would be forced to discontinue the program. 3 Any increase in cost which could not or would not be borne by the students and which would be required to be borne by the program would automatically cause us to deprive a great number of American teachers of the opportunity to improve their skill by study in Europe. Currently our policy has been to provide this `opportunity to selected teachers, without cost, on the basis of 1 teacher for every 8 to 10 students enrolled. We could anticipate a 50% reduction in this project during the 1968 session `alone. 4. Since it has been our policy to select o'ur overseas faculty from among both European professors and American teachers and professors studying full time abroad, the proposed tax would force us to make `a serious reduction in staff. Since `all of our courses are given at `European universities it would be unlikely that we could eliminate any appreciable segment `of the European faculty. Thus, our own colleagues and fellow citizens would have to be eliminated and bear tile loss. III. SPECIFIO INEQUITIES IN THE PROPOSED TRAVEL TAX The current proposal states': "Students-~an individual (and his dependents)' would be considered on a non-taxable trip if he spends' at least 120 consecutive days ;- 1. Enrolled as a `student in a full course `of study at an educational Institution outside the Western Hemisphere; or 2. Engaging on a full time basis in educational `activities which are `directly related to a course of study leading `to a degree he is undertaking in an educa- tional institution in the United `States." We believe this proposal requiring at least 120 days abroad to be unfair un PAGENO="0157" 9135 realistic, and designed without reference to American educational policies, prac- tices or methods. 1. The provision has been written with the obvious intent to provide an oppor- tunity for American students to pursue work in Europe. It appears to presuppose registration in European institutions, assuming their course policies to be the same as in United States. This is most unrealistic since in most European universities compulsory attend- ance at class is not required. In addition this provision does not require the student to pursue any course of study successfully or to work for credit. It is entirely possible for an American students to register in many European universities and receive a certificate of attendance without attending more than a half dozen classes and without taking any examinations, lie would not, of course, receive credit from any American institution but he could comply with the exemption provision as it now stands. This is not an uncommon practice. I have known a number of students who followed this practice. By this means a student could register to comply with the Travel Tax exemption and play tourist for as long as he wished under cloak of the exemption. 2. Under the American system the determining factor is not how many days or weeks a student spends in a university or school but how many hours of instruc- tion he actually attends and receives. In the secondary schools one unit of credit presupposes 180 periods of instruction with an attendance record of at least 90%. This attendance figure varies from state to state. In general it presupposes one period per day, five days per week for thirty-six weeks, but this time factor of 36 weeks is not important. It is the 180 periods of instruction which is important. Summer sessions vary from six to seven weeks in length with the number of periods of instruction varying from 100 to 125 or more. The college credit system is based on three attendances per week for sixteen weeks, a total of 48 hours or periods of instruction, for 3 semester credits. Again, it is the hours of instruction which are the determining factors. In most colleges a student cannot miss more than six meetings of the class and still pass the course. Many have even tighter restrictions. Therefore, to allow a student who merely spends 120 days or more in foreign study, during which be may acquire the equivalent of one to three credits or none at all, to be exempt from the Travel Tax and to assess this tax against a bonafide student who acquires the same or more credit during a period of less than 120 days is unfair. In this sense, if the 120 day provision is intended to retard the disbursement of dollars abroad, the provision is self-defeating. The bonafide student will spend less in a formal 6 weeks school than under a pseudo-enrollment extending beyoiid 120 days~ 3. The normal length of a college summer session is 6 weeks. The normal length of a secondary school summer session is 6 to 7 weeks. Many schools and colleges operate two summer semesters during the vacation period, each providing the necessary periods of instruction. Bonafide, credit-granting, accredited American schools operating summer sessions in Europe usually follow the same practice as to duration and number of hours of instruction in their programs as in United States. Under the proposed Travel Tax the student attending these schools would be penalized since they would meet the hours and credit provisions in less than 120 days. 4. The 120 days provision works a hardship on students pursuing a course of study in a school which requires a European summer session under the home school control. Currently, a number of ~secondary schools and colleges require this and more are being added to the list. Notable among the secondary schools in this class is Fordham Preparatory School which makes graduation in one of its programs dependent upon attending a European summer session of 6 weeks duration under its direction. IV. THE HARKEE-WOELD ACADEMY SCHOOLS The summer sessions operated In Europe are organized on a six weeks basis embracing 144 hours of instruction per course, with each student being required to take two courses. Under the proposed Travel Tax each student would be subject to the tax even though he was acquiring more education, more credit and spending fewer American dollars than the student Who is exempted by spending 120 days or more. PAGENO="0158" 936 We have established this program in conformance with American educational practices and in cooperation with American colleges and secondary schools. One program, for example, planned for the University of Delaware and Drexel. Institute, is arranged so as to permit the fifty students registered in the program to obtain six weeks intensive study in Rome and Florence for six credits towards their degrees in Art and return in time to enter the second semester of a summer session conducted by their own colleges. Under the proposed Travel Tax, these students will be unfairly taxed for their dedication to their studies. V. CONCLUSION AND RECOMMENDATIONS It is concluded that: 1. The proposed Travel Tax requiring a student to remain in Europe 120 days. or more to be declared non-taxable is unrealistic and contrary to American educational practices. 2. It will work a hardship on serious students and teachers who study abroad during the summer under programs designed on American patterns. 3. It will seriously deter American students and teachers from furthering their education and developing their skills in European study by increasing the cost beyond a bearable maximum. 4. It will cause a decided decrease in the number of serious students studying in Europe, while at the same time not deter the pseudo-student who takes a nominal registration in a European university, with only the intention of securing a certificate of registration, and who intends to spend the greater part of his time as a tourist. 5. It could discourage the bonafide, accredited, credit-granting educational institution from operating regular summer schools in Europe to the detriment. of American education. Therefore, it is respectfully suggested and recommended that the provision of the proposed Travel Tax, as applied to American students attending schools outside of the Western Hemisphere, be modified along the lines of the following proposals. Students: An individual (and his dependents) studying or enrolled in an educational institution conducted outside the Western Hemisphere shall be considered non-taxable if- 1. Enrolled in a recognized European educational institution pursuing a formal course of study for more than 120 days and producing, upon the termina- tion of his studies, a certificate attesting the satisfactory completion of 50% or more of the courses undertaken; said certificate to be of a nature acceptable to an accredited college, university or secondary school in the United States or- 2. Engaging on a full time basis in educational activities which are directly related to a course of study leading to a degree or diploma he is undertaking in an educational institution in the United States, provided the number of days,. hours of instruction and classroom attendance are comparable to those required by an accredited college, university or secondary school in a comparable activity or are approved for credit by such an institution in the United States or- 3 Enrolled in a program of study or a school operated in Emope by a non profit tax exempt college university or secondary school in the United States which is accredited by a state regional accrediting agency or The Con gross of the United States and which has the authority to grant credit diplomas or degrees provided that formal instruction shall be given in regular classroom sessions by competent teachers and professors and the duration and content of such program of study or school shall be equivalent to that operated by these institutions in the United States or accepted by them. 4. The term "student" shall include regularly enrolled students, teachers and school administrators necessary to operate such a program as described in 3 above and graduate students, professors and teachers engaged in research necessary to their course of study which has been approved by the educational institution in which they are registered or employed. 5. Students not enrolled in educational institutions as described in one through four above or who are enrolled in institutions or agencies not accredited by a state, regional accrediting agency or the Congress of the United States and which are not authorized to issue credit, diplomas or degrees, shall be considered taxable as tourists or vacationers. PAGENO="0159" 937 Course City of City of Stu- Program No. Cities and countries Date departure Date arrival dent cost French language (2 2FL 101-4 Paris, London June 27 New York - Aug. 5 New York - $795 countries). French language (3 3FL 101-4 Paris Marseille Madrid June 25 do do do 895 countries). Switzerland. German language GL 101-4 Paris, Frankfurt, Salz- July 4 .do Aug. 12 _do 940 burg Graz Vienna Switzerland. Spanish language (2 2SL 101 4 Lisbon Madrid do do do do 795 countries). Spanish language (4 4SL 101-4 Paris, London, Lisbon, June 4 _....do do do 895 countries). Madrid. English literature and LilT 101 London, Nottingham, June 27 - do Aug. 5 .,_do 895 history. Scotland, Ireland. European governments__ PS 201 Madrid, Rome, Switzer- June 20 - __do July 29 ..do 990 land, Frankfurt, Paris, London. Art history (4countries) 4AH 202 Madrid Rome Florence July 1 do Aug 8 do 940 Switzerland, Paris. Painting and drawing.... - AH 301 Madrid, Rome, Florence, June 27 - do Aug. 5 - ~do 940 Switzerland, Paris. Creative design and All 401 Paris, Switzerland, June 20 - do July 29 ~ 940 fashion art. Rome, Madrid. Music history and ap- M 101 Paris, Frankfuit, Salz- July 4 - do Aug. 12 __do 940 preciation burg Graz Vienna Switzerland. Drama DR 101 Londoo, Nottingham, June 27 _-_do Aug. 5 __do 895 Scotland, Ireland. Civilization and history CV 501 Jerusalem and vicinity June 25 do do do 1 385 Athens and Rome vicinity. JUNIOR HIGH PROGRAMS 2JFL 101-4 Paris London June 24 New York Aug 1 New York 795 3JFL 101-4 Madrid, Paris, `Switzer- June 20 do July 29 ~do 895 land. Advantages of the suggestions and recommendations 1. Under the proposed suggestions and recommendations the purpose of the proposed Travel Tax would be accomplished in relation to students who employ the title and status of a student in an effort to evade taxation but are, In reality, tourists. 2 They would continue to make possible the operation by American institu tions of bonafide summer schools in Europe for serious students, to the advantage of American education and the subsequent benefit of the community and the country. ANNEX A SCHEDULE OF PROGRAMS AND TUITION COSTS French language (2 countries). French language (3 countries). Note: All courses except junior high programs taught on secondary school and college level. ANNEX B. COLLEGE CREDIT AND ADVANCED PLACEMENT The following is the record of favorable replies up to February 22 1968 This list includes Colleges and Universities who will (A) grant degree credit (B) grant Advanced Placement (C) grant waiver of graduation requirement for courses taken in the European summer session Since conditions vary with each College it is not feasible to list them in groups at this time In general conditions include award of credit on Harker s certification credit or advanced placement by 4epartmental oral or written examination etc Many of these schools permit their own matriculated students to take courses for degree credit Where the name is listed in parenthesis it means some special procedure is required. The student should be advised to write directly to Harker for further informa tion on any College listed herein or concerning any College not listed NOTE -This list does not include those Colleges granting recognition by Advanced Placement Examination or CEEB PAGENO="0160" 938 A Adrian College Agnes Scott College Albion College Alfred University Allegheny College Alliance College (Amherst College) Arizona, University of Alabama, University of B (Beaver College) Beloit College Bennington College Berea College (Brandeis University) Briar Cliff College Bucknell University Ball State University C Canisius College Cazenovia College Caldwell Crilege for Women Chatham College Chicago Academy of Fine Arts Christian College Citadel Cedar Crest College Claremont Mens College Clemson University COlby College College of William and Mary Colorado State College Cornell University-Agriculture Cornell University-Arts and Science Cornell University-md. and Labor Creighton University Connecticut, University of California State Polytechnic College D Dallas, University of David Lipscomb Davis and Elkins Delaware, University of Denison University Drake University Drexel Institute Drew University Dumbarton College Defiance College Denver, University of E Earibam College East Carolina University Eastern Michigan University Elmira College Evangel College Elmhurst College F' Franklin and Marshall College Frostburg State' College Furman University Freed-Hardeman College Florida, University of G Geneva College (Golden Gate College) H (Hampton Institute) Hartford College for Women Haverford College Harvard University College High Point College (Houston, University of) (Hunter College) Hollins College I (Iowa, University of) J (John's Hopkins University) J~ulliard `School of Music K' (`Kansas State `College) Kansas, University of Kent State University L (Ladydiff College) Laffayette College (Lake Erie College). Lake Forest College Lawrence University Louisiana State University Loyola University (NOLA) Lon Morris College M M'a'ria'n College Mary Baldwin College Mary Washington Coll~ge Mercyhurst `College Mil'likin University Minnesota, University of Mississippi State College for Women Monmouth College (IlL) (Mt. Holyoke College) Mt. St. Agnes College Mt. St. Mary `College (N. Hamp.) Montclair State `College Marygrove College Miarymount College Mount Vernon Junior College College of Mt. `St. Vincent Marjorie Webster Junior Oollege PAGENO="0161" N Nebraska, University of New Rochelle College North Carolina State (Raleigh) Nazareth College New Mexico State University North Carolina, University of 0 Occidental College Oklahoma Baptist University Oklahoma, University of Oregon State University (Oregon, University of) Ouachita Baptist University Our Lady of Cincinnati College P Peabody Conservatory Pembroke College Penn State University (Poinoda College) Purdue University Randolph Macon College (Regis College) Rennselaer Poly. Institute Rhode Island School of Design Rhode Island, University of Redlands, University of Richmond, University of Ripon College RochesterInstitute of Technology Rockford Rollins College Rosary Hill College S St. Mary of the Woods College St. Michaels University St. Thomas, University of (Skidmore) 939 Smith College South, University of the South Carolina, University of State University of N.Y.-Genesco (State University of N.Y.) St. Bonaventure University Springfield College Suton Hall University Southwestern at Memphis T Temple Buell College Temple University Tennessee, University of Thiel College Transylvania College Trinity College (C~nn.) U U.S. Naval Academy V Vassar College (Villanova University) (Va. Military Institute) (Virginia, University of) (Virginia Intermont College) w Washington and Jefferson College Webster College Wellesley College (Western Michigan University) (Williams College) Wittenburg University Wofford College Wooster, College of Wes'tark Junior College (Wayne State University) Westmont College Wayneshurg College York Iunior College (Yale University) Colonel KniFFER. Thank you, sir. I won't take the committee's time to discuss the first two or three pages of the written statement. That has been submitted beyond mentioning that there are two types of European summer schools which are operated both on a `secondary and a college level. The first type employs the words "school", "study", "educational program", "educational tour" in their names, but are not schools in the educational sense. They are not authorized to issue credit nor are their certificates accepted for `credit. They hold very few, if any, formal classes and are, in effect, summ~,r tourist agencies existing for the purpose of `attracting students for what used to be called the grand tour of Europe for those who do not wish to pursue any active academic work or who do not realize that any work that they may take will not be accepted for credit. 89-749-68-pt. 3-11 PAGENO="0162" 940 The second type is `conducted by an accredited school or college which is authorized to issue credit and `diplomas, and this type offers a truly educational program, `conducting formal classes under compe- tent instructors, meeting standards a's' established by America~i schools and colleges, and, in short, they operate exactly as a school would operate in this country. The first type is in effect a form of a tourist agency. The second type is definitely a school. While we `are not in opposition to the travel tax, we feel that the tax should be applied in the field of education against students who are registered in the first type program since it is not `a formal educational program, and should be exempted under the second type program. The agencies which I represent fall into the group `of the second type. I won't take the committee's time. You have already heard num- bers of times of the advantages of European education and I believe you are all thoroughly familiar with it. I can speak as the headmaster of a secondary school, as the dean of this program nationwi'de, and as a former student having been partly educated in Europe. We recognize that any program of this type that is going to appeal to secondary school students or college students must be kept within `a price range that will ju'stify any middle-class family or any mid'dle-income family making the investment. Therefore, it has to be `cheap enough so that it is not going to tax t'he family budget for education `and at the same time it has to produce positive results in the form of credit toward `a diploma or a degree. Based on our experiences we know that any program that will run over about $990 will discourage most students. For example, in an experimental course in ancient civilization, which offered 2 weeks in Israel, 2 weeks in Athens, and 2 weeks in Rome with 144 hours of formal instruction at a cost of $1,385, we have received since last September, five applications for this course out of the entire United States, Another course in European government going at a price of $940 has attracted to this particular point 325 enrollments. T'he figures has gone up, I believe, since it was quoted in this statement. Therefore, anything in our experience that will increase the cost of European study beyond $1,000 is not going to be effective from an edu- cational point of view. A member of the committee asked for figures. I cannot quote you national figures, but I can quote you ~our own experiences since the talk of travel tax has come into the press. As of February 1 we had 5 percent cancellations on the first 500 applications that we reviewed. We are still in the process of consid- ering the rest of them. The average of applications per day prior to the announcement of the proposed travel tax was 25 The average from January 15 to February 15 after the newspaper started to publicize this dropped to 10. The total applications between the 15th of February and the 22d of February nationwide were 18. The `total from February 22 to date was four. This as a result of the mere threat of the possibility of a travel tax. We `have at the present time approximately 200 potential appli- cants whose applications will not be submitted until something definite is done about the proposed travel tax. PAGENO="0163" 941 These figures 1 think on a small scale can be somewhat convincing.. A previous speaker listed 144, I believe, universities and colleges who were conducting their own European program. I don't challenge this in the least. I simply state that since October, 14 universities in the United States have made arrangements with us to funnel their European study program through our program since the cost to the university is prohibitive in handling just its own group. The immediate effects of this program I have told you about in our own experience. The long-range effects of this are somewhat greater. Any increase in the cost of a summer session over $1,000 is going to dis courage the operation of formal schools in Europe by American insti- tutions. We anticipate that if a tax has to be borne by the student applying to this that we can estimate at least a 50 percent reduction in the number of enrollments for this current summer Our original estimate as of the first of September was 2,000 enroll- ments, this in 17 schools, and contracts were drawn on that basis. With the introduction of the travel tax our estimate dropped to 1,500. As of February 15 it was revised to 1,200 and yesterday we revised the maximum enrollment to 950 students on what would normally be a 2,000 enrollment, this entirely as a result of the responSe that is being received from teachers, colleges, schools, and students themselves. Now, in the average school of our type that operates a program, and ours is the largest accredited summer school program operating on a high school and college level, the charges will allow only a bare minimum beyond actual cost. In annex A, which follows immediately after page 9, we have given a detailed list of the program countries visited the dates on which these are held, and the cost per program. With all due respect to Secretary Fowler-he may be able to go to Europe on $7 a day-we cannot send these students to Europe at $7 a day. We can keep him in a French school and take him to two countries for $795 for 42 days, but if we were to ask that same student to pay a 5-percent travel tax and anywhere from 15 to 30 percent tax on his actual time in Europe, we could eliminate the $795 French program. Parents who can pay $795 will not go to $850. If they would go to $850, Mr. Chairman, that is what we would charge. Consequently, if the students has to bear this tax, he is not going to bear it, he is not going to go, and the only way these schools can be. conducted is by absorbing the tax themselves. This is going to produce a reduction in standards and in the faculty, a reduction in the number of students going, and in some cases it could bring a program of this type into disrepute, and rather than sacrifice the standards which we have set in our school, some of which are required by State laws, we would be forced to discontinue our program, and I believe other schools operating in the same area would do much the same Another long-range effect of the tax would be in the effect that it had on American teachers It has been our policy at the expense of our organizations to send abroad every year a certain selected number of American teachers on the ratio of 1 teacher for every 8 to 10 stu- dents. This teacher is sent without cost to the teacher. If we are forced to bear the tax which on 950 students the 5-percent airplane tax alone would amount to pretty near $15,000, we are only going to be PAGENO="0164" 942 able to do it `by eliminating as many as 300 to 400 American teachers who otherwise would never get to Europe, since they will never save the money to go themselves. It has also been our policy overseas to select our faculty both from the faculties of foreign universities and from American professors and teachers who are attached to foreign schools or who are themselves studying there. Now, since all of our classes are held in a foreign university, when it comes to the point of having to cut the size of the faculty we are not going to be able to cut `the European members of this faculty and the teachers who are going to suffer overseas are our own colleagues who we are going to have to eliminate from the payroll in order to `preserve enough funds to operate a school. `Therefore, this tax itself is going to work a hardship on. students and teachers in this country and Americans in Europe. The most `critical thing that we find with it is that the program was apparently devised without reference to American educational practices and policies. It states that as a student an individual, `and his dependents, would be considered on a nontaxable trip if he spends at least 120 consecutive days enrolled as a student in a full course of study `at an educational Institution outside the Western Hemisphere, or engaging on a full time basis in educational activities which are directly related to a course of study leading to a degree he is undertaking in an educa- tional institution in the Uni'ted States. Both of these are completely unrealistic from the point of view of standard educational practices. This provision has obviously been written to provide an opportuni'ty for an American student to go abroad to pursue work with the idea in mind that European universi- ties operate in the same fashion as they do in the United State's. Having taken both a Master's degree and a Ph.D. in a European university I can assure you that there is httle or no resemblance be- tween their system and structure and ours. It is entirely possible for an American s:tudent to register in a foreign university, go to his first class to get his name on the sheet, and never go back again until the end of the school year and pick up a very fancy certificate of attendance which simply says he had registered in the university. He has done no work, received no credit, contributed nothing, learned nothing. But under the terms of the present measure he has been there over 120 days and therefore Congress will entitle him to spend a full year as a tourist in Europe doing little or nothing that is useful and be tax exempt. And I can assure you from my own personal experiences that this is not an uncommon practice. I have at the present time on my desk letters from several parents who would like to send their children to Europe for a year. They want them. registered in a foreign uni- versity, `but they don"t care if they ever attend a class. Under our system in this country the determining facto'r is not how many days or weeks a student spends at a university or school, but how many hours of instruction he actually attends and receives. PAGENO="0165" 943 In a secondary school one unit of credit presupposes 180 hours of instruction at which the student is present in some cases-it varies from State to State-anywhere from 75 to 90 percent of the classes. In the average university a so-called three-credit course requires the attendance of this student three times a week for 18 weeks and in most universities he cannot be absent more than six times in the course of that 18 weeks and still get credit for the course. Summer sessions vary in the universities and the summer `schools from 6 to 7 weeks, during which time the student gets instruction, depending upon the State, of anywhere from 100 hours of instruction up to 140, 145. The college system is handled the same way. Therefore, to allow a student who has gone to Europe merely to spend 120 days with a registration certificate from a university to which he has never gone or never opened a book not only penalizes the bona fide student who has gone to Europe to work for a period of less than 120 days, but actually encourages a student to evade the tax by a phony registration in any one of a number of European uni- versities that will be happy to give him a larger diploma than most of the committee received when they graduated from law school, writ- ten in Latin and signed by at least 8 or 10 professQrs who never saw the student since the student never went there. On the other hand, since the normal length of the summer session is 6 weeks in a college and 7 weeks in a secondary school, by not exempting this student who has gone as a serious student, the pro- posed travel tax will actually discourage European study, as our own small figures have demonstrated within the last 2 months. The 120-day provision also works a hardship on a bona flde stu- dent who might actually take 120 days in order to be exempt from the tax, since a number of secondary schools and colleges require that a summer program be part of the student's formal education and they set the number of days. Now, if the student has to go for 42 days abroad under the ruling of Fordham Preparatory School, or under our own, or at West Min- ister in Atlanta and we require him to go in order to get a diploma, the proposed tax imposes a tax on him, where a friend in another school can go for 120 days, do nothing, get nothing, meet no require- ment, and ride tax free. Bona fide, credit-granting, accredited American schools operating summer sessions in Europe do not follow the 120 day provision, but they follow the provisions regulating the summer `schools in their own institutions, Consequently, a student who attended as required would be penal- ized taxwise. Now, we conclude from this that the proposed travel tax requiring a student to remain in Europe 120 days or more to be declared non- taxable is unrealistic. It will work a hardship on the serious student. It will discourage the schools from operating. It will cause a decrease in the number of students and in t~e number of `schools, and as a result what you will finally end up with is the group that can afford the tax, who will go with a noncredited travel agency type operation, learn nothing, at the expense of their own education. PAGENO="0166" 944 We respectfully suggest and recommend that the provisions of the travel tax as applied to American students attending schools outside the Western Hemisphere be modified along the lines of our proposals on page 8. A student should be defined as an individual-and his dependents-studying or enrolling in an educational institution con- ducted outside the Western Hemisphere and shall be considered non- taxable if he is enrolled in a recognized European educational insti- tution pursuing a formal course of study for more than 120 days and producing, upon the termination of his studies, a certificate attesting the satisfactory completion of 50 percent or more of the courses un- dertaken; said certificate to be of a nature acceptable to an accredited college, university, or secondary school in the United States or, Engaging on a full-time basis in educational activities which are directly related to a course of study leading to a degree or diploma he is undertaking in an educational institution in the United States, provided the number of days, hours of instruction and classroom at- tendance are comparable to those required by an accredited college, university, or secondary sthool in a comparable activity or are ap- proved for credit by such an institution in the United States or, Enrolled in a program of study or a school operated in Europe by a nonprofit, tax exempt college, university or secondary school in the United States which is accredited by a State, regional accrediting agency or the Congress of the United States and which has the author- ity to grant credit, diplomas, or degrees, provided that formal in- struction shall be given in regular classroom sessions by competent teachers and professors and the duration and content of such program of study or school shall be equivalent to that operated by these insti- tutions in the United States or accepted by them. The term "student" shall include regularly enrolled students, teach- ers, and school administrators necessary to operate such a program as described in three above and graduate students, professors, and teach- ers engaged in research necessary to their course of study which has been approved by the educational institution in which they are regis- tered or employed. Students not enrolled in educational institutions as described in one through four above or who are enrolled in institutions or agencies not accredited by a State, regional accrediting agency or the Congress of the United States and which are not authorized to issue credit, di- plomas, or degrees, shall be considered taxable as tourists or vacationers. By such a proposal the serious American student `abroad could be separated from the tourist and at the same time American institu- tions operating schools in Europe could continue to operate without having prohibited the burden of the tax. One last statement, Mr. `Chairman. In reference to a previous speaker or a previous comment by another member of the committee to the effect that he hoped that some American institution would attempt to reverse the procedure and bring European students and teachers to the United States, in September we operated an office in Geneva, Switzerland, for the purpose of building a program for European students and teachers which we hope to put into operation by the summer of 1969 which will be identical with the programs that we PAGENO="0167" 945 flow operate in Europe where study will he conducted in secondary schools and universities here. Thank you, sir. Mr. HERLONG. Thank you, Colonel Kieff or. This is an excellent statement and we appreciate the problem that you have and you may be assured that the committee will give careful consideration to it. Thank you, Mr. Young, for being with him. Colonel KIE~~. Thank you, sir. Mr HERLONG We have one more witness scheduled, Mr Curry, and Mr Burke wanted to be here when you were testifying We have a quorum call going on or~ the House floor now If you will come back at 2 30 this afternoon we would appreciate it, sir. (Whereupon, at 12 56 p m, the committee recessed to reconvene at 2 p.m., the same day.) AFTER REOESS (The committee reconvened at 2:30 p.m., Hon. James A. Burke, presiding) Mr. BUR1~E. We will reopen the hearings and our next witness is Joseph R. Curry, director of the Mount Hermon Summer &hools, Mount Hermon, Mass. Will you identify yourself for the record, Mr Curry STATEMENT OP JOSEPH It CURRY, DIRECTOR MOUNT HERMON SUMMER SCHOOLS, MOUNT HERMON, 1~[ASS Mr CIJRRY I am Joseph B Curry I am director of the Mount Hermon Summer Schools of Mount Hermon, Mass. Mr. BURKE. We welcome you here and I am particularly privileged to be chairing this meeting at this time coming from the great Com- monwealth of Massachusetts. Of course your school has an excellent reputation in Massachusetts and I am pleased that you are here to advise and counsel us. Mr. Cuimy. Thank you, Mr. Burke. I am particularly indebted to you for your kindness and willingness to pay attention to my remarks. For the convenience and information of the committee I have pro vided our current brochure. This brochure need not be a part of the permanent record Of the committee. Mr BURKE All right, sir Incidentally, this is an excellent brochure I have been reading it over and can see that you have an excellent educational program on foreign travel, on the history and culture of England, France, Spain, Greece, and Italy, and other countries, and also Japan on the other side I INTRODUCTION Mr C~IJRRY Thank you Yes I am a graduate of the Citadel, the military college of South Carolina, and of Harvard University I served for 2 years as an officer of artillery in the U S Army and for the last 1 years I have been a member of the faculty of Mount Hermon School Mount Hermon School, for boys, is one of two institutions incorporated as the Northfleld and Mount Hermon Schools Together PAGENO="0168" 946 these schools comprise the largest independent secondary school in the continental United States, enrolling approximately 1,200 students each year. As director of the Mount Hermon Summer Schools mine is the responsibility for creating and administering what is, in effect, a national summer high school for highly motivated public school stu- dents from all parts of the country. Through special advanced courses offered not for academic credit but for enrichment only, we seek to supplement public education by providing courses of a flexibility, a depth and an intensity that are unapproachable within the structure of the regular academic year. Our students are selected without regard to their race, creed, color, or national origin. And generous financial aid awards, made possible by income from private sources, enable us to select students on the basis of their merit rather than on the basis of their ability to pay. A distinguished faculty are drawn from colleges and secondary schools from all parts of the country. Our curriculum for this summer consists of 27 courses enrolling some 375 students. Generally, no more than 15 students are enrolled in any one course Two courses in American studies involve travel within the United States, either to North Carolina to study the Negro in American history or to Colorado to study the American Indian. Seven courses involve foreign travel. They consist of an orientation on the Mount Hermon campus followed by home-stay, study and travel within one of the seven different countries. The study-travel courses in France, Germany, and Spain are for the purpose of advanced language study. Tests indicate that this program is at least the equiva- lent of 1 year of secondary school language study. Four area studies courses stress the history and culture of England, Italy, Greece, and Japan. In the latter three courses, a considerable amount of time is given to language study. All courses feature a home-stay with a care- fully selected host family, a continuing academic program conducted by members of the Mount Hermon faculty and a trip, usually in the company of members of the host family, to places of historic or cultural importance. Students who are enrolled in Mount Hermon's study-travel courses are charged a fee by the school that covers the cost of room, board, and transportation within the United States and abroad; entrance fees for concerts, museums, and places of cultural and' historic interest; accident insurance and medical care; laundry service; and instruction and administrative charges. While abroad the student does not incur additional costs for any of the above-enumerated items, he may not travel independently of the course; and he must use the trans-Atlantic or trans-Pacific air transportation provided by the school. For this transportation only American-flag carriers are used. Financial aid awards to participants in these seven study-travel courses alone will amount to some $15,000 in 1968. Mount Hermon's involvement in overseas study and travel and our association with and concern for other institutions offering similar programs have brought me here today to offer for your consideration these thoughts on the balance-of-payments proposal now before this committee. My comments will be directed to the travel tax program, especially as those taxes affect Mount Hermon School and other nonprofit educational institutions. PAGENO="0169" 947 We are aware of the difficulties created by the balance-of-payments situation confronting this Government and recognize the necessity for action aimed at the relief of this problem. We are gratified that, as proposals have been considered for the reduction of deficits in our balance of payments, especial note has been taken of the needs of stu- dents and teachers to travel abroad for research and study. My presence before this committee is to ask on behalf of Mount Hermon School and similar organizations that nonprofit educational institutions which are recognized by the Internal Revenue Service as exempt from the travel tax be granted exemption from the foreign expenditures tax as well, and that such exemption specifically include funds that those institutions expend abroad on behalf of their students and faculty for food, lodging, transportation, salaries, and achninistration costs. Further, we ask that such exemption be granted to the institution without regard to the length of time spent abroad by its students. I should like to discuss the proposed travel tax program under three headings. First, I shall attempt to analyze the proposed tax, as we understand it, as it applies to institutions such as Mount Hermon School. Second, I shall describe the adverse effect that such a tax would have upon Mount Hermon. Third, I shall offer our recommendations as to changes which might be made to eliminate the disadvantages of the travel tax proposal as it applies to institutions such as Mount Hermon. II. DISCUSSION OP THE PROPOSED TRAVEL TAX PROBLEM A. Analysis of the proposed travel tax as it applies to institutions such as Mount Hermon School. 1. The travel tax program of the balance-of-payments proposal, as we understand it, exempts those nonprofit educational institutions which are presently exempted from taxes on domestic flights. This exemption is highly laudable and we hope that the Legislature will not see fit to narrow the conditions for such exemptions. Since Mount Hermon is one of the institutions exempted from transportation taxes, I shall not linger long over that part of the proposal. However, we urge that you extend the exemption to include the many other signifi- cant educational programs offered by nonprofit organizations. 2. The temporary graduated tax on foreign expenditures as applied to nonprofit organizations seems unclear from all texts of the proposal I have read. We are concerned that, if possible, there be no misunder- standing with regard to the meaning of the term "U.S. person." And we hope that exemption from this tax will be granted to second- ary schools, colleges, universities, and other nonprofit educational organizations whose status is recognized as tax-exempt by the Internal Revenue Service. There should be no minimum number of days that the student enrolled in such institutions should spend abroad in order to be exempted from such taxes. This exemption should extend to payments for meals, housing, transportation, faculty salaries, and instructional costs or administrative expenditures made by those institutions in conducting their overseas activities. Since according to estimates quoted by the Treasury Department, only 5 percent of travelers outside the Western Hemisphere are going to study or teach, only a small number of students would be exempted PAGENO="0170" 948 from the expenditures tax through affiliation with tax-exempt insti- tutions. And, further, since most educational programs `abroad operate with relatively low budgets, the dollars spent by institutions on behalf of their students are not likely to be Of critical significance within the balance-of-payments situation. Thus, with little effect upon the deficit, academic institutiOns engaged in study-travel programs abroad could be excused from both the transportation tax and the tax on travel expenditures. The amount of money over and above the institutional expenditures spent by students in Mount Hermon's study-travel courses is less than an average of $2 per day for a 6 week program. Thus, even were students who are enrolled in tax exempt institutions not themselves granted greater exemptions than the other traveler on their personal expenditures-as opposed to expenditures made in their `behalf by the institutions-no serious curtailment on their travel would result. B. Effects of the proposed foreign expenditures tax on Mount Hermon `School. While the number of students enrolled in U.S. nonprofit secondary schools, colleges, universities and other educational institutions is small, and while the number of dollars spent on their behalf by those institutions is a relatively insignificant item in the overall travel deficit, a failure to exempt such institutions from the payment of travel taxes could have a drastic effect upon the students traveling abroad to study. This effect would be seen not only on the numbers of students who travel, but also on the economic strata from which they come. The rich would not be adversely affected. But the poor2 and, especially, families in middle income brackets would be seriously hampered. To assure that our summer school is available to public school students with talent and motivation regardless of their race or creed or color, and as far as our resources permit, without regard to their financial means, Mount Hermon provides considerable amounts of financial aid for our overseas course each year. For the coming summer a financial aid budget of $15,000 has been set aside for Mount Hermon Abroad. Another $35,000 has been made available for stu- dents in the other courses in our curriculum These aid funds are supplied entirely from private sources. Were the tax of foreign expenditures to apply to Mount Hermon School and similar institutions gr'inting large amounts of financial aid, the results would be most unfortunate since funds for taxes would make on `the budgets of these programs demands `that could be met only through reducing financial aid. Let me demonstrate the amount of taxes that might be levied against Mount Hermon if present guidelines were followed. The total amount that we expend abroad on behalf of each student is approximately $20 per day. "Therefore, the tax for each student participant in such a program lasting 42 days would `be $113.40. (42 days X $7 equals $294 exemption. 42 days X $8 X 15 percent equals $50.40 tax, 42 days X $5 X 30 percent equals $63 tax. $50.40 plus $63' equals $113.40 tax). The total tax paid by Mount Hermon School for 125 students, the anticipated enrollment in the overseas courses for 1968, would be $14,125. These overseas courses are not designed to PAGENO="0171" 949 make a profit Indeed, the school has offered them at a net loss for the last 4 years. We have budgeted a deficit of $1,000 for the coming summer, and that deficit is considerably less than the deficit we suffered last year. But because of the educational value of these courses and because in our judgment the homestay and language learning experi- ences are especially valuable for secondary school students, the school is prepared to take the loss However, we could absorb the tax of $14,125 only by eliminating the financial aid budget Let us assume that the institution were not taxed, but that instead the student or his parents were taxed for funds spent on his behalf by the institution Such an interpretation of the tax would have the same effect as a tax on the institution all but the very rich would be discouraged from going abroad to study since the course would cost, in effect, $113 40 more than the fees paid to the institution Requests for financial aid would increase in proportion to the cost of the tax Our financial aid would, again, not be adequate to the needs of the students. Under such circumstances we could no longer provide a summer of study abroad for qualified students of limited means. No longer could children of middle income families afford these courses and we could not afford to subsidize the poor to the extent made neces- sary by the tax. We would cease to supplement public secondary schools in this country through offering language and area studies courses abroad to students who have motivation and talent but who lack adequate funds for overseas travel. Such taxes would, in fact, militate against the expressed concern of the executive branch and, I am confident, the concern of the legisla-. ture that the balance of payments program result in a minimum of trip cancellations Such taxes would militate against the principle set forth by the President in his State of the Union message that the tai~ program accomplish its objective of reducing foreign travel expendi-. tures with the least impact on the number of Americans traveling overseas without "unduly penalizing the travel of teachers, (and) students." o Recommendations for changes in the travel tax program 1 The transportation tax exemption that now applies for domestic travel done by nonprofit educational institutions should extend as well to international travel done by those institutions Such exemption should apply to the students and faculty of `those institutions when travel performed is directly related to the educational goals of the institution regardless of the number of days spent in transit or spent abroad. 2 The foreign expenditures tax should not be assessed against non profit educational institutions that have tax free status recog mzed by the Internal Revenue Service This exemption should in dude payments made by those institutions for meals., housing, trans- portation, faculty salaries, instructional costs and administrative expenditures 3 When going abroad as faculty or students to participate in educa tional programs of whatever length and conducted by nonprofit or ganizations whose status is recognized by the Internal Revenue Service as tax exempt travelers should not be required to pay taxes on any sums expended on their behalf by those organizations. This exemption PAGENO="0172" 950 should include payments for meals, housing, transportation, faculty salaries, instructional costs and administrative expenditures III. CONCLUSION I am deeply appreciative of having this opportunity to set before you our thoughts on the proposed travel tax. When an emergency con- fronts a nation such as ours the citizen must be prepared to expend his property, and, if need be, his life in that nation's defense. But a crisis such as the one that faces us now in the balance-of-payments deficit is not such an emergency. We trust that the Congress will find other means to correct that imbalance than by enacting a law that would seriously restrict the travel done by secondary-school students to study, as members of families abroad, the language, art and culture of the peoples of the world. And we hope that the Congress will not, through taxation, destroy the many small private institutions that seek to im prove public education in this country by offering secondary school students such opportunities. I would welcome your questions. Thank you. Mr. BURKE. Thank you very much, Mr. Curry, for your statement. It is an excellent one and clarifies many things that have been on my mind as far as the problems of students and teachers having to travel to Europe, and your statement is going to be of great help to the committee. Mr. Ctninr. Thank you. Mr BtTRKE Mr Schneebeh Mr. SCHNEEBELI. Mr. Curry, as a graduate of a New England college I recognize the fine work that has been done by Mount Hermon foi~ many, many years and I congratulate you on the position you have taken. I have expressed myself previously on my opposition to the applica- tion of these tax proposals to institutions such as philharmonic orches- tras or amateur athletic groups whose main mission actually is inter- national good will, and I think also it is inappropriate to conside applying so many of these pi oposals to institutions such as your own Could you tell me, are there many secondary schools such as yours which have such exclusive international travel studies? Mr. CURRY. No, there are not many. However, the number is signifi- cantly growing and if I might say, sir; I think the number is growing a bit more rapidly than the kind of intellectual matrix within which they function. Mr. SCHNEEBELI. We generally reserve in our thinking that it ap- plies to college graduate students and I didn't know there was too much foreign travel and study on the secondary school level. Mr. CURRY. There is quite a good deal of it and again the number of such institutions is rapidly growing. Very little `thought is taken of such institutions by, for example, the State Department, and it is a vast area of rapid growth and in many ways a secondary school stu- dent is much more able to benefit from an experience such as this than an older student because he can become a member of a family abroad. Mr. SCIINEEBELI. If the committee were to adopt the proposal to make this applicable on cost per day per person up to, let's say $25 or PAGENO="0173" 951 more, we wouldn't need an academic or an educational exemption, would we, because educational expenditures per day would be so low that it wouldn't apply in those instances. Mr. CURRY. In my judgment it would not be necessary to have a greater exemption than, say, $25 a day. Mr. SCHNEEBELI. And I think you indicated that your costs were generally about $20 a day. Is this without transportation? Mr. CURRY. This would be without transportation. Mr. SORNEEBELI. That $25 would cover you as an exemption. Mr. CURRY. Yes, it would. Mr. SCHNEEBELI. Thank you very much. Mr. BURKE. Mr. Conable. Mr. CONABLE. Mr. Curry, were you here this morning? Mr. CURRY. Yes, I was. Mr. CONABLE. We had a lot of testimony from educators this morn- ing and was there anything-I realize your statement was prepared in advance-said `this morning that you would like to take issue with or to reemphasize? Mr. CURRY. No. There is one thing that I would like particularly to emphasize, that I would like to be instructed by the government on how we can, if at all, take advantage in our planning of those funds which are held by foreign governments, how can we best utilize the exchange of American dollars for these dollars. I think if there could be some guidelines, if there could be some format for our following, we would gladly do this. Mr. CONABLE. I think that really the testimony in that respect may have stirred up quite a bit of interest on the part of the com- mittee. I am sure it would be of interest to you. Mr. CURRY. Yes, it would be. Mr. CONABLE. It would have interesting possibilities for students abroad? Mr. CURRY. Yes, it would. Mr. CONABLE. That is all. Mr. BbRKE. Thank you very much, Mr. Curry. We appreciate your appearing here. Mr. CInuiY. Thank you, Mr. Burke. I appreciate your coming. Mr. BURKE. Thank you for this brochure. It is quite an interesting one. That concludes the testimony for today and the committee stands adjourned now to meet at 10 a.m., tomorrow morning. (Whereupon, at 2:44 p.m., the committee adjourned to reconvene at 10 a.m., Thursday, February 29,1968.) PAGENO="0174" PAGENO="0175" ADMINISTRATION'S BALANCE-OF-PAYMENTS PROPOSALS THURSDAY, FEBRUARY 29, 1968 HousE OF REPRESENTATIVES, COMMIr2EE ON WAYS AND MEANS, Washington, D.C. The committee met at 10 a m, pursuant to notice, in the committee room, Longworth House Office Building, lion Al Uliman presiding Mr. ULLMAN. The committee will be in order. I see we have in the hearing room our distinguished colleague the gentleman from Florida, Mr. Pepper. We will be delighted to bear from you, Mr Pepper STATEMENT OP HON CLAUDE PEPPER, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP PLORIDA Mr PEPPER Thank you Mr ULLMAN We welcome you before the committee We always welcome your sage advice. Mr PEPPER Thank you, Mr Chairman Mr Chairman and members of this distinguished committee, I wish to thank you for the opportunity to express my views today on the proposed enactment of a series of measures designed to restrain Amer ican travel abroad in order to improve our balance of payments position At the outset, let me state that I am greatly disturbed by the tax proposals which you have before you for consideration, and that I do not favor their enactment at this time I say this not because I do not share the administration's concern with the balance of payments di lemma in which the United States now finds itself This is a situation which cannot be allowed to continue indefinitely. But I do not thmk it is necessary to accept the negative and, I fear, defeatist approach I do not think we should despair, before we have tried, of finding sound and constructive alternatives to the proposals I wish to stress particularly the alternative of doing more to bring foreign visitors to our country and of doing a better job of making them welcome so that they will serve on their return as an encourage ment for their fellow countrymen to visit us The President's Industry Government Special Task Force on Travel which I commend in the warmest way for the excellent rec ommendations which it has made, has recommended that we follow the positive course, and I interpolate from my prepared statement, Mr Chairman and members of the committee, to say that I believe that positive course is going to bring about effective results.. (953) PAGENO="0176" 954 I recall that in December of 1963, I believe it was, I was on a trip to Finland and Sweden, largely contacting travel agents and seeing what could be done to promote travel into the United States, the subject in which the distinguished gentleman from Oregon is so much interested and for which he has done so very much, and in talking to the largest travel agency in Stockholm I was told that they sent about 10,000 people a year to this country, but if we could relax the then restrictions on travel so they could just go out and get up 100 people, for example, who wanted, to come to the United States to see their relatives or see the scenery or visit there, so that they didn't have to have that belonging to the same organization restriction or have to meet that requirement, they could double that and send 20,000 people a year Now I know consideration is being given to the relaxing of those charter limitations and I hope that one of the things coming out of this present situation is the relaxation of that restriction so that a travel agent in some foreign country who wishes to get up a charter party can get up the required number of people without them all having to be schoolteachers or belonging to a lodge, or business, or the like And there is already before the Congress legislation to expand our travel promotion program. `Over `a year ago, on January 26, 1967, I introduced a measure, H.R. 3934, which would be designated as the International and Do- mestic Travel Act and would amend the International Travel Act of 1961, to strengthen substantially the U.S. Travel Service and enable it to be far more effective in encouraging many more foreigners to visit the United States. This is the positive route. This is not retrenchment. This is not a reversal of our traditional policy of encouraging the removal of travel restriction throughout the free world. }]I.R. 3934 aims at greater stimulation of the friendly contact that promotes understanding and cooperation among the peoples of the world. It would increase the annual authorization for the U.S. Travel Service from the present $4.7 million to $15 million a year. It would authorize up to $10 million a year for direct travel promo- tion to attract foreign visitors to our shore's, and it would authorize up to $5 million a year for use in improving our domestic reception facilities to help us keep the flow of satisfied foreign tourists rising year after year. Mr. Chairman, may I interpolate again and say I was in Rome not so long ago and I was told by our travel service representative at the Embassy that they are having to close offices in Italy, and I believe that the Travel Service is having to close offices in a number of places in the world. That is exactly the contrary of what should be done at the present time. We should be opening more offices, and that is what my bill was designed to accomplish. The present Travel Service authorization, as I said, is $4 7 million a year but the actual appropriations were only $2,975,000 for this fiscal year-1968. This sum is grossly inadequate and I believe the Congress should at least double the authorization for overseas promotion and triple the actual appropriation. PAGENO="0177" 955 I have talked in the past, and in the recent past, with the able director of the U.S. Travel Service and he has consistently indicated to me his confidence in the ability to the Travel Service to do a real job on travel promotion if we give the Service an adequate budget upon which he could do it. I am sure he still believes, as he has told me previously, that a $10 million appropriation would enable his agency to have a significant impact on our travel deficit. Even with its present and very inadequate appropriation, the U.S. Travel Service has done a gratifying job of bringing the wonders of the United States and the advantages of visiting our country to the attention of tourist agencies and would-be travelers in many, many foreign countries. This is reflected in the fact that, for the first 10 months of 1967, the number of business and pleasure visits to the United States was up over 30 percent above the first 10 months of 1966. Since the Travel Service was created in 161, the flow of visitors from overseas-where we need to have our greatest impact-has tripled from a half million in 1961 to one and a half million in 1967. This has been accomplished despite the fact that the direct-promo- tion aspects of the Travel Service budget are those that have to be cut back most deeply when we fail to provide the full amount author- ized. The administrative costs take up a larger share of the money available and we have less, even proportionately, to spend on travel advertising, special promotions, and other essential ingredients of a good travel-promotion program. I would like to point out that the money we give the U.S. Travel Service is far less than the amount allotted by most foreign countries for their respective ofilcial travel promotion agencies. For example, last year Greece spent $11 million, and we spent $2,975,000; the United Kingdom, $9 million; Ireland over $13.5 mil- lion; Canada over $8 million and again I repeat the U.S. Travel Service authorization is $4,700,000 and we appropriated less than $3 million. I feel strongly, therefore, that until the Travel Service has had a fair chance to demonstrate what it can accomplish with additional funds, we should refrain from taking any action which would not only be a blow to the freedom of Americans to travel but might well have the most unfortunate repercussions and bring retaliation abroad. I know you have heard many statements of well-founded and cogent opposition to these travel tax proposals and I do nOt want to add unduly to this record. I do not need to stress the administrative complexity and ease of evasio~i of the expenditures tax, nor the dis- criminatory burdens it places on certain classes of Americans who would like to travel abroad. But I do want to indicate why on principle I think this tax is an appallingly regressive step. Last year, after long drawn out negoti- ations, we finally completed the Kennedy round of trade negotiations. As the President said in his Economic; Report on February 1 of this year, this was "the most successful multilaterial agreement on tariff reduction ever negotiated." With this tax, we are going directly counter to the spirit of the Kennedy round. Not only will it put a brake. on American travel 89-749-68-pt. 3-i2 PAGENO="0178" 956 abroad, a step which will have serious implications for the economies of many of our partners abroad, but it will cause many of these co~in- tries to curtail their purchases of American goods and services. We have already been told about how airline companies abroad that have been buying airplanes in the United States would curtail their purchases. That will reduce the number of jobs enjoyed by the people of the United States if that airplane production is cut back in some of the critical areas of our country. How can we at one and the same time tell our own people not to travel abroad and burden them with high taxes when they do, and at the same time expect foreign countries to let their nationals travel freely to this country? If you want to place a ban on travel to France I will vote for it and I think nearly `all the rest of the Congress woñid, but because `we don't like the way we have `been treated by that country, by the people who have been such good friends of ours-I know I was in a little group which i'ntended to stop in Paris and we decided we wouldn't spend a nickel in that country and we switched to Madrid, the week- end break in our trip, and I hope other Americans will do the same thing. However, I say we cannot single out in tax legislation those coun- tries abroad which seek to exploit our balance of payments difficulties `and prohibit travel to those countries without, of course, bringing on retaliation. But our American citizens, if left free to choose, as my little group `did, can make their own judgments about who our friends are and can make their travel plans accordingly. Many of them are doing this already, and this can be done to help our balance of payments without involving official coercion and provoking official retaliation. We cannot expect to enact a travel `tax in a vacuum; we cannot expect it to work simply to our advantage and not have far-reaching con'seqeunce~ for our travel and trade policies. A travel tax would be aimed at only a `symptom of our balance-of-payments problem and it could not bring a long-term solution. I `am not certain that a travel tax would even be beneficial as far as the payments balance is concerned in the' shortrun; I know it will not `serve our long-run, long-term international interests. Our balance-of-payments problem is serious, of cours'e, but it has been serious for a long time, and it has been `serious so long because we have tried to rely upon expedients,. rather than developing long- term solutions. I think we now should do what `we could `have been doing `for several years to close the travel gap in a positive and con- structive w'ay. I think we should take this positive step forward, before we take two steps backward and live to regret our shortsightedness. I want to thank you, Mr. Chairman, for giving me this opportunity to express my views. I am hopeful that the `Committee on Interstate and Foreign Commerce will hold `hearing soon on my bill. The chair- man of that committee has advised me that he hopes to have such hearings in the near' future. I urge your committee to' give us a chance to pursue this positive approach before this additional `tax burden is imposed upon the American traveler and upon the system of increas- ingly freer international travel which we have labored so hard and for so many years to build. PAGENO="0179" 957 May I add only, this, Mr. Chairman and membBrs of the committee. When your distinguished chairman comes up before the Rules Corn. mittee to ask for a closed rule on your tax legislation before the House the request is predicated, as I have always understood it, upon the intricate balance, the delicate interdependence, of the various pro visions of the tax court and the tax laws of the country You change one of them by an amendment on the floor, for example, and you don t know what you will do to another section over here which may be related to or in some way dependent upon the section that you might amend on the floor without full awareness Well, now, I think this travel problem is somewhat like that It is so delicately a part of a complex web, it is so intricate in its nature and character, and it is interdependent one part with another, that if you affect one part of it you don't know exactly what are going to be the repercussions of what you do My district happens to be in the area that has the largest tourist attratcion of any group area in the United States People come there from all over and of course our people go all over, and my State to a large degree derives its revenue from tourists, many of whom are people who come from abroad, and many other States are similarly affected If it is not an essential part of their revenue it may be the surplus or profit part of their revenue, and when you start affecting this travel pattern you begin to hurt areas of the country, and now nearly all parts of our country are attractive to tourists Someone wants to see one sort of thing and somebody else wants to see another But you begin to have repercussions in our own country that you may not be aware of Not long ago I was on a study trip to Israel, and to show you how it affects other people, my little group spent a night at a kibbutz up near the Sea of Galilee, and I inquired of the proprietor of that little place how many Americans came there a year He said, "Twenty five thousand Americans spend the night here and 15,000 more Americans have lunch here" That is 40,000 Americans every year who visit that little place and it is a very important source of revenue to that little community of Jewish families, nearly all of whom have come there from some othei part of the world seeking sanctuary in the new Jewish state If you stop travel, just look what it will mean to that one little area, if Americans can't go there There is a similar situation, of course, all over the world On the other hand, in many parts of our own country where if you cut off tourist travel, even the foreign part of it, you will adversely affect the economy of our country I don't appear here today, Mr Chairman and members of the committee, as an obstructionist I don't want to appear here as a champion of a lot of luxury loving Americans who want to travel around `over the world spending `i lot of money while their country is at war, but you have all sorts of problems The other day the leader of a Catholic college in my district called me up and said, "What about our students? Our students have been going abroad every year Can they go~" And I was home just this last weekend and had another inquiry from a student group "How does this affect the ability of students to go abroad ~" PAGENO="0180" 958 Then of course you have businessmen who want to go on a business trip and you have the problem of trying to determine what is a busi- ness trip all together, what is partially business, or what is a pleasure trip or sightseeing trip or study trip You have all sorts of intricate and delicate problems associated with the matter As I said, if we have to have war taxes let's vote war taxes. If we come to a time when we have to forbid all American travel abroad, why, we will do it as a war measure, but I think you get into all kinds of difficult to administer complications when you try to impose and to enforce such a tax as has been proposed here. Now, as I said, if as a last resort, when we have affirmatively given at least $15 million a year to the U.S. Travel Service, $10 million to bring people to this country, and $5 million to provide better facilities for receiving them here, when we have mobilized all the people in this country who have to do with tourism, gotten them to reduce their rates, reduce hotel and motel rates, reduce transportation rates, make the country more inviting to the people from abroad to come, as the President's Task Force has recommended, when we have reduced airplane fares on our airlines and when we have permitted a more liberal charter service-so let's think up all these positive things that we can do and give our travel service a fair chance before we attempt, in my humble opinion, to impose a complicated and difficult to ad- minister tax program such as has been proposed and is before your honorable committee. I thank you very much, Mr. Chairman. I am sorry I have taken so much of your time. Mr. ULLMAN. We certainly thank you, Mr. Pepper, for your fine statement. Are there any questions? If not, thank you very much. Mr. PEPPER. Thank you very much. Mr. ULLMAN. Is our colleague, the Honorable Donald M. Fraser, in the room? We welcome you before the committee. We know of your interest in this matter and look forward to hearing from you. You may proceed STATEMENT OP HON DONALD M FRASER, A REPRESENTATIVE IN CONORESS ~RON THE STATE OP MINNESOTA Mr FRASER Thank you very much, Mr Chairman and members of the committee I have a brief statement against the travel tax proposal. I want to make three points. First, the travel tax would be especially damaging because it interferes with our students seeking firsthand knowledge of other lands. Second, it would be better for us to encourage an increase in travel to the United States than to restrict our own travel to other countries. Third, the 10 percent surtax, by halting inflation would assist our balance of trade SIITDENT TRAVEL Let me give you two examples of student travel that would be taxed by the administration's proposal: PAGENO="0181" 959 I understand that student groups traveling to Eastern Europe pay a fixed rate in advance that is usually $16 a day or higher. In such countries as Rumania, Poland, Yugoslavia, Czechoslovakia, and the U.S.S.R., arrangements are made through the government-owned travel agency and a flat charge is made for room, board, and a guide. Travel costs are extra. The $16-a-day rate in these countries would require U.S. students to pay the 30-percent tax if they spent less than 4 months on the trip. In addition, the 5-percent air travel tax would add $40 or so to a student's costs of making the educational tri2. Another type of student travel which would be caught by this pro- posal is the American Field Service exchange program. I have received many letters from families in Minneapolis, my district, pointing out that some of the students will spend 6 weeks during the summer in the program and thus would not be classified as students under the 120- day requirement. It would be very unfortunate if this very important exchange pro- gram were injured in any way. As many parents have mentioned in their letters to me, the AFS program is not financed by Government grants but is a real grassroots people-to-people program. I would urge that if the committee does decide to report out a bill with travel tax elements, the student exemption should be changed to about 24 days or some other special exemption made that in no way hampers educational travel. DISCOVER AMERICA Rather than trying to prevent overseas travel, we should `be en- couraging tourists and others to visit our country. This would be a much wiser method to affect the balance of payments. I am pleased that you will be hearing from a distinguished Minne- sotan, Mr. Robert Short, who can tell you of the discover America program which he heads. The report of the President's Task Force on `Travel also gives many excellent suggestions. Under the heading of immediate measures, they list such action as- Twenty-five percent discount on air fare to the United States on tickets purchased in Europe. Special reductions up to 40 percent in rates at hotels and motels, Bring travel agents to the United States for familiarization tours, and Waive visa requirements for tourists and businessmen visiting the United States. These and many other suggestions for making it cheaper and easier for people of other countries to visit the United States would bring a great increase in visitors and help our balance of payments. A SURTAX Another alternative to the travel tax would be the administration's proposal for an income surtax. Evidence submitted to this committee at the surtax hearings clearly points out the beneficial effect a surtax would have on our balance of payments. PAGENO="0182" 960 Much of the benefit claimed for the travel tax will be wiped out if inflation at home continues to drive costs and prices up. As U.S. goods become more expensive, our exports are bound to decrease and U.S. companies will turn to overseas producers to buy products at lower prices. As American-made goods become less competitive in price, the bal- ance of trade will shift against us. As; President Johnson said in his tax message last August: An excessive expansion of domestic markets could again quicken the flow of imports to the United States, while rising costs and prices cut into our exports. The position of the dollar as the key element in the world's financial system could be impaired. For these three reasons, Mr. Chairman and members of the com- mittee, I urge that the travel tax not be adopted as it has been proposed: 1. The travel tax would have harmful effects; 2. The surtax to halt inflation would be a better approach; and 3. Encouraging travel to the United States by people in other coun- tries would be much better than trying to interfere with the overseas travel by students, businessmen, and tourists from the United States. Thank you very much, Mr. Chairman, for this chance to present this brief statement. Mr. ULLMAN. We thank you. Are there any questions of Mr. Fraser? You have added greatly to the deliberations of this committee, Mr. Fraser. We appreciate your statement. Mr. FRASER. Thank you very much, Mr. Chairman. Mr. ULLMAN. Our next witnesses are Ernest Giddings and Mr. James S. Rubin. We welcome you before the committee. Mr. Giddings, are you going to present the testimony? Will you please identify yourself and your colleagues and tell us whom you represent and then proceed as you see fit. STATEMENT OP ERNEST GIDDINGS, LEGISLATIVE REPRESENTA~ TIVE, AMERICAN ASSOCIATION OP RETIRED PERSONS AND NA- TIONAL RETIRED TEACHERS ASSOCIATION; ACCOMPANIED BY JAMES S. RUBIN, LEGISLATIVE COUNSEL; AND CYRIL F. BRICK- FIELD, EXECUTIVE DIRECTOR FOR NATIONAL AFFAIRS Mr. GIDDINGS. Thank you, Mr. Chairman and members of the dis- tinguished Committee on Ways and Means. My name is Ernest Giddings. I am the legislative representative of our two associations, the National Retired Teachers Association and the American Association of Retired Persons. At my left is Mr. Cyril Brickfield, the executive director for national affairs of our two associations. At my right is Mr. James S. Rubin, our legislative counsel. I am indeed pleased to appear before your committee on behalf of our two associations. You and your fellow committee members have always given full and adequate consideration to the special prob- lems as we see them that apply to older people and for that under- standing and cooperation we are most appreciative. PAGENO="0183" 961 From our knowledge of the interests of our members and from the communications we have received from them during the last 6 weeks, we believe that part of the proposed package of travel and expendi tures tax carries a sp~cia1 hardship when it is applied to older people Since your committee seems to have heard testimony from almost every other segment of the business and economic society during the last several days, and since our concern is limited to older persons who may want to travel abroad, I shall try to be brief and shall attempt to limit our testimony exclusively to any special problems which apply exclusively to older Americans. Our associations consist of more than one and one-quarter million older Americans, vitally interested in and dedicated to their country Their working years stretch back over the last 10, 20, 30, or 40 years when wages and salaries were lower, when pensions were, therefore, computed on a meager base, and, in fact, when the philosophy sup- porting an annual pension for a lifetime of work was only in the de- velopmental stage for many occupations. The resulting retirement income for people who have devoted a lifetime to such occupation as teaching, selling, social work, police work, clerical work, nursing, farming, business or industry has usually one common characteristic- it is~ a fixed income. It is fixed in the sense that the recipient is in no position to strike for more pension, as labor does, nor to raise prices, as industry does. Retirement incomes generally tend tO be rigid and difficult to expand when the person is no longer employed and has joined the 20 million or more other retirees Our members have lived through two world wars and a devastating depression and have sacrificed much for their country Many express a deep seated resentment when they learn that they may not only be penalized but possibly also slightly branded because they delayed a hoped for trip until their retirement years Let me quote you a letter from one of them I wish to go on record as opposed to the Administration s proposed travel tax I am opposed in principle believing that it will result in retaliatory action by other nations which will actually aggravate our balance of payments problem and I am also of the opinion that it is most unfair to elderly citizens such as my wife and myself We are and always have been patriotic Americans cheerfully accepting sac rifices for the good of the country whenever that was necessary During World War II for example we lived within all ration restrictions when some were using devious means to get gas meat etc and laughing at us for our naivete Now, when we finally have the opportunity to take the European trip we have long planned and have made our reservations our government proposes to add a burdensome tax to the cost of our trip and no doubt at the same time to stig matize us as unpatriotic If the Congress chooses to enact this unwise measure I hope that an exemption will be allowed for us citizens over 6~ who may not be around to go abroad if and when the tax and restrictions are lifted There are a number of other letters that we have quoted at the end of my testimony These retired people are not tax dodgers They are not unpatriotic They do hope to live out their remaining years in self respect, inde pendence, and dignity Our associations are dedicated to helping our members realize these ideals and we come before you today to urge that you not report out legislation which would unduly and unneces PAGENO="0184" 92 sarily interfere with the possibility of retired people attaining these goals in their postretirement careers Mr Chairman, we are very much distressed by the financial crisis of our country, as all good Americans must be. We agree with the President that the continually increasing balance of trade deficits constitutes a real threat. We therefore understand and we do not op- pose the administration proposal to levy a fiat 25 percent duty on goods with a total value above $10 which are brought back into the United States by returning tourists. We believe the real value of the foreign trip is in the travel as such and notin the volume of duty-free purchases which the tourist may bring back. If such a reduction in our duty free exemption will result in a $100 million balance-of-payments savings, as reported by Secretary Fowler, we see it as probably the least painful way to accomplish such a sub- stantial result. Furthermore, we do not oppose extending the present 5 percent do- mestic travel tax to other travel as proposed by the Secretary. It seems to us to be a consistent, logical, and defensible proposal. It does not seem logical that our country levy a 5-percent ticket tax on a trip from Washington to San Francisco and not levy the same tax on a ticket from Washington to Paris. OPPOSE EXPENDITURES TAX On the other hand, Mr. Chairman, we cannot be more sincere or forceful in our opposition to the expenditures tax Secretary Fowler, in one portion of his statement, has claimed it is not the purpose of the tax to deprive anyone from traveling abroad but only to curtail their expenditure of U.S. dollars. However, the expenditures tax as now proposed would by their own statements cause many of our mem- bers to postpone or cancel their long planned trips. And these are people who through their working years have saved and sacrificed to take the trip when retirement gave them the leisure to travel according to their preretirement plans We should remind you that the march of time makes no allowance for people in their seventies or eighties to delay a trip until the "temporary" expenditures tax may be lifted SPECIAL PROBLEMS 013' OLDER TOtTRISTS As you would expect, persons age 65 and over have special problems when they travel abroad. They have a right to decent standards. They should not be forced to live in dormitory-style accommodations. They cannot stay in substandard surroundings. They do need clean rooms, with bath and toilet, and they need three nourishing meals a day. From our experience over the years with sponsored tours offered our members, we know that normal living expenditures of older persons traveling abroad are approximately $25 per day. The breakdown of this cost is about $11 per person in a twin-bedded room, $9 for food and $5 for sightseeing and intra-European travel. Of course, if you are going to consider administrative costs in the basis for the expendi- tures tax, you would have to add approximately $5 more a day. In our experience in planning the kind of tours, hotels, and eating places that seem needed and used by older persons, we find that they require first-class hotels but not necessarily deluxe hotels. PAGENO="0185" 963 We assure you, Mr. Chairman, this is not an extravagant mode of living. These people are not using the most expensive hotel overseas. They are merely living in a manner which is necessary because of the special problems which come with age; and they should not have to pay a new and onerous tax for the privilege. Our people are not in the $20,000 bracket which Secretary Fowler talked about in his testimony before your committee. They are people in the $3,000 to $10,000 bracket who are using their savings for a long- awaited tour. They are older Americans who have saved for many years and are now on ~1xed retirement incomes. The purpose of their travel is more for cultural or personal reasons than for business reasons. It is frequently to visit their ancestral home- land. Their interests turn more to visiting historic, cultural and edu- cational centers with a very minor interest in extravagant entertain- ment. The proposed expenditures tax seems to us to be an unnecessary burden because it taxes the necessities of food, travel and hotel accom- modations which account for most of their expenditures. ,A 30-day tour on which the average living expenses were $30 a day including administrative costs would require an additional $171 expen- ditures tax under the proposal. Obviously this would cause a great number of older Americans who do not have the ability to supple- ment their income by doing more work or saving a little longer to necessarily cancel their travel plans. And these are the travel plans that they saved so long for and worked so hard for during their earn- ing years in order to be able to enjoy their retirement years. We vigorously oppose a tax which would have such an effect on older people. If there is to be an expenditures tax, and we hope there won't be, we urge that persons 65 and over not be taxed on their first $25 per day living expenses. We are not sure where the Treasury Department got its figures on the average expenditures abroad. We do not believe that the presently proposed tax basis is realistic for any American, in particular not for older Americans. IS iT WORTH IT? Mr. Chairman, we, as do most Americans, dislike seeing the tax laws of our country used for purposes other than producing revenue. We have a suspicion that `that might be the case at this time. In a famous Supreme Court case in 1819 it was stated that "the power to tax involves the power to destroy." I do not think any of us would disagree with that premise. Do we want to destroy the right of Ameri- cans to travel abroad? I am sure that none of us would answer yes to that, but if this committee is not careful in its legislation it might well be taking the first step towards a violation of' that inherent right of all Americans. We do not feel that the money which the Government expects to get from this expenditures tax is worth it. If we look at the $500 million dollar figure from the administration, we see it broken down in the following way: Reduction of duty-free exemptions, $100 million; ticket and expenditures tax, $250 to $300 million. Where does the other $100 `to $150 million come from, Mr. Chairman? It comes from what the Treasury Department feels will be a voluntary cutback of travel abroad. Thus, we are talking about a tax that Treasury estimates will PAGENO="0186" 964 bring in $350 to $400 million dollars. The expenditures tax aspect of it, although Treasury has said they cannot break down the ticket tax- expenditures tax category, would seemingly account for about $200 million. We cannot believe that it is worth $200 million in Federal revenue to make it financially impossible for many persons 65 and over to be able to take this long anticipated trip. And the present plan would do so. The tax would not prevent businessmen or wealthy persons from traveling abroad. I think it is obvious upon whom the hardship of this tax would fall. It would be the older people of this country with low- or moderate-retirement incomes. These elderly citizens are a segment of our society who should not be compelled to bear such an additional tax. MEDICAL EMERGENCIES Mr. Chairman, we have tried to determine whether medical expenses incurred abroad are included in the expenditures tax. Unfortunately, we find no exemption therefrom. We therefore urge that if there is to be an expenditures tax, it would at least exempt medical and hospital expenses. It would be a gross imposition on any person who has become ill abroad to be forced to pay a tax on his medical expenses-and he might also be subject to a fine under the proposal for underestimating his expenses. We are confident that such a thing was not intended in this legislation and we trust that the proper exemption will be made. DOMESTIC TOURS As we have said, we are a patriotic organization and we do encourage our people to discover America. Our local chapters of which we have about 500, are doing so every day and we offer them every bit of assistance in their American travel plans. We encourage them to travel domestically. In the last 3 years, our organized domestic tours as compared to our organized overseas tours have increased from 5 per- cent to about 40 percent. Many of our people have already seen much of this great land of ours and have encouraged others to do so. They now want to see how people live in other lands and it should be their right as American citizens without paying excessive additional taxes. GOOD WILL AMBASSADORS We believe it is beneficial to our country for older people to travel abroad and to develop person-to-person contact with people in foreign lands. Our people are not the "Ugly Americans." Our people are among the best good will ambassadors that this Nation can send abroad. They are not rich or aggressive. They are interested in the life and `customs of their counterparts in other lands. We have received many letters from people in other countries telling us how pleased they were to meet our members traveling abroad. APPENDIX We `have attached excerpts from some of the many letters we have received concerning this proposed tax. The letters came from all parts PAGENO="0187" 965 of this Nation, urging us to speak out for our members. I am sure you will notice letters similar to many you have i.eceived in your offices. They reflect well the overwhelming feeling of older Americans. We hope you will coi~sider the anxieties and concerns they have expressed. SUMMATION Iii sumiriation, i1\fr. Chairman, we do not oppose the proposed re- duction in duty-free exemptions nor an extension of the 5-percent travel tax although we realize that the latter will increase the travel burdens of our peoPle. On the other hand, we do O~~OSO an expencli- tures tax. However, if there is to be an expenditures tax, we urge that for all persons 65 and over the first $25 of living expenses per day be exempted. Furthermore, we urge you to exclude from the operation of any such tax the necessary medical expenses incurred abroad. We thank you for the privilege of presenting our views to your committee. (The excerpts referred to follow:) EXCERPTS FRoM LETTERS CONCERNING PROPOSED TRAVEL TAX I write `to you because you are the representative of the retired i~eople. The administration proposed to `the Congress a bill that would actually prohibit the travel of people on retirement income, because of the financial hardship. We did not have the time to go on a long trip `and saved for the time of our retirement, *to visit our relatives and friends in the old country. Even the East German Govern inent lifted the restriction for traveling outside the DDE for people over 65. True the governmen.t `restrictions are a temporary measure, `but in our age group there is not time to wait 2 or 3 years. Please `try to use your voice as our representative, to persuade the legislature to make some amendments to above bill to give relief to Senior Citizens. While I am in agreement that some action must be taken and quickly to equalize the dollars leaving `and entering this country :and see no objection to the tax that is proposed on airplane and ship tickets to foreign countries, it is my humble opinion that the amount expended per `day while in such countries would be so hard and co'stly to control that such `action would hurt u.s more than it would help us. See no objection to reducing the duty-free exemption `to $10.00. Teachers who have been working for international understanding and goodwill will deeply regret `the President's iiiove `to curtail travel by `making it so i)rohibi- tive that people cannot travel except after submitting many reports and reduc- ing the comforts of travel to a point where older people cannot go. Older people who must travel leisurely in order to conserve strength and enjoy the trip, and who may need a few amenities, will just have to s'tay home. These are among the `people who could improve `the American image abroad. They could be `thoughtful and polite. Also, and what is more important, our image as a Nation will be damaged by niggardly saving in such little things and `huge spending in other ways which do not honor our country in the eyes of other Nations and peoples. After `talking w.ith several members of the Tacoma Ohapter, I find the opinion that the .tax on travel is uncalled for. The U.S. Government spends millions of dollars to create good will by sending Exchange Students, money, food, and Peace Corps members to other Nations. We PAGENO="0188" 966 feel however, that the best way to obtain this objective, is by and through the private citizens who pay their own way and having contact with private citizens of other countries, and without the pressure or influence of our government in any way. We therefore urge defeat of Secretary Treasury Fowler's proposal. The amount saved by such tactics would be infinitesimal compared to what would be saved if the President had the intestinal fortitude to call home 3% of the soldiers stationed in West Germany, or to call home `the 25% over staffing in Embassies and Legations abroad. On this same mail I am sending letters `to Rep. Burke of Mass. and to Rep. Curtis of Missouri commending them for their `stand. I am planning no trips abroad myself `but I am trying to fight for my members who may be frightened away from the one big adventure of their lives, if this `bill goes through. As a group they voted unanimously to oppose any legislation which tends to slow down our international people-to~people contracts. Mos't of our traVelers abroad are our best good-will ambassadors and this is no time to dry up this source of good-will. Furthermore curtailing our world tourism may create more resentment among foreign countries than the monetary benefits will off-set. Has it not been our governm~nt hand-outs to try to buy friend's abroad that has and `is draining off our billions in gold? Bought friends are fair-weather friends and seldom are worth the price. Millions of retired persons are living on limited incomes with the result the travel taxes will be a tremendous burden on them, particularly if they have to visit sick reatives. On the proposed Travel Tax I go along with Representative James A. Burke of Mass. I feel that it would be taking away from our people the opportunity to build up `better relations in the For~ign countries as well as depriving those who have `saved for years for the one pleasure they h'ave looked forward to. There are many ways we can cut the expenses of the Government and save. The reduction in the purchasing power of the dollar is about all the restriction most people who have retired can st'and. My main criticism is that the proposed travel tax will hit the little fellow. He is the one who saved a number of years `to make the trip as a grea't experience, or to visit his old country and family. He would undoubtedly feel such a tax severely and it could mean the postponement of `the trip. The well-to-do traveller could afford the tax `and ~til1 spend much more, which is the opposite of the result the tax is intended to produce. In the first place-who but a retired person has the time to spend away from things that a trip abroad takes, especially with a group whose travel is geared to the elderly. In the second place-and most important-the people who do most of the foreign travel are retired school teachers, office workers, etc. who have dreamed and saved for one trip before they get too old to travel comfortably. This group of people certainly did not make the high salaries now prevailing; we had to scrimp and save in order to take one trip during our lives. This year, if this tax does not apply to foreign tarvel, I am planning on taking the ONE trip; therefore, it will be touch and go as to whether I will be able to do this or not. Incidentally, I am a great-grandmother. Our Chapter, as you know, travels quite a lot here in the United States but this one trip I have dreamed about all my life. I do hope there will be enought opposition to it to at least keep it in Committee for this year. PAGENO="0189" 967 Why don't the Administration quit sending money abroad to be poured down rat holes and not appreciated by the recipients? It seems to me this would be a much better paying idea-also-Why do THE AMERICAN PEOPLE ALWAYS HAVE TO FORFEIT THEIR FREEDOM IN ORDER TO WIN FREEDOM FOR SOMEONE WHO COULDN'T CARE LESS? The travel tax is tarred with the same brush as book burning, as are all attempts to hem in men's minds, whether it be for political or economic reasons. The connotations of travel abroad are implicit in the word itself. It is a broadening of one's horizons that, to some extent, counteracts the notorious provincialism and unilingual image of the U.S. citizen. To discourage travel is to belittle education, the one vital element of our society on which its future depends to a greater extent than on any other of our activities. To talk of peace among nations and, at the same time, deny free intercourse among their peoples is either hypocritical or stupid. If the travel tax is one of the results of the VietNam war then that war is in- deed a tragedy of the deepest significance for us and our avowed purpose of leading the World to a better life. The proposed travel tax is preposterous and ridiculous. It will do more harm than good. Those with money will not care and those with moderate means, who form the bulk of the travelers, would be penalized. How can the Government be so stupid! There is confusion enough already about too many things. The Government which should lead the citizens and not push them, has created the confusion as well as many of the problems that exist. I believe Senator Percy has the only sane viewpoint as well as Representatives Curtis of Missouri and Burke of Massachusetts. Only the opinion of one, but one times one times one make many and some day what seems to be the ~ninority will become the majority and will be heard. Here now is our problem and I am writing to you for advice. We came over from Germany in 1924 and always lived in New York. I am now 65 years of age and since last year retired. In December we made up our minds to visit the homeland once more and made a down-payment on a groupfiight to Europe. Since we only want to visit and see our relatives again and live on a strict budget we certainly could not afford such a tax as suggested by President Johnson. Should we ask for a reVurn of our down~payment? Do you think if this law would be passed it would mean another curtain like the Iron and Bamboo curtain on the Berlin Wall? _______ Having worked most of my life, and having paid all the high taxes levied against my earnings to support the world; in the relatively few years I have left I want to spend what is left where I want to spend it and how-and not to be penalized by more Taxes. My objection to the proposed Travel Taxis: 1. Persons have saved all along the way hoping at the time of retirement to see places they have longed to travel to the far away areas. Now they find what they have budgeted to pay will not reach due to the high imposed tax. I traveled to Europe in 1967-if I were to do it under the tax proposal it would be impossible because I couldn't afford it. 2. The tax setup is so complicated that the individual cduidn't begin to ~ it affords a fine opportunity for lies, false entries, and fine for the person skilled in financial skulduggery. 4. It limits only the people of limited means-the wealthy won't be inconven- WMt~j;iree could afford to remain out of the country one hundred and twenty days-to me the whole proposal is a distinct class bill. PAGENO="0190" 968 In re the travel tax proposal, let me say I oppose such a measure with all my might. I am pleading for the Retired Teachers of Iowa, who by reason of having worked like slaves during their earning years, have saved up enough to make one big trip to Europe. If this travel tax goes through, there go their hopes of being able to make that dream trip. The wealthy can still go, but not my retired teachers some of whom are even now trying to exist on such meager pensions that it is a disgrace. Though I will not be traveling abroad this year, I feel strongly that this tax proposal on Travel is grossly unfair to retired people and all people over 65 who might not have another opportunity to travel. (1) Retired people, as well as students, teachers and business men should be exempted if the tax is passed at alL (2) The conditions of staying 120 days should be entirely eliminated. I agree with Rep. James A. Burke, Democrat, Massachusetts, that, "For the amount of money we are trying to save we are doing more harm than good". We older citizens feel that when we have been loyal to our Government that our freedom to travel should not be taken from us when we have saved for thirty years to travel after our retirement. Later, we will not be physically or financially able to travel. Our Federal Government is spending millions to get to the moon. What are we going to do when we get to the moon? The jet propulsion laboratory at Pasadena, California, and its Director, Dr. Pickeny, show by their pictures the rock formation, and that the moon is not habitable. Are we spending all this money just to prove and say that we have beaten the Russians to the moon? Would it not be more commendable to say that the Governmer~'t has a sincere interest in its senior citizens, and doing something constructive for them? Aside from travel for pleasure many elderly persons, who are American citizens, wish to revisit their homelands while they are still able. They should not be deprived of this opportunity because of this ill-advised tax. As an example, Skagit County Washington, where we live, has a large Scandinavian and Dutch population, many of whom have saved for years for a trip to the old country. Furthermore, the image of our Country will be greatly damaged by a tax on foreign travel. What will happen to our position as the greatest nation on earth to uphold individual freedom if we resort to restraining by law personal spending while traveling abroad. ______ I wish to say I feel this tax would be very unfair for those of us who wish to make a few trips during our retirement years. For those who have plenty of money it will make little difference. For those who live on small pensions and have tried over the years to save for retirement, it will mean giving up some trip already planned. I feel it is good for our country to have our people go to other countries. The proposed tax on travel will hit all members of the teaching profession hardest, especially the retired. It is discriminatory, exorbitant, unAmerican, and against every principle of Democracy. Once on, it will be increased yearly, making more `and more jobs at the Federal level. We, the so-called middle class, will soon be taxed out of existence. "An ounce of prevention is worth a pound of cure I m sure the organization is doing something to prevent this new inroads to our freedom. With reference to the proposed Travel Tax Bill, I must state that we are utterly opposed to any such action. This bill invokes a hardship on Retirees who have waited so long to visit their homelands once more. We believe that any savings which this measure would bring about are insignificant compared to the amount of money that is being wasted daily in Washington. I wish to go on record as opposed to the Administration's proposed travel tax. I am opposed in principle, believing that it will result in retaliatory action by PAGENO="0191" 969 other nations which will actually aggravate our balance of payments problem and I am also of the opinion that it is most unfair to elderly citizens such as my wife and myself. We are, and always have been, patriotic Americans, cheerfully accepting sacrifices for the good of the country whenever that was necessary. During World War II for example we lived within all ration restrictions' when some were using devious means to get gas meat etc and laughing at us for our naivete. Now when we finally have the opportunity to take the European trip we have long planned and have made our reservations our Government proposes to add a burdensome tax to the cost of our trip and, no doubt at the same time, to stigmatize us as unpatriotic If the Congress chooses to enact this unwise measure I hope that an exejnp hon will be allowed for us citizens over 65 who may not be around to go abroad if and when the tax and restrictions are lifted. The mention of the Travel Tkx stirred up a hornets nest in our chapter. Most of the opinions I got that if `the government don't want the people to travel out of the USA that they should say so and stop all travel. But since they are allowing travel all retired people who are on smaller incomes should not have to pay a tax For a lot of retired people their trip outside the USA represents a saving they have made all their life in the expectation of seeing other countries just once. Why should they be penalized? Now, in regard to the proposed Travel Tax, this has caused a good deal of consternation among the retired people here in Laguna Hills Leisure World You see these folks like to make these tours as they have the time and it helps to make their sunset years happier, and its something they have been looking forward to Then too most of them are on limited income like this writer of this letter and a tax of this kind will make a hardship on the older American They don't spend much money abroad, as that isn't the reason they travel. We have over 10000 people living here in Leisure World And there are many more such Retirees projects in Southern California So we are dead against such a tax on the older travellers Mr ULLMAN We thank you, Mr Giddings, for a very responsive ~nd well prepared statement delivered in a fine manner Are there questions ~ Mr Burke Mr BURKE Mr Giddings, I want to commend you for this excellent statement I think that you have brought forth the real nub of the situation we are concerned with here, particularly where you point out that it would cost the average retired person traveling over there with this expenditure tax an amount up to $171 Of course this would be an exorbitant tax to assess on any group of people, particularly retired people, some of whom spend their entire lifetime saving money, looking forward to a trip abroad, and I think you have done an excellent job here this morning You have also pointed out another weakness here, the possibility of being taxed on medical expenses These are things that are important to this committee and I commend you for brmgmg these facts out Mr GIDDINGS Thank you, Mr Burke Mr ULLMAN Mr Schneebeh Mr SCHNEEBELI Mr Giddings, you covered this matter in sug gesting an exemption for medical emergencies What about a person who goes abroad for medical attention, for that declared purpose I got a letter from a man the other day who said each year he goe~s to one of the mineral spas because he finds this is an area where he can PAGENO="0192" 970 find a relief from his medical problem. Do you think this also should be covered as well as the emergencies, a trip just for this purpose? I am thinking about the expenses incurred on a trip and the travel, whether they should be exempt because that is the main reason for having gone there. You discuss medical emergencies in your presenta- tion I am talking about a medical expedition, going over there for that very declared purpose. Don't you think there should be consideration given for an exemp tion in this instance? Mr. GIDDINGS. If a doctor prescribes a trip, I think it should be completely exempted from any taxes, including travel and expenditure taxes. If a doctor does not prescribe the trip, the expenditures for health rea4sons should be exempted. Mr. SOHNEEBELI. `Then this also should come into the exemption category. Mr. GIDDINGS. Yes. Mr SCHNEEBELI Thank you Mr ULLMAN Are there further questions ~ Again thank you very much We appreciate your statement You have made a constructive contribution to our hearings. Mr. GIDDINGS. Thank you. Mr. ULLMAN. Our next witness is Mr. Donald N. Martin. Mr. Martin, we welcome you before the committee. Would you please identify yourself and your colleague and tell us whom you represent and proceed as you see fit STATEMENT OP DONALD N MARTIN, DONALD N MARTIN & CO, ACCOMPANIED BY EDWARD L. MERRIGAN, COUNSEL Mr MARTIN Mr Chairman, distinguished members of the corn mittee, my name is Donald N. Martin. May I introduce Mr. Edward L Merrigan of Washington, D C, our attorney Mr. `ULLMAN. We welcome you before the committee also, Mr. Merrigan. Mr. MERRIGAN. Thank you. Mr MARTIN I appear before the committee today on behalf of my firm, Donald N Martin & Co of New York City, which specializes in tourism development I served as a member of Working Party 11 of President Johnson's Industry-Government Special Task Force on Travel, as chairman of that Working Party's Subcommittee on Methods TJsed by Foreign Governments to Increase Travel to Their Countries as a Way of Increasing Foreign Exchange During the past 7 years my firm has served as tourism consultant to the European Travel Commission, an organization comprised of the national tourist organizations of all 21 Western European countries (Austria, Bel gium, Denmark, Finland, France, Germany, Great Britain, Greece, Iceland, Ireland, Italy, Luxembourg, Monaco, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey and Yugoslavia). During 1967, my firm organized a Trans Atlantic Travel Congress which was sponsored by the European Travel Commission in coopera tion with CanMexTJS, which includes the national tourist organiza- tions of Canada, Mexico, and the United States. The congress brought PAGENO="0193" 971 together government and industry officials from Europe and North America to discuss practical, effective means for develOping and pro- moting two-way travel across the Atlantic. My firm also prepared one of the studies for the Outdoor Recreational Resources Review ~ Corn- mission The Commission's full report led to the creation in 1962 of Bureau of Outdoor Recreation in the U S Department of the Interior Based on this experience and these studies-in the interest of main taming and improving our Nation's leading position in international tourism-I urge this committee (1) promptly to reject the negative travel expenditure tax proposals and restrictions now under con sideration, and (2) simultaneously to recommend the early enactment by the Congress of a dynamic, positive, and gre'~tly expanded program to `~ttract hundreds of thousands of additional foreign visitors to the United States each year I IHE PENDING ADMINISTRAPION TRAVI I EXPENDITURE lAX PROPOSALS AND RESTRICTIONS ARE SEI F DEI'EATING, UNNECESSARY~ CONTRARY TO THE OVERALL INTERNATIONAL POLICIES AND PROGRAMS OF THE UNITED STATES AND THEY WILL NOT SIGNIFICANTLY IMPROVE OUR BALANCE OF PAYMENIS POSITION In November 1966, the General Assembly of the United Nations unanimously passed a resolution which designated 1967 as "Inter national Tourist Year" That resolution recognized that "tourism is a basic and most desirable human activity deserving the praise and encouragement of all peoples and all governments", and that inter national travel brings Ibout "a better appreciation of the inherent values of different cultures, thereby contributing to the strengthening of peace in the world" Finally, the U N resolution stated that such travel makes "a vital contribution to the economic growth of develop ing countries" and it plays a most important role "in the educational, cultural, economic, and social fields" The U S Government endorsed the TI N resolution and on Septem ber 25, 1967, President Johnson issued the following statement, a copy of which is attached hereto as eXhibit 1 As International Tourist Year draws to a close it is fitting that we rededicate ourselves to the important task of promoting internatio~tial goodwill through travel. This is no small undertaking And it is worthy of our highest efforts and the unqualified cooperation of all nations International travel helps satisfy a basic urge in man to learn more about his neighbor in a world which the jet age is making increasingly smaller. For the first time in history millions of people have the opportunity to visit distant lands and examine other societies and cultures World travel lights the way to world understanding As we advance toward a new decade in which once distant travel becomes commonplace let us always hope that our journeys to faraway lands are journeys to a more peaceful friendly world Since the end of World War II, the United States, as leader of the free world, has stood fol freedom of travel in contrast to the restrictive policies of the Iron Curtain countries In line with the basic piecepts ~of our Constitution, the U S Government has upheld that freedom of its citizens to travel abroad and it has sought to attract visitors to ~this country In fact, in 19~8, the Supreme Court of the United States 89-749-68-pt 3-13 PAGENO="0194" 972 described our dedication to these principles as follows (Kent v. Dulles, 357 U.S. 166, 125-127): The right to travel is part of the "liberty" of which the citizen cannot be deprived without due process of law under the Fifth Amendment * * * Anglo-Saxon law, that right was emerging at least as early as the Magna Carta * * * Freedom of movement across frontiers in either direction, and inside frontiers as well, was a part of our heritage. Travel abroad, like travel within the country, may be necessary for a livelihood. It may be as close to the heart of the indi- vidual as the choice of what he eats, or wears, or reads. Freedom of movement is basic to our scheme of values. And, as recently as 1961, when Congress. passed the International Travel Act of 1961, the Congress stated that its basic purpose was (a) to encourage foreign residents to visit the United States, and (b) to facilitate international travel generally. Thus, while it is clearly understandable that the United States must take reasona~ble steps to improve its overall balance of payments posi tion, it is perplexing to our citizens and to our friends abroad to find the U.S. Government (almost immediately after the end of the U.N.'s International Tourist Year) suddenly proposing that Americans should curtail their plans for travel outside the Western Hemisphere during 1968 and 1969. In order to accomplish this end, the administra- tion proposes taxing travel expenditures outside this hemisphere at rates of 15 percent on daily expenditures from $8 to $15; and 30 per- cent on daily expenditures over $15 and that such estimated tax pay- ments should be collected from U.S. travelers even before they depart on any such trip. This negative proposal, coupled with the President's announcement on New Year's Day, has already had a serious adverse effect on U.S. travel abroad. Bookings to Europe have dropped off sharply because U.S. travelers are presently unable to estimate how much such trips will ultimately cost, how much they will be allo'wed to spen.d, how much they will have to deposit with the Government for taxes before they aan leave, and thus whether they will be able still to afford to travel at all. Our citizens are confused and this threat of a complete reversal in U.S. travel policy has already had an alarming effect on friendly nations abroad. Many countries, like the United States, are travel-deficit nations. For example, excluding spending for international transport, Ger- many, Britain, Sweden, Belgium-Luxembourg, the Netherlands, France, and Turkey were all travel-deficit nations during 1965 and 1966. `This means that their citizens took more out of their respective economies while traveling abroad than was realized from foreign travelers within their borders during these years It is altogether understandable, therefore, that these friendly nations already con- fronted with travel deficits of their own, are highly concerned by these proposals which threaten to worsen their own situation Unless the administrtaion's proposed travel restrictions are promptly rejected by this committee, it seems entirely possible that new de- fensive economic measures might be taken by these travel-deficit na~- tions and others as a matter of course. Figures published by the U.S. Department of Commerce show that, during 1966, citizens of just the PAGENO="0195" 973 few travel-deficit nations mentioned above were responsible for the following travel volume and expenditures in the United States. Nationality Number of travelers in United States Expenditures United Kingdom Germany France Netherlands Belgium-Luxembourg Sweden Turkey 197, 000 92,000 62,400 28,000 9, 900 21,000 1,200 $68, 000, 000 42,000,000 27,000,000 11,000,000 3, 700, 000 8,000,000 500,000 And, preliminary figures for 1967 show increases for each of these countries as follows: Number of travelers ia Nationality United $tcntes United Kingdom 231,492 Germany 118, 214 France 115, 655 Netherlands 34, 011 Belg.-Luxembourg 18, 869 Sweden 26,610 Turkey 2,419 Mr. ULLMAN. Excuse me, Mr. Martin. You may proceed with the understanding that your full statement with all of the quotes and the figures will appear in the record exactly as you have presented them. Mr. MARTIN. Thank you, Mr. Chairman. I was not going to read all these statistics. I would just point out that expenditures by citizens of the United Kingdom amounted in 19~36 to $6S million on 197,000 visitors. In 1967 there was an increase to 231,492 visitors from the United Kingdom. The other countries show similar increases in the travel by their citizens to the United States. The dollar figures for the travel by citizens of these countries aren't available yet for 1967 and that is why they have not been included. Moreover, there are other friendly countries, a substantial part of whose national economies depend on a high volume of tourist earn- ings. By and large, those are the relatively unindustrialized nations whose standards of living since World War II have been considerably improved through programs which have attracted large numbers of foreign visitors. It should be noted that these tourist development pro- grams were launched in many instances at the urging of the U.S. Government. Ireland and Spain are in this category. In 1965 Ireland's tourist earnings accounted for 5.4 percent of that country's gross national product, while in Spain tourism was 5.3 percent of the Span- ish GNP. Even Italy depends on tourism for 2.3 percent of its gross national product. In Austria tourist earnings represent 6.2 percent of the C-NP. And, of course, a significant portion of tourist receipts in each o~I these countries is derived from travel by U.S. citizens. In 1966, foe example, 140,000 U.S. residents visited Ireland and spent $24 mi lion; 245,000 U.S. residents visited Spain and spent $53 million~ and 613,000 Americans visited Italy and spent $153 million. If w~ PAGENO="0196" 974 Spain, or Italy-or to a country such as Greece-their national econ- omies will be seriously affected. In other words, the administration's proposed tax measures would not oniy reverse the traditional freedom-to-travel policies for our own citizens, but would negate our ability to improve our balance-of-pay- ments position by promoting increased foreign travel to the United States as envisioned by Secretary Fowler. I suppose it could be argued that these proposals might somehow be justifiable if their adoption would substantially cure the U.S. balance- of-payments deficit. The truth of the matter is that, should Congress enact these restrictions, they would have a totally insignificant effect on our balance-of-payments deficit. Such action would create the worst possible climate in which to promote an increase in the volume of foreign tourism to the United States. The reason can be found in Presi- dent Johnson's economic report for 1968, which was transmitted to Congress just this month. This report shows-(pages 166 et seq.) that the United States, during the first three quarters of 1967, actually en- joyed a $8.4 billion balance-of-payments surplus in merchandise trade in goods and other services. On the other hand, a balance-of-payments deficit was ultimately sus- tained during the same period because of the following factors: Deficit in billions Military expenditures $3.1 Remittances and pensions 1.4 Government grants and capital, net 4.2 U.S. private capital investments 5.1 Erros and omissions 9 Table 26 of the President's Economic Report sets forth these deficits and is annexed hereto as exhibit 2. Obviously, the proposed travel tax restrictions will have no effect whatsoever on any of the items listed above which are the factors mainly responsible for the 1957 deficit. It is interesting to note that the "errors and omissions" item* estimated in the President's balance of payments figures involves $0.9 billion, whereas if Congress enacted the Treasury's travel expenditures tax proposals only $0.5 billion would be gained in our overall balance-of-payments position. Furthermore, the President's Economic Report, at page 171, makes the following statements regarding this country's travel inThalanc~ for 1967: U.S. travel expenditures, which had been increasing on the average about 10 percent a year, jumped about 20 percent (or $500 million) in 1967. The accel- eration was accounted for by tourist spending in Canada, which rose more than 50 percent, reflecting the attraction of Expo-67. Meanwhile, U.S. receipts from travel expenditures, which has been increasing about 15 percent a year, rose only four percent last year. There was no increase in receipts from Canadiand, who usually contribute one-third of U.S. travel earnings. The obvious conclusion to be drawn from the President's Economic Report is that Canada's Expo 67 was principally responsible for (a) the unusual increase in U.S. travel expenditures outside the United 1 Page 171 of the President's Economic Report is annexed as exhibit 3. PAGENO="0197" 975 States, and (b) the failure to achieve our regular rate of increase of U S receipts from foreign ti avelers Canada being in the Western Hemisphere, the administration's tax proposals would in no respect curtail U S travel to that country, nor would the proposals deal with increased travel to other foreign destinations in this hemisphere The proposals unfairly single out for penalty travel outside this hemisphere and are therefore discriminatory as far as the free choice of the individual U S citizen is concerned and from the standpoint of our relations with foreign countries During these hearings, it has been suggested that, in the final analy- sis, the administration's travel tax proposals should not be considered objectionable because they will really fall hardest on the "let set," which can certainly afford to pay the tax, and not on the average American traveler. U.S. passport statistics for 1965-67 show this is fallacious. Those statistics indicate that passports were issued for overseas travel to the following categories of Americans, among others: Occupation 1966 1965 1967 Students Retirees Clerk-secretaries Teachers Independent business and professional men Religious Housewives 266,990 79, 020 63, 430 76, 230 452,460 15, 230 288 550 221,990 74, 680 52, 610 57, 030 426,310 13, 650 272 570 292,070 91, 990 67, 620 88, 490 498,720 16, 630 304 270 Skilled workers Unskilled workers 76, 040 2, 230 46, 570 1, 140 93, 140 9, 540 These official Passport Office statistics also show that during 1965-67, passports were issued to American citizens for the following stated travel purposes. Travel object 1966 1965 1967 Pleasure Personal reasons Business 651,220. 483, 240 135 250 535,150 487, 470 76 210 670,880 638, 790 140 700 Education Religion Scientific 51,750 8 280 1 690 31,120 6 780 1 930 61,207 7 750 2 280 Health 710 500 2,720 I am certain that each member of this committee personally knows numerous Americans of relatively modest means who have followed the urge to travel for reasons which are important to the future of our country and to the personal development of the traveler Statistics show that during 1966, 1,570,000 Americans visited Europe and the Mediterranean alone, while in 1965, 1,410,000 Americans visited those same areas We simply do not have that many "jet setters" in the United States-but we do have that many Americans who regularly visit their relatives in Europe, and we do have vast numbers of teach ers, students and religious persons who travel for education and to visit the shrines and headquarters of their various religions. Clearly, therefore, the proposed travel tax, if enacted, would in only a small percentage of the cases, fall on the so-called jet set. They PAGENO="0198" 976 are too adept at finding the loopholes In the overwhelming majority of cases, it will be levied against the American businessman and his wife; the retiree; the student; the stenographer; and the Americai~ familyman who wants to pay a nostalgic visit to the land of his ances tors and perhaps to some of his relatives abroad. Indeed, this has his- torically been true about the great majority of American travelers abroad. In this regard the Supreme Court stated in its 1958 opinion in Kent v. Du~les at pages 126-127: Freedom of movement also has large social values * * * Foreign correspondents and lecturers on public affairs need first hand informa- tion. Scientists and scholars gain greatly from consultation with colleagues in other countries. Students equip themselves for more fruitful careers in the United States `by instruction in foreign universities Ihen there are reasons close to the core of personal life-marriage re uniting families and spending hours with old friends. Finally, travel abroad enables American citizens to understand that people like themselves live in Europe and helps them to be well-informed on public issues. An American who has crossed the ocean is not obliged to form his opinions about our foreign policy merely from what be is told by officials of our govern- ment or by a few correspondents of American newspapers * * * It should perhaps also be reemphasized at this point that, while the United States is a "travel deficit" nation2 it is simultaneously the No. 1 host Nation in the world to foreign visitors-in economic terms the major "exporter" of tourism. In 1966, for example, while 1,570,000 Americans were visiting Europe and the Mediterranean, 8,223,000 for- eign tourists were visting the United States. True, about 6 million came from Canada and 400,000 from Mexico. But, the rest came from overseas, and in total, this vast number of visitors proves that the United States is fully capable of increasing its hold on the title "No. 1 Tourist Nation in the World"; and of increasing many times over the number of tourists who want to visit the United States from Europe. This can be done if the United States will adopt and maintain a strong, positive promotional program. Conversely, it cannot be done if the United States, as the existing No. 1 host to foreign tourists, suddenly clamps down on its own tourism "imports" by taxation. This is true especially when we realize that our biggest overseas market is shown by research to be more than 13 million people financially able to "visit U.S.A.," is in Western Europe. Short-sighted, restrictive measures can produce adverse ramifica- tions not immediately apparent when they are first enacted into law. U.S. and foreign carriers have committed themselves to multi- billion-dollar expansion programs, with orders for American-built aircraft already on the books. Consider the situation which could de- velop if the American tourist, faced with a complicated tax on travel abroad, simply decides to remain at home. It is, of course, impossible to estimate at this time the full extent of the damage not only to the travel and transportation industries but also to the American aircraft manufacturing industry, to say nothing about how much this Govern- ment would lose in tax revenues previously realized from the profitable overseas transportation and tourist industries. Another important point to consider is the effect travel restrictions might have on U.S. foreign trade in goods and services which pres- ently accounts for a substantial surplus in our balance-of-payments accounts. Although tourism is part of the whole picture of interna- PAGENO="0199" 977 tional trade, it has been separated out from the trade accounts. We should keep in mind, however, that even when tourism expenditures by our citizens visiting Europe are added to our merchandise imports from Europe, the United States still has a healthy surplus. In short, Europe buys more from the United States than we buy from Europe. Tourism earnings contribute importantly to Europe's ability to buy our exports. The economically hard-pressed British imported $137,800,000 worth of U.S. tobacco and $24 million worth of cotton in 1966. Their earnings of $148,040,000 from visits by Amen- cans provided almost enough foreign exchange to the United King- dom to pay for this cotton and tobacco. You can't balance the United States-United Kingdom trade or the trade between any other nations on an item-for-item basis. The British don't have tobacco or cotton to sell us. If we regard tourism as a separate item in the balance of payments and single it out for restrictive action, foreign countries will be less able to respond favorably to the administration's stated purpose of increas- ing our exports and our balance-of~payrnents position. For all these reasons and others too numerous to discuss in the limited time allotted to me today, I urge the committee, in the best interest of the American people, promptly to reject the pending pro- posals which would tax U.S. travel expenditures outside the Western Hemisphere. With regard to the administration's proposed reduction in the duty- free allowance for returning U.S. citizens from $100 to $10, I believe that such a drastic move would create a bigger problem for our cus- toms officials than it is worth as far as balance of payments is con- cerned. Let's be realistic. The average traveler wants to bring home souvenirs to his family, and is likely to spend more than $10 even if a flat 25-percent rate of duty were levied on purchases in excess of $10. Enactment into law of this proposal would impose an enormous and costly burden on our Customs Service, to say nothing of the need- less irritation it would cause the traveler. Furthermore, collecting the duty would create chaotic jams of returning travelers at the already overcrowded air terminal facilities. The United States participated with the other OECD member countries in a council meeting on July 20, 1965, at which it was de- cided that the OECD should recommend to member governments that the minimum duty-free allowance should be $50 exclusive of 100 cig- arettes or 20 cigars, a bottle of wine or 1% litre of spirits, ~`/~ litre of toilet water and a small amount of perfume. If we reduce the duty free allowance to the OECD minimum recommendations we could ex- pect most American travelers to keep their spending within this limit. $50 would cover the cost of souvenirs and small gifts and furthermore it would accomplish the purpose of inhibiting expenditures for ex- pensive luxury items. OECD member countries such as Sweden, Norway, Denmark, Greece, Ireland, and Japan are following as minimum, this OECD recommendation. It is in our national interest to press all OECD countries to adopt this allowance for their citizens, especially in view of our plans to step up our own drive for foreign tourists. Shopping in the United States is an important attraction and can contribute PAGENO="0200" 978 positively to our tourist earnings. We will not be in a position to press recommendations if we enact into law Secretary Fowler's duty-free allowance proposal. II. CONGRESS, WHILE REJECTING THE PENDING TRAVEL TAX PROPOSALS, SHOULD SIMULTANEOUSLY ENACT A DYNAMIC, POSITIVE~ STREAMLINED U.S. PROGRAM TO A2TRAOT ADDITIONAL HUNDREDS 013' THOUSANDS OF FOREIGN VISITORS TO THE UNITED STATES EACH YEAR. In its report to President Johnson released this month, the Industry- Government Special Task Force on Travel concluded, at page 3: While our country has always been a prime destination for world-wide trav- elers, the United States in recent years has increasingly become a point of departure The most satisfactory way to arrest this increasing gap is not to limit American travel abroad but rather to stimulate and encourage foreign travel to the United States. In order to stimulate and encourage foreign travel to the United States, I think a close, working partnership between Government and industry is absolutely essential. We have to make an all-out commit- ment to this effort and we have to stick with it constantly in order to maintain the level of expansion which is desirable and necessary to our balance of payments in travel. For example, Congress realized in 1961 when it passed the International Travel Act, that it is urgently important for our Government to "develop, plan and carry out a com- prehensive program designed to stimulate and encourage travel to the United States" and to "encourage the development of tourist facilities and low cost unit tours and other arrangements within the United States for meeting the requirements of foreign visitors." For the current fiscal year, however, it appropriated only $3 million to meet the costs of this program which is recognized as so important to our balance of payments. Is this enough when countries the size of Ireland are spending more than $10 million a year for similar travel attraction programs? In this connection I might add that by reason of such expenditures Ireland increased its tourist receipts over the 10-year period from 1957-66 from approximately $77.8 million to approximately $199.2 million a year, an increase of 259 percent. Imag- ine what the United States could do in this direction if our Govern- ment would make a business-like commitment to compete more effectively in international tourism. The first step in that direction is to adopt the recommendation of the McKinney report that Congress increase the current budget of the United States Travel Service by $1.7 million, and appropriate for the next fiscal year a minimum of $30 million for an aggressive promotion and advertising program to increase visits by foreigners to this country. In addition, I respectfully make the following recommendations to the committee 1. Congress should support the President's request of last Friday for dramatic changes in the country's visa requirements. To succeed in the tourism business, we must put the welcome mat out and cut the redtape. 2. Industry and Government should work together to cut costs of travel to and within the United States. PAGENO="0201" 979 3. The Government must accept its developmental role, and partici- pate actively in bringing industry together to develop a vacation pack age that will fulfill the foreigner's exciting dream of America. 4. The Government, in the field of tourism and other aspects of international trade and investment must develop an essential element which heretofore has been missn~g-consistency This is the way to guarantee and enhance our taxpayers' investment in these international programs. 5 Congress, mstead of concentratmg further on ways to keep the American traveler home, should immediately explore other available legislative means for bringing our international payments into closer balance. Insofar as tourism is concerned, I venture to suggest that the $500 million improvement in travel balance of payments which is the ad ministration's goal will be achieved without the enactment of the proposed travel expenditures tax for the following reasons (i) The drain of $500 million created by Expo 67 will be reduced by at least 50 percent this year. (ii) Because of the confusion created by the administration's travel proposals, it has been estimated that Americans will spend $250-$300 million less than anticipated in 1968 for overseas travel (in) If the committee adopts the OECD recommendations for minimum duty-free allowances and sets a minimum of $50, the im- provement in balance of payments should be about $50 million. (iv) Finally, if the recommendations of the McKinney report are adopted and immediately put into effect, it is estimated in the report itself that the improvement in the balance of payments will be more than $150 million this year. I think we can assure freedom of travel, freedom of choice of desti nation, for our citizens without imposing this restrictive tax, and I thank the committee for permitting me to present my views on these important problems. Mr. TJLLMAN. Thank you very much, Mr. Martin. Without objection the various exhibits at the end of the statement will be included in the record. (The exhibits referred to follow ) EXHIBIT 1 THE WHITE HOUSE WASHINGTON SEPTEMBER 25 1967 As International Tourist Year draws to a close it is fitting that we rededicate ourselves to the important task of promoting international goodwill through travel. This is no small undertaking And it is worthy of our highest efforts and the unqualified cooperation of all nations International travel helps satisfy a basic urge in man to learn more about his neighbor in a world which the jet age is making increasingly smaller For the first time in history, millions of people have the opportunity to visit distant lands and examine other societies and cultures World travel lights the way to world understanding As we advance toward a new decade in which once-distance travel becomes commonplace, let us always hope that our journeys to faraway lands are journeys tO a more peaceful, friendly world. LYNDON B. JOHNSON. PAGENO="0202" Balance on goods and services - 5. 5 Balance on merchandise trade 5.4 Military expenditures, net 2 -2. 6 Balance on other services 2.6 Remittances and pensions -. 7 Government grants and capital, net -2.8 U.S. private capital, net -4.2 Foreign nonliquid capital, net . 7 Errors and omissions -.9 Balance on liquidity basis -2.4 Plus: Foreign private liquid capital, net3 1.0 Less: Increases in nonliquid liabilities to foreign monetary authorities 5 Balance on official reserve transactions basis -1. 3 Gold (decrease +) . 9 Convertible currencies (decrease +) -. 1 IMF gold tranche position (decrease +) -. 1 Foreign monetary official claims (increase +) . 7 5. 0 5. 9 8. 5 6. 9 5. 1 5. 4 4.4 5.1 6.7 4.8 3.7 4.3 -2. 4 -2. 3 -2. 1 -21. -2. 8 -3. 1 3.1 3.1 3.9 4.2 4.3 4.1 -.8 -.9 -.9 -1. 0 -1.0 -1. 4 -3.0 -3.6 -3.6 -3.4 -3.4 -4.2 -3. 4 -4. 5 -6. 5 -3. 7 -4. 2 -5. 1 1.0 .7 .7 .3 2.5 3.9 -1.1 -.3 -.9 -.4 -.3 -.9 -2.2 -2.7 -2.8 -1.3 -1.4 -2.3 -.2 .6 1.6 .1 2.4 4~9 .3 (0) .3 .1 .8 ~1.4 -2.7 -2.0 -1.5 -1.3 .2 -2.9 .9 .5 .1 1.7 .6 4.2 (6) -.1 -.2 -.3 -.5 4.2 .6 (6) .3 -.1 .5 (46) 1.2 1.7 1.4 .1 -.8 2.6 1967 1961 1962 1963 1964 1965 1966 lst3 quarte rs U.S. private capital, net -4. 2 Directinvestment -1.6 New foreign security issues -. 5 Other transactions in foreign securities 5 -. 2 U.S. bank claims -1. 3 Other claims -. 6 Foreign nonliquid capital, net .7 Directinvestment .1 U.S. securities (excluding Treasury issues) . 3 Long-term U.S. bank liabilities (3) Other4~ .3 Foreignnonliquidcapital,net .7 Plus: Foreign private liquid capital, net5 1.0 Less: Increases in nonliquid liabilities to foreign monetary authorities7 Equals: Foreign capital excluding official re- serve transactions, net 1. 7 -3. 4 -4. 5 -6. 5 -3. 7 -4. 2 -5. 1 -1.7 -1. 1 . I -. 5 -. 4 -2.0 -1.2 . 1 -1. 5 . 2 -2.4 -1. 1 . 4 -2. 5 -1. 0 -3.4 -1. 2 . 4 . 1 . 3 -3.5 -2.9 -1.2 -1.6 . 7 . 5 . 3 -. 7 -. 4 -. 3 1. 0 . 7 . 7 . 3 2. 5 3. 9 .1 . 1 (2) .8 (3) . 3 . 1 .4 (3) -. 1 . 2 .5 .1 -. 4 . 2 .4 .1 .2 . 9 1. 3 1. 0 1. 1 .5 1.3 1.0 -.2 . 3 .7 .6 (3) .7 1.6 . 3 .3 .1 . 1 2.5 3.9 2.4 69 . 8 61. 4 . 5 1. 3 1. 9 . 3 4. 1 3. 3 1 Average of the 1st 3 quarters at seasonally adjusted annual rates, except as noted. 2 Includes redemptions. 3 Less than $50,000,000. 4 Includes certain special Government transactions. 6 Includes changes in Treasury liabilities to certain foreign military agencies during 1961-62 and to international non~ monetary institutions. 6 Average of the 1st 3 quarters on an unadjusted annual rate basis. 7 Included above under foreign nonliquid capital. Note: Detail mill not necessarily add to totals because of rounding. Source: Department of Commerce. 980 EXHIBIT 2 EXCERPT FROM PRESIDENT'S EcoNoMIc REPORT (p. 167) TABLE 26-US BALANCE OF PAYMENTS 1961-67 [In billions of dollarsj Type of transaction 1967 1961 1962 1963 1964 1965 1966 lst3 quarters1 1Average of the 1st 3 quarters at seasonally adjusted annual rates, except as noted. 2 Military expenditures less transfers under military sales contracts. a Includes changes in Treasury liabilities to certain foreign military agencies during 1961-62 and to international non- monetary institutions. 4 Average of the 1st 3 quarters on an unadjusted annual rate basin. 5 Included above under foreign nonliquid capital. 6 Less than $50 million. Note: Detail will not necessarily add to totals because of rounding. Source Department of Commerce EXHIBIT 3 EXCERPT FROM PRESIDENT'S ECONOMIC REPORT (p. 171) TABLE 27.-U.S. BALANCE OF PAYMENTS: CAPITAL TRANSACTIONS, 1961-67 [Billions of dollarsi Type of capital transaction PAGENO="0203" 981 E~po. U.S. travel expenditures, whidh had been increasing on the average about 10 percent a year, jumped about 20 percent (or $500 million) in 1967. The acceleration was accounted for by tourist spend- ing in Canada, which rose more than 50 percent, reflecting the attrac- tion of Expo 67. Meanwhile, U.S. receipts from travel expenditures, which has been increasing about 15 percent a year, rose only about 4 percent last year. There was no increase in receipts from Canadians, who usually contribute one-third of U.S. travel earnings. Mr. ULLMAN. Are there questions? Mr. CURTIs. Yes. Mr. ULLMAN. Mr. Curtis. Mr. CURTIs. First, let me compliment the gentleman for what I think is an excellent paper which brings to our attention a lot of data, some of which I have been requesting. having said that, now I pick up the one area where I think we pos- sibly have a difference of opinion. But, first, can you give us any data, and provide it for the record later, on how much was ~pent in the year 1967 in the private sector for promoting tourism in the United States? This would include the steamship lines, air lines, and other groups. I know that quite a bit is spent, but no one has even hazarded a guess as to how much. Mr. MARTIN. I would not hazard a guess right now, but I will try to collect that data for the committee from, as I understand it, the foreign carriers and tourist interests as well as the Americans. Mr. CURTiS. They are the ones that immediately come to my mind hut undoubtedly there are others who spend. I am trying to find out how much is spent iii t'he private sector to encourage tourists to come into the United States. I am interested, of course, in relating 1967 expenditures to those of previous years, just as you have given us very good figures on the in- crease of persons coming to `the United States over the years. Now I am interested in what is spent to encourage the increased number of people. I was really amazed to see the great increase from France on page 7. Am I not correct that the number of travelers from France was 62,400 in 1966 and 115,655 in 1967? This relates probably to some increased endeavor on the part of some people to encourage this increase, Mr. CONABLE. Will the gentleman yield? Does it also relate to Expo `67? Mr. CURTIS. That could be. They could have been coming to' Canada and then dropping down here. That may `be, but still these very inter- esting figures on page 7 must have been behind them a great amount of effort. Mr. MARTIN. I think part of it is due to visitors `to Expo who then came into the United States, but I think it is also due to the interest on the part of the French people to visit thi's country, and a word should `be said a'bout what the U.S. Travel Service is doing with their office in Paris. Mr. Cuirns. I will get to that, please. I want to find out first what is going on in the private sector. I am unimpressed with this business of immediately going to the Federal Government on the assumption that the Government is a solution to all problems. PAGENO="0204" 982 Believe me, this is the trouble that we are experiencing right now in inflation and why we have our balance-of-payments situation. Everybody is coming to the Federal Government to solve their problems. You w~ant to increase the USTS to $30 million or whatever the figure is. I want to find out first what is being done in the private sector, what the increases in promotion expenses have been. I know they have been considerable, but it is interesting to me that all the people in this business of getting tourists to come to the United States, who have testified, for which I commend them and commend you, don't provide us a good insight into what you have been doing. I think you probably have a great record. Mr. MARTIN. I will endeavor to get some figures for you on that. I think that we are in a position to do so. (The following information was received by the committee:) in, the time allowed by the Committee it has not been possible to obtain com- plete data on the spending by the private sector for the promotion of travel to the United States. However, the following infoym'ation may be useful in indicating the scope of such spending: Expenditures by 28 U.S. airlines outside the United States (but `including the Western Hemisphere) for the years 1966 and 1967 amounted to: 1966 1967 Percent of change For media advertising For promotional materials For general sales expense Total $8, 069,675 2,786,025 20,616,083 $10, 775, 946 3, 059,695 26, 083, 435 +33 +10 +27 31,471,783 39,919,076 +27 The 1967 and the projected 1968 advertising and promotion expenditures by 12 major U.S. trunk and international airlines in countries outside the Western Hemisphere, and not including general sales expense, are: Total advertising and promotion ecopenditures 1967 $10,897,172 1968 16, 684, 842 Percent of increase The total 1966 expenditure for promotion of travel to the United States by member carriers of the European Airlines Research Bureau (which includes the national `airlines of Western European countries) has been estimated at $4.2 million. This figure does not include expenditure for general sales expense which could be apportioned to the promotion of travel to the U.S.A. The figures for 1967 are not immediately available. However, EARB member airlines will spend an estimated $19 million for "Visit U.S.A." promotion in 1968 and 1969. This estimate shows a substantial increase, and it should be noted that it is for media advertising and sales promotion materials and does not include general sale's expense. In addition, considerable sums are spent to promote travel to America by non-European carriers such as Japan Airlines, Quantas, Air India, etc. An overall estimate for promotional expenditures on "Visit U.S.A." by steam- ship lines is not immediately `available. However, an indication of the effort being made by these carriers is shown by the expenditures in countries such a~ France, Britain, Belgium and Germany by one carrier-The French Line- which operates only one ship on its transatlantic service. Expenditures for advertising and promotional materials (not including general sales expense) from 1964 through 1968 are ~s follows: 1964 $200,000 1965 220, 000 1966 260,000 1967 300,000 1968 500, 000 PAGENO="0205" 983 In addition, The French Line made the following expenditur~s through the company s travel agency for the promotion of tours primarily to North America 1964 $40000 1965 75 960 1966 90,000 1967 -~ 150,000 Similarly, substantial expenditures to promote travel to the United States are made by sea carriers such as Holland-America, Cun!ard, Italian, United States, American Export-Isbrandtsen, Swedish-American, Norwegian-America, Matson, P & 0, etc. It is estimated that in 1968 an additional $5,000,000 will be spent abroad on "Visit U.S.A." promotion by commercial operators such as bus companies, car rentals companies, hotels, tour operators, etc. Mr. CuRTIS. I think the best way is to leave the record open, if you can get the information, but put it in the context of the other witnesses. Namely, what are the expected amounts of money to be spent for 1968 and 1969, and then what will be the impact of the Government program of cutting back on capital expenditures abroad on this very planned expansion. I think we need to know it because here the Government, the admin- istration is doing something strange On the other hand, in its package program it is saying: We are going to cut back on private investments abroad, but in this area of encouraging travel to the United States we are asking Congress to increase what Government can spend abroad. Frankly, I am not about to substitute Government dollars for private dollars for another basic reason I just know from experience that the private sector spends money with a great deal more intelli- gence than the Government because there is the discipline of the marketplace The private sector spends dollars in order to get dollars back A bureaucrat in Government may be well intentioned in his expendi- tures, but he is not under this kind of discipline If anything, the discipline that he is under is to get rid of the money So private promotional spending abroad is the kind of data, if you can provide it, which would be helpful I think we will just leave the matter there One other point I notice on page 19 in arguing your case that you derogated the United States by referring to the fact that we spent only $3 million for travel promotion and little Ireland spent $10 million I would be curious to know what Ireland spends in the private sector to encourage people to come to Ireland. I suspect not very much. Then I would like to see what does Ireland as a nation, as a society, spend-both governmental and private-in relation to what the United States spends-governmental and private Then we have the full pic ture Then we know what we are talking about But let's not go on the assumption that, because Ireland spends $10 million through its Government, therefore, Ireland is doing a good job and because we only spend $3 million through our Federal Govern ment, the United States isn't doing much in the area of encouraging people to come to this country so that we will remain the No 1 host nation, which I am very pleased you point out You see what I am getting at? I am not trying to argue the point but let us get the data first. Then I hope that the people who ar~ PAGENO="0206" 984 continuing to invest in getting tourists to come to this country are doing so because they are getting a return on their buck. I see no 1 eason why they can't continue to hope to get a good return because you point out a veiy good tourist potential How many millions did you say? Mr. MARTIN. 13 million people from West Europe. Mr. CURTIS. Yes. This is our potential. The other thing I would observe is that as the standard of living of Western Europe continues to go up and as it continues to rise in Japan and other nations the number of people that would potentially come to the United States rises directly in proportion. You will agree, won't you, that this is the key factor in increasing tourism in the United States-the increased standard of living of these people? Mr. MARTIN. It is one of the two key factors as far as encouraging foreign travel to the United States or encouraging Americans to visit abroad. Most of the research studies that have been done by Opinion Research, and Gallup, and others show that education and interest is the No. 1 factor, characteristic, of the foreign traveler really, whatever his nationality is. The second necessity of course is the means, which is related to the standard of living. Mr. CURTIS. Of course I would argue just a little bit that the increased education is almost concomitant with the increased standard of living, so you can't really get it through this one factor of education I am not trying to argue this one way or another I am just trying to put it out in the record for the purpose of discussion. Mr. MARTIN. They are related, but there are some people who have the means to travel abroad who are not particularly interested in that sort of thing Mr. CURTIS. I again say I appreciate your testimony. I think it was excellent. This area of private spending is one that I would like to get further data on and maybe you can make a case. Maybe the U.S. Ii avel Agency can do something, but frankly, I would ha~ e to see it to believe it. The main thing I think we need to do is get the Federal Government to stop doing some of the things that they are doing, namely, with regard to visas and other related requirements. That doesn't call for spending money. Actually it calls for the Government to stop doing some of the things it is doing to deter potential tourists from coming to this country If you don't have to do all this investigation you save the time of the personnel that is engaged in that pursuit. You could relate visas to travel packages in the United St'ttes, and to conventions that might be held in the United States in a way that could shorten all of the paperwork presently involved in the visa Am 1 not right in this ~ Mr. MARTIN. Certainly cutting down on what the foreigners regard `is red tape in getting their visas and so on would help, but I think we h'ive to ieahze that there is a developmental role which the Government has to play. PAGENO="0207" 985 Mr. CURTIS. What is that? That is what I want to know. You say that and that is begging the question. Maybe there is. I think the Government probably has a role to play, but I would like to identify what it is and not beg the question. Mr. MARTIN. Well, I would like, if I may, to submit some more data on this. Mr. CURTIS. Please do. Mr. MARTIN. But I just make this comment: that the United States is not a classic tourist country in the sense that France or Italy are classic tourist countries. We have people abroad who want to áome. We know from surveys and so on that they want to come. But they have to be sold and sold in large measure, and to do this effectively and fast the Government has to, with a national tourist organization which has sufficient- Mr. CURTIS. You are begging the question. You say that about government and this is what I am saying we should discuss. Does the Government do this, or isn't this exactly what the private sector is doing, and why aren't they better able to do it? I just don't understand this idea that you have that a human being, when he starts operating in a political bureaucracy, all of a sudden becomes wiser than the same human being acting in the marketplace. As one who does have pride in my profession, politics, and I do, I ~ay government is just a limited mechanism. It is a powerful mechan- ism, but you have to present reasons why human beings must operate under this kind of structure in order to hit at the problem of selling these people abroad to come over here. I think the arguments are all the other way, that the last place you want to go to is the government. It will foul you up. Believe me, I have seen it happen. Mr. MARTIN. To succeed in this it requires government-industry cooperation. Mr. CURTIS. Why? Let's not delay it here. You prepare a statement, if you would, for the record as to why you think the Federal Govern- ment needs to get in here on this business of partnership. Let me again ~emphasize that the Government isn't a partner. The Government is a servant, and I hope we don't ever talk in terms, of Government being a partner. We are a servant. We are no partner. Mr. MARTIN. One last comment and then I will submit the rest of it in writing. I think that we have already accepted the governmental role in areas applying to the balance of payments where it is important enough to ge~ fast action, and I am thinking in terms of foreign trade and increasing our exports. The Government is playing a very large role. Mr. CURTIS. And it has certainly fouled it up. This is what I have been trying to point out for years in the AID and other programs. The healthy part of our dollar balance of payments is exports over imports. That is the private sector. It is our private investment abroad that is giving us good returns. Th~ fouling up is in the Government sector I would argue. Well, ~supply some of your considered views as to why you think Govern- ment can or needs to do some of this work. I frankly don't see it yet. PAGENO="0208" 986 Mr. MARTiN. I appreciate the opportunity, Congressman, to file a statement on it. Mr. `CURTIS. Please do. Mr. TJLLMAN. Without objection the record will be held open a rea- sonable period of time for your statement. (The following statement was received by the committee:) STATEMENT. RE ROLE OF FEnERAL GOVERNMENT IN PROMOTING FOREIGN TOURIST TRAVEL IN UNITED STATES In my opinion the Federal Government must assume an important share of the responsibility for promoting visits by foreigners to the United State's because of the national interest involved in improving our balance of payments. In ad- dition to the economic benefits of "exporting" tourism, there are social, cultural and political benefits to the nation itself in having foreigners come and meet our people and see our country as it really is. Also, the unique structure of the tourism product makes it not an economically i~iable proposition for the pr'ivate or commercial sector to finance the entire overall development `of U.S. tourism, as part of their effort to sell `their own specifi.c travel merchandise. In order to sell a visit to the U.S.A., we must compete in the market place in Europe and other areas with `luxury items such as expensive jewelry, cars, fur coats, television sets, etc. If one of these latter items is priced at $1,000, the manufacturer can allocate, say, 5 percent o'f `the price for advertising and pro- motional materials. On the other hand, the receipts from a visit to the U.S., pricetagged at $1,000, are divided among many unrelated busines's recipients, from carrier to boo't black. The carrier's' share may be less than % of the total, and therefore, it is totally uneconomical to allocate promotional funds on the same basis as th:at for these competing luxury produ'cts. Therefore, there is far less' promotional money per sales unit available. As indicated, this is because a large share of each tourist dollar goes to restaurants, hotels, taxis, theaters, shops, etc., none of which can afford to advertise and promote overseas tourism, to' the U.S. on their own. Hence, the aggregate travel income to the United States' from foreign tourism is far more important to o'ur national economy as a whole than it is' to the various individual sectors of our transportation and travel industry. Thus, the Federal Government clearly must bear a large part of the `advertising and promotional expense if we are successfully to attract additional large numbers of foreign tourists to this country. In this regard, any federal tourist organization must have sufficient funds to promote an attractive image of the entire United States or large sectors thereof as a vacation land for foreigners. This is quite a different proposition from the image-making role of the United States Information Agency. Effective tourist promotion should consist of large scale advertising and public relations cam- paigns, backed up by promotional distributions to prospective travelers, carriers and' foreign travel agents of specific, accurate and up-to-date information on travel in the United States:. At the present time, a "knowledge gap" exists' abroad on the specific's of travel in America, because the U.S. Travel Service .simply has not had a large enough budget to do the job as thoroughly as is required.. A properly financed national tourist organization can `also serve as a catalyst to bring together various private tourist interests for more effective joint promo- tions. Other functions would include activities such as representing the United States at international conferences, conventions, etc. Against a background of this sort, a major national tourist promotional effort, combining private and U.S. Government efforts, can work to sell "Visit U.S.A." far more effectively and in far greater volume than at the present time. Experts in the field estimate any tourist conscious Government should invest between, 3%-5% of foreign tourist income in advertising and promotional efforts. This yardstick would indicate that the U.S. Government should s'pend between $16.5 million and $27.5 million overseas for to'urist promotion. This does' not include promotion in Mexico and Canada, other important markets that require additional promotional funds. . Mr. TJLLMAN. Mr. Martin, I am interested in knowing whether the private sector is really doing a promotional job in foreign countries PAGENO="0209" 987 and in connection with your statement if you could elaborate I would appreciate it. I happen to know that the 17 foreign airlines in the 17 countries represented that have travel bureaus are doing a whale of good job of promoting American travel overseas and in virtually all cases they are governmental agencies. I know that this same situation is true in the nations of Europe and if you have some pertinent statistics that are available indicating just exactly what type of promotions country X has, from all of the various competing countries, and in comparison with what the United States is doing, both in the public and the private sector, this would be ~ ery helpful as far as I am concerned I think this is basically what you are trying to get Mr. Oun~is. Yes. Let's see what it is. Mr MARTIN We will try to prepare that Mr. TJLLMAN. Are there other questions? Thank you very much, Mr. Martin. Mr. MARTIN. Thank you. Mr. ULLMAN. Mr. Robert E. Short is our next witness. We welcome you before the committee, Mr. Short. I know the great amount of effort that your organization has put into the Discover America program. Would you please identify yourself, your organization, and your colleagues, and proceed as you see fit STATEMENT OP ROBERT B SHORT, NATIONAL CHAIRMAN, DIS COVER AMERICA, INC, ACCOMPANIED' BY JOHN R KERR, EXECU TIVE DIRECTOR, AND JAMES C GROSS, WASHINGTON REPRE SENTATIVE Mr SHORT Mr Chairman, I am delighted that you would give us an opportunity to present our views to your committee this morning May I first introduce my associates. This is Mr John Kerr, who is the executive director of Discover America, with offices in New York Mr. ULLMAN. We welcome you before the committee. Mr SHORT And you are probably familiar with Mr Jim Gross, who is the director of the National Association of Travel Orgamzations here in Washington Mr ULLMAN We welcome you also, again, Mr Gross Mr GROSS Thank you Mr SHORT He also represents Discover America in terms of our Washington representation At the outset, I have filed with the committee a list of our directors and a list of our membership, and I am asked to read on behalf of the automobile industry members of our board this statement in advance of my testimony Representatives of the automobile industry on the board of directors of Discover America wish to be recorded as dissenting from the statement to be presented by the National Chairman of Discover America before the Committee on Ways and Means House of Representatives, on February 29 1966 it is signed by Mr Russell E MacClecry who heads the Automo- bile Manufacturers Association's Detroit ofi1ce~ 89-749-68-pt. 3-14 PAGENO="0210" 988 Mr. Chairman and members of the Committee on Ways and Means, my name is Robert E. Short. I am an attorney-businessman, resid- ing in Minneapolis, Minn. In May 1965, I was appointed by President Johnson national chair- man, See The United States, pursuant to a joint resolution of the Congress. The resolution authorized and requested the President to issue a proclamation designating the years 1964 and 1965 as a period to see the United States and to invite private industry and interested private organizations to begin a nationwide effort which would en- courage the American people and citizens of other countries to explore, use, and enjoy the scenic, historical, and recreational areas and facilities throughout the United States of America, its territories and posses- sions and the Commonwealth of Puerto Rico. It also authorized the President to appoint a national chairman to coordinate the efforts of private industry in carrying out the purposes of the resolution. Subsequent to that appointment, Vice President Humphrey, `is Chairman of the President's Cabinet Task Force on Travel, called to- gether the leaders of the U.S. travel industry to address themselves to the problems that precipitated the mandate of the Congress. I par- ticipated with the Vice President as the President's appointee. Out of that first meeting, Discover America was born-a New York nonprofit corporation organized by the leaders of the travel industry to promote travel by our citizens within the United States, its territories and possessions, and the Commonwealth of Puerto Rico, and to en- courage others from around the world to come to our shores in in- creasing numbers. The bylaws of our corporation provide that the Chairman shall be appointed by the President of the United States and serve at his pleasure. Discover America operates on a $500,000 annual administrative budget, administered by a board of directors chosen from companies and associations that have a financial interest in the United States as a travel product. Operating as a catalyst, as distinguished from an operating com- pany, we maintain a small office staff in New York and a part-time associate in Washington, D.C. Since our inception in 1965 we have dedicated ourselves to the business 0± implementing the sense of the congressional resolution. It was apparent from the beginning of our organization that the so- called travel gap in the balance-of-payments account is occasioned by reason of the fact that too many of our citizens chose foreign travel destinations, as distinguished from equally attractive trave.1 destina- tions in their own country; this at a time when all to few foreign travelers were finding their way to American shores. It was equally apparent from the beginning that our program could not be motivated entirely by the balance-of-payments problem. More was at stake than the integrity of the American dollar. While we recognized the importance of that problem and the need then, as well as today, of keeping the dollar strong, it seemed to `hose `of u:s associated with our program that the President, the Vice Presi- dent, and the `Congress had more than the balance of payments in mind when they asked for the appointment of a national ch nrm'in to encourage more people to see the United States. PAGENO="0211" 989 To us, as well as to most people in public life, it was apparent that ?our citizens needed to know more about their own Gountry if they were to continue in the future to govern themselves successfully. Statistics revealed to us that the United States, from the standpoint of the, travel habits of our people, was divided into four distinct regions and too few of our citizens moved from region to region. rf]iose statistics showed that more of our citizens were leaving the Northeastern part of our country for a foreign destination than the number who found their way from that region across the Rocky Mountains. The reverse of that proposition was equally true. Many more of our people traveled out of the country from the West than within our country from West to the East. Statistics could be assembled showing what would he well known *to this committee about the limited movement of our people between the North and the South. Far too few of our citizens iii the North went South and the number from the South who found their way North was even less. Startling to the leaders of our industry was the fact that over half of our people had never been farther away from home than 200 miles. To those of us associated with hotels it was embarrassing and distress- ing to learn that over half of our people had never beeii in a hotel ~overnight. Even though the airlines in 1965 were experiencing their greatest year in history, less than 20 percent of our people had ever been on a commercial airliner. The statistics available then, and now, on the number of foreign visitors who found their way to American shores were and are disturbing. Those of us in the travel business believe that the United States travel product is second to none in the world. While recognizing our affluence and regarding ourselves as successful entrepreneurs-able to sell our product competitively-we had to admit we were being ot. tsold in terms of worldwide competition, not only with potential foreigi~ customers but potential American customers as well. Quite obviously, the task that Discover America assumed was enor- mous and complex. Essentially, we had a threefold problem: To attract more foreign visitors to our shores; to persuade our own citizens who were not leaving their backyard barbecues to become travelers in order to learn more about the magnificence of our country and its institutions; and to induce a greater number of those Ameri- cans who were traveling to foreign destinations to forsake their trip Wand substitute a trip within their own country. It was determined by our board that we would not, in the early months of our existence, apply ourselves to the entire problem. It was too big. It was our judgment that the problem as it applied to the domestic market should be attended to first. We reasoned that as we gained maturity and capability we would be able to tackle the rest of the world. We launched our domestic program in 1965 by creating a symbol- a logo-that has become the hallmark of the U.S. travel industry. Our members and affiliated companies were the first to rally behind it. During 1966 they invested more than $165 million promoting travel around the Discover America logo and theme. PAGENO="0212" 990 In 1967 that figure was substantially higher-well in excess of $20~ million. In April of last year we sponsored Discover America Vacation Planning Week, which the President proclaimed in response to a congressional resolution-to provide a point of focus for domestic travel promotion. It generated support not only from our members but numerous interests not directly associated with our program, including tourism directors of many of our States, chambers of commerce; sponsors of' festivals, auto shows and boat shows, department stores, banks, luggage manufacturers, photographic equipment manufacturers, travel agents, schools, youth organizations, and many others. Also in 1967 we launched a public service campaign, with the co- operation of the advertising council and all advertising media that' urged our people to discover America and gave some of the reasons why they should. More than 400 television stations, 1,100 radio stations, the teie~isi*on and radio networks, and more than 1,000 magazines and newspapers cooperated to provide in excess of 13 billion impressions' with our logo attached in most instances. Have we been effective? We are confident that we have. Although the results of a comprehensive study of travel made last year in the United States will not be available for several months we do know that domestic travel is. growing at a faster rate than the increase in our gross national product. From 1965 through 1967 the GNP increased 14.8 percent. For the same period the value of the travel industry `to the total U.S. economy increased by 17.7 percent. From those statistics and others relating to specific segments of the travel industry we can deduce that we have persuaded many Ameri- cans who were not traveling to leave their barbecues to get out and discover `their land, and that we have persuaded some Americans to travel in America in preference to foreign destinations. We know from other studies that our people are traveling farther" within the United States and staying longer. Dis'cover America discount fares introduced by the airlines as a result of their participation in our program attracted substantial numbers of first-time air travelers, particularly among our young people. We know that travel by Americans `to foreign lands is increasing at a lower rate than the increase in travel by foreign visitors to the United States, admittedly not in numbers but in percen'tages. From 1965 through 1967 visitors to the United States from foreign'. countries, excluding `Canada and Mexico, increased `by 42.8 percent.. F'or the same period travel by U.S. citizens to foreign destinations, excluding C'anada and Mexico, increased by 25.9 percent. We believe that if it had not been for the Discover America program'. our travel deficit today would be much higher. In this year of 1968 we will expand our program into the foreign' markets, while intensifying our domestic efforts. Our member companies and associations will increase their travel' promotions around the Discover America theme at home to more than~ $300 million. PAGENO="0213" 991 Our own tompany program-basically Discover America Vacation Planning Time in April and our year long public service campaign- will expand and will emphasize hard sell around a central theme that the United States is the "United States of Americans" and "this is your country this year discover it for yourself" We will increase our membership and institute a research program in cooperation with the U.S. Travel Service we will undertake a sales "blitz" in an overseas market this spring that will have an impact on the foreign market and will provide the foundation on which Dis cover America will build its international campaign. You have heard testimony from others with regard to many positive measures that are planned to intensify the promotion of foreign travel to the United States. Many of the me~asures contained in the report of the Government- industry task force headed by Ambassador McKinney came from the membership of Discover America. Chapter 2 of the report states that airlines, railroads, bus companies, rent-a-car firms, and hotels-all our members-will reduce their rates ~by up to 50 percent for foreign visitors. U S airlines will increase their budgets to accelerate the develop merit of foreign travel to the United States These proposals come from our members of the Discover America Corporation As to voluntary restraints, Discover America found, from a random survey just completed that many U.S. companies are switching their sales incentive programs from foreign destinations to destinations within U S dollar areas These involve many thousands of Americans and millions of dollars Three companies alone reported switching -from foreign to U.S. destinations involving a total of $4,100,000 in travel sales We believe that what we will do, what will be done under the Dis cover America banner and what others will do to persuade, by positive means, more Americans to travel in America and to persuade, by posi- ti% e means, more foreign citizens to travel to America, will reduce our travel deficit by the $500 million goal set by the President. The task will be easier, of course, if we get additional -suppoft from our Government We share the opinion expressed by the McKinney task force that our ~Government ought to be investing more to promote travel to America in the foreign markets, not to supplant but to supplement the efforts of the J?rlvate sector Additionally, our Government can help to facilitate the movement of foreign visitors to the United States by simplyfying visa require ments, as proposed by the President and recommended by the McKin iiey t'isk force, and by eliminating or lessening other barriers of like nature. As to the specific proposals pending before this committee We recognize the necessity of protecting the integrity of the U.S. dollar. We support the President's efforts to do so. We believe, how- ever, as expressed at our January board meeting in Puerto Rico and the U S Virgin Islands, that a continuation and expansion of present and proposed positive programs will more effectively accomplish that ~objective. PAGENO="0214" 992 Following our January board meeting, we advised the President that we believe all people should have the right to travel as they choose,. to or from America. A copy of our communication to the President was forwarded to th~ Vice President, `the Secretary of the `Treasury and to Chairman Mills.~ We believe that cooperation between our organization and all branches of our Government in a hard-to-sell campaign can and will this year reduce the travel deficit by the $500 million asked by the President of `the United States. (`The attachments to the prepared statement follow:) ATTACHMENT "A" "DISCOVER AMERICA" PROGRAM ESTABLISHED IN 1965 IN RESPONSE TO' CONGRESSIONAL RESOLUTION AND PRESIDENTIAL PROCLAMATION [Public Law 88-416, 88th Cong., H.J. Res. 658, Aug. ii, 1964] JOINT RESOLUTION Authorizing and requesting the President to proclaim 1964 and 1965 as a period to "See the United States," and for other purposes Resolved by the senate and House o'f Representatives of the United states of AmeriCa in Congress assembled, That the President is authorized and requested to issue a proclamation designating the years 1964 and 1965 as a period to see' the United States and its territories and to invite private industry and interested private organizations to begin in 1964 a nationwide effort which will encourage the American people to explore, use and enjoy `the scenic, historical and recrea- tional areas and facilities throughout the United States of America, its tern-' tories and possessions and the Commonwealth of Puerto Rico SEC 2 The President is authorized to publicize any proclamation issued pursuant to the first section and otherwise to encourage and promote vacation travel within the United States of America, its territories and possessions, and the Commonwealth of Puerto Rico both by Americar citizens and by citizens of other. `cOuntries, through such departments or agencies of the Federal Govern-' ment as he deems appropriate, in cooperation with State and local agencies and private organizations. SEC. 3. The President is authorized to appoint a national chairman to co- ordinate the efforts of private industry in carrying out the purpOses of this resolution. The national chairman shall serve without compensation from the Federal Government. Approved August 11, 1964. LEGIsLATIVE HISTORY House Report No. 1022 (Committee on the Judiciary). Senate Report No. 1149 (Committee on the Judiciary). Congressional Record: volume 109 (1963) : Dec. 17, passed House. volume iio (1964) : July 2, considered and passed Senate, amended. July 29, House concurred in Senate amendments. ATTACHMENT "B" DISCOVER AMERICA, INC. Total Membership, 14,722. Mr. Robert E. Short, National Chairman. BOARD OF DIRECTORS Air Transport Association of America, representing 38 airlines Mr. Norman J. Philion, Vice President-Traffic Air Transport Association. Mr. F. J. Mullins, Senior Vice President-Marketing, American Airlines, Inc. Mr L T Ferguson President Lake Central Ainllnes Inc Mr. James Montgomery, Vice President-Passenger Sales, Pan American World Airways, Inc. PAGENO="0215" 993 Aircraft d Aircraft Engine Manufacturers, representing 5 companies Mr. Robert J. Murphy, Jr., Vice President-Washington Representative, The Boeing Company. American Hotel c~ Motel Association, representing 6,514 establishments Mr. Herbert C. Blunck, Senior Vice President, Hilton Hotel Corporation. Association of American Railroads, representing ~31 railroads Mr. James A. Schultz, Vice President-Public Relations, Association of Ameri- can railroads. American Petrolewm Institute, representing 7,742 companies Mr. W. H. Burnap, Group Vice President, Continental Oil Company. Mr. William H. Miller, Vice President-Marketing, American Oil Company. Mr. W. R. Williams, Chief Executive Officer and Chairman of the Board7 Smith Oil Company. Mr. Grant H. Young, Senior Vice President, Marathon Oil Company. Automobile Manufacturers Association, representing 11 companies Mr. Fred W. Adams, Assistant to the Vice President-Marketing, American Motors Corporation. Mr. Henry C. Botsford, Advertising Manager, General Motors Corporation. Mr. E. Harwood Rydholm, Vice President-Civic Affairs, The Chrysler Corporation. Mr. Allen Merrell, Vice President-Civic & Governmental Affairs, Ford Motor Company. Rubber Manufacturers Association, representing 180 companies Mr. Ross Ormsby, President. The Hertz Corporation Mr. Gerald A. Shapiro, Vice President-General Manager, Rent-a-Car Division. FORMER BOARD MEMBERS Mr. R. L. Mangold, Vice President-Sales & Service, United Air Lines, Inc. Mr. Thomas B. McFadden, Vice President-Marketing Programs, Trans World Airlines, Inc. Mr. J. M. Slichter, Vice Pr~sident-Government & Industry Affairs, Western Air Lines, Inc. Mr. Russell Stephenson, Executive Vice President, Mohawk Airlines, Inc. Mr. Robert J. Wright, Vice President,-Sales, Northwest Airlines, Inc. Mr. Lloyd B. Carswell, General Manager-Puerto Rico, The Sheraton Hotel Corporation. Mr. W. W. Bryan, Senior Vice President, Humble Oil & Refining Company. Dr. A. B. Heirsberger, Senior Vice President, Atlantic Richfield Company. Mr. N. B. Ingram, Vice President-Marketing, Sunray DX Oil Company. Mr. J. Handly Wright, Vice President-Public Relations, Association of American Railroads. Mr. Richard E. Forbes, Director of Advertising, Chrysler Corporation. Mr. Gail Smith, Director of Advertising & Market Research, General Motors. Corporation. Mr. R. A. Petersesi, President, The Hertz Corporation. ATTACHMENT "C" GROWTH OF TRAVEL TO AND WITHIN UNITED STATES AS RELATED TO U.S. GROSS NATIONAL PRODUCT [Dollar amounts in billionsj Percent in- 1965 1967 crease, 1967 over 1965 Gross national product (United States) 1 $683. 9 $785. 1 14. 8 Contribution of travel industry to gross national product 2 $36. 0 $42. 4 17. 7 Visitors to United States 3 (excluding Canada and Mexico) 1, 040, 002 1, 485, 499 42. 8 1 Department of Commerce, Survey of Current Business. 2 Estimate, Child & Waters, Inc. n USTS. PAGENO="0216" 994 ATTACHMENT "D" REPORT TO THE PRESIDENT OF THE UNITi~m STATES FROM THE INDUSTRY-GOVERN- MENT TASK FORCE ON TRAvEL, FEBRUARY 1968-SUMMARY, CHAPTER 2, Pno- MOTION A campaign to convince potential travelers to the U.S. must be mounted im- mediately. This campaign should stress that visi:ts to the U.S. are no longer prohibtively expensive but within the means of the budget minded international traveler. Substantial cost reductions as they apply to transportation and housing should constitute a part of the campaign. Additionally, visitors should be as- `.sured their time spent in the U.S. will be pleasant, comfortable, memorable. U.S. airlines (12) and Foreign Flag airlines (16) have indicated they will increase budgets to promote travel to the U.S. and accelerate the development of European travel to the U.S. The two leading international travel organizations have indicated they will encourage `two-way traffic to cooperate with the enlarged U.S. promotional effort. Five U.S. travel organizations will urge foreign-born members to promote "Visit USA" promotions; will request private industry to allocate larger pro- motion budgets and supply travel literature; will spearhead participation by U.S. travel agents and tour operators to `Promote America Crusade in Europe"; will produce magazine, industrial handbook and tours, film festiv'als'and seminars on travel for Japanese and Chinese potential visitors. Seven private U.S. firms will inter~sify their European campaigns, increase `their budgets to promote "Visit USA", reduce fares and rates and launch pro- grams in Canada toward this end. In the news and entertainment media, a series of public service commercials will be planned to encourage Americans of foreign descent to invite friends and `relative's to visit the U.S. during 1968-69. U.S. entertainment personalities of foreign birth will be en'listed to participate in film `shorts in their native language for distribution to overseas TV `outlets, radio and film operators. Two new maga- ~zines will cooperate with the Task Force to encourage tourism from abroad, `using their present resources and by implementing new marketing and research `techniques. [Copy of cablegram] Hon. LYNDON B. JOHNSON, President of the United States, The White House, Washington, D.C. DEAR Mn. PRESIDENT: I am forwarding a policy s'tatement passed today by our Discover America Board of directors concerning present and contemplated measures to reduce the "travel gap" in our balance of payments. As you know, we have devoted-and will continue to devote-our wholehearted efforts to reduction of that deficit. We support your efforts toward keeping the dollar strong. We believe `that the present voluntary approach, coupled with `increased American promotion and salesmanship both here and overseas, is' the best way to close the travel gap. In this regard the Discover America Board has set forth in our statement our readiness to expand our private industry promotional activities-heretofore m'ost largely domestic-to foreign markets as well. I h'ave taken the liberty of sharing `this and attached statement with Vice President Humphrey, Secretary Fowler, Chairman Mills' and Ambassador McKinney. With all best wishes, ROBERT E. SHORT, National Chairman, Discover America Inc. DISCOVER AMERICA INC. POLICY STATEMENT ON TRAVEL Discover America, Inc. recognizes that the administration considers the balance of payments deficit to be of such serious proportions as to require immediate corrective measures. In this connection, the President has' requested that Americans temporarily defer nonessential travel outside the western hemisphere and has appointed a special task force, chaired by Ambassador Robert McKinney, to examine new ways to increase travel to the United States by citizens of other countries. PAGENO="0217" 995 Since its inception in 1965, Discover America Inc. has supported a policy of travel freedom by all citizens. It still adheres to the belief that travel makes its greatest contribution to social and economic progress when there is complete freedom of travel with a minimum of restraint on the choice of destination Improving our Naton's balance of payments position requires vigorous efforts to increase our earnings from the sale abroad of goods and services including travel to the United States by foreign visitors. Travel to the United States cannot be increased while United States travel abroad is being restricted any more than exports can be expanded while imports are being restricted An~ expanded and sustained growth of foreign visitor travel to the United States can be achieved as long as the philosophy of travel freedom is honored. The broad of directors of Discover America Inc. pledges to accelerate ancl expand its efforts to encourage travel within the United States and to give its full support and cooperation to other interests, both private and governmental,. to help increase travel to the United States from foreign countries. The primary emphasis of the Discover America program to date has been te stimulate and increase domestic travel. However, various members of Discover America have actively promoted travel to the United States Discover America members have agreed to strengthen these efforts and at the same time, a specific Discover America program abroad will be undertaken. Through these combined~ efforts, we believe that a significant increase of travel to the United States can~ be achieved. To aid in the total efforts required to expand travel to the United States, the board of directors of Discover America Inc. respectfully requests that the United States government give full consideration to the following: recomn~endations: 1 That the long tradition of travel freedom be reaffirmed 2. That a substantial expansion of the United States Travel Service program~ be undertaken immediately to enable the United States to compete adequately and more effectively with the successful programs of other governments 3 That the scope and accuracy of data utilized in the travel account be reexamined and reevaluated to give full weight to other factors in the goods~ and services account which duectly relate to travel The industries supporting the Discover America program do so in their own economic self interest and because of patriotic responsibility They recognize that travel has major economic significance and that it fosters enlightened citizenship and international under- standing To the extent that United States citizens travel in their own country `md residents of foreign countries travel to the United States our international payments position will be improved Discover America dedicates itself to this objective. DISCOVER AMERICA PROGRAM In May of 1965 the President of the United States in response to a congres sional resolution appointed Robert E Short as National Chairman of a See The USA Committee" for the purpose of organizing a campaign, financed by private industry that would encourage Americans and citizens of other lands to travel in the United States its territories and possessions and the Common wealth of Puerto Rico. Subsequently, Discover America Inc. was created as a nonprofit corporation incorporated in the State of New York to implement this presidential assignment It has worked with the Cabinet Task Force on Travel chaired by Vice President Humphrey and the U S Travel Service Leading companies and associations from petroleum airlines aircraft manu facturers, automobile manufacturers, hotels/motels, railroads, bus companies, rentacar firms tire manufacturers and others pledged an annual budget of dollars 500 000 and appointed representatives to the Discover America board of directors The principal office was established in New York and a program was launched in four major areas: publicity and promotion, industry relations, government relations and research Functioning in a catalytic role Discover America Inc under the banner of its logo and theme initiated program activities on its own and organized support from industry to give widespread exposure te the appeal of the U.S. as a travel destination. During 1966 member companies and associated enterprises invested more than dollars 160 million in support of Discover America promotions In 1967 more than dollars 200 million was invested for that purpose In 1968 the figure will again be substantially higher Notably in 1968 there will be extensive support from enterprises not presently a part of the Discover Ameiica membership The Discover America program has PAGENO="0218" 996 been effective. It has made~ the public more aware of and desirous of travel in the United States and, as a result, domestic tourism has increased.. Mr TJLLMAN We thank you very much for an excellent statement, Mr. Short. Without objection, the full statement, together with all of the various attachments, will be included in the record. Mr. Short, I was the author, as you know, of the original "See the U.S.A." resolution and subsequent "See the U.S.A." resolutions and so I have followed with a great deal of interest the work of your organization, and I know the problems that the private sector had in getting together on the common plan, and I congratulate you on what I consider a tremendously successful effort. Are there questions? Mr. Curtis. Mr. CtrnTIs. I certainly want to join Chairman Uilman in express- ing my appreciation, too, for a fine record and a fine statement. On page 6 you say: In this year of 1968 we will expand our program into the foreign markets. Am I reading that right, that you already are to some degree in foreign markets, or does this mean an initial effort? Mr. SHORT. Yes, we have been in the foreign market in a limited way in our first couple of years of existence. Specifically, what we have done in terms of the foreign markets would be largely `by our members, by Pan American, TWA, Hilton and Sheraton Hotels, more on an individual basis. Mr. CURTIS. Do you know how much in dollar amounts-I am pleased to get these amounts for 1967-was spent, say 2 years `ago, and what is being spent now in your program and what is `contemplated for 1968? Mr. SHORT. As it specifically applies to the foreign visitor, I can't give you th'at figure today. I can `say this: That whatever it was last year in terms of airline dollars it i's going to be double in t'heir 1968 budget In terms of 1968 to hotel dollars, it also is going to be double In terms of Hertz dollars, it going to be double Now, I recognize that this is a generalization with no particulars, so I will get you the par ticular figure and submit it to you in an exhibit through Mr. Gross. `(The following information was received by the committee:) Discover America has determined that no comprehensive measurepient has been made of the amount of money being invested by the private sector of the U.S. travel industry in foreign countries to promote travel to the U.S. In an attempt to provide some illumination on this subject, we surveyed major companies and associations, including airlines, hotels/motels, petroleum, rubber manufacturers, railroads, bus companies, steamship companies, tour wholesalers and operators, and ear rental systems. From that survey we arrived at the following estimates of total expenditures *by the above groups: 1966 $37, 000, 000 1967 46, 500,000 Projected for 1968 56,000, 000 Percent increase, 1968 over 1967 20. 4 Mr. CURTIS. Very good. I also wonder what the program of the `administration of cutting back on foreign investment might do to these planned expansions This money to be effective must be spent abroad, right? PAGENO="0219" 997 Mr. SHORT. Yes, sir. Mr. CURTIS. Well, this will be helpful. Do you think you need an amendment to your resolution? I was looking at it where it says, "which will encourage the American people to explore, use, and enjoy," and so forth. It might be good to have in the record, and I would cer- tainly like to see it, "which will encourage the American people and others." Do you think the words "and others" in there would clarify your position? I am pleased to see the initiative that led you to set up packages `and other improvements for Americans. It is logical to set up similar packages so that others can benefit also. Don't you think it would be good to clarify it so you can include others? Mr. SHORT. We have always had the authorization under your reso- lution to work in both fields with the Americans in terms of travel at home and with foreign visitors to our shores. Mr. CURTIs. Where do you figure that? I read this resolution. Mr. SHORT. Travel to and within the United States. Mr. CURTIS. Yes, but it says "encourage the American people." It ~doesn't say encourage other people. Mr. SHORT. Public Law 88-416. I have it here in front of me. Let me read you section 2 of that: The President is authorized to publicize any proclamation issued pursuant to the first section and otherwise to encourage and promote vacation travel within the United Sitates of America, its territories and possessions, and the Common- wealth of Puerto Rico, both by American citizens and by citizens of other countries. Mr. CURTIS. Yes, it does in that second paragraph, you are right. I think the first paragraph should include it, too. I was just being a little picky, but I was trying to pursue this a bit further. I will get that other information that you will supply for the record. I am concerned, as you could tell from listening to my previous questions, as to why you think the Government would need to spend more money. It looks like you are doing darn well. I `am just tickled to death to see this kind of thing. It is good investment. Your people are doing it. Why in the name of heaven do you want Government money? You Thave done all of this without it and if you ask now for Government money, I can promise you that you are going to get Government inter- ference. We have to interfere because we have a responsibility to see that Government money is spent in certain ways. I see no reason for asking governmental restrictions on your imagination, your ingenuity, on how you would spend money. Mr. SHORT. May I point this out, Mr. Curtis. Mr. CURTIS. Surely. Mr. SHORT. And I think that the analogy might be something that would give you at least my point of view. There are some classic ~examples within our country of good private sector programs and local government support promoting cities. Mr. CURTIS. Oh, local; oh, well. Mr. SHORT. And States. Now, wait so that you can understand me. Mr. CURTIS. Yes. PAGENO="0220" 998 Mr. SHORT. For example, Florida. Mr. CURTIS. Oh, sure, we do a good job. Mr. SHORT. Missouri. In Minnesota we don't do quite as good a job I might tell you, but where you do have a successful program selling a State or `a city or a specific event, you have usually good cooperation with private money and some local government money, at least cata- lytic money. This is certainly true in Florida, I think it is true in Missouri. Mr. CURTIS. It certainly is. Mr. SHORT. I have a business in your State. Mr. CURTIS. I couldn't agree more. Now, why the Federal? Mr. SHORT. Now, in terms of the Federal you have the 50 States competing with themselves to get the person after I1C is here, but the various State budgets do not work overseas or beyond the continental limits of the United States, although some of them do. Puerto Rico y~u would find, and I think Florida, spend some money overseas. I envisage whatever Mr. Black's department would do, if it is that department that you have in mind, as being catalytic, able to rep- resent the total country in cooperation with the private sector. We are' going to go, for example, this spring with Mr. Black and his staff to Brussels and we are not asking him topay for it. Mr. CURTIS. Let's leave this issue here. I am really interested,, but we have a time limit at this particular time. What I would like to~ see is why you think that the Federal Government can perform a. function that could not otherwise be performed. I personally think that the way you are operating and have operated domestically is the best pattern for doing this abroad. Get Government to stop interfer- ing. Yes, get the governmental agencies to be cooperative. You will be able to utilize the Federal Government to the extent that it already is' over there. I can see a lot of need for coordination, but I can't see this business of the Government even spending what it is spending, let alone an- other $30 million in a field which is lucrative and will continue to attract private money. Mr. SHORT. You don't hear me saying I think they should get $3~ million. Mr. OURTIS. We collect taxes from the private sector on money that is spent in the private sector, but we surely don't collect taxes from the Government. At any rate, let's leave the record open. I would like to get your further judgment on the specific functions of the Govern- merit. Maybe they `are there. I don't want to sound as if the Federal Government might not have some arguments. I will listen to them,, but I am surely not inclined to go along at this present time with expansion of the lISTS. I have just been shocked to hear these private enterprise witnesses in the past week. Immediately they think, "Well, let the Government spend some of this money," that logically they can spend much more intelligently. Mr. SHORT. I would certainly hope that you would understand that we didn't come here petitioning the Government to spend more money at this time in our history except that we though that if they did so it was necessary in order to.- PAGENO="0221" 999 Mr. Omrns. Yes, but you didn't spell it out. Mr. SHORT. Not as well as it should have been. Mr. CURTIS. You see, this is a very prevalent idea, to throw Federal money in to solve a problem Frankly, that is why we are in trouble If you would come in and say specifically what function, the USTS has per formed it would be helpful Believe me, when you start doing that you are not going to be talking in terms of $30 million. Mr. SHORT. I didn't testify to that. Mr. CURTIS. I know you didn't. I am referring to the testimony that has preceded you Let me say what I think is happening, as so often happens We get into a problem and thete are certain people th%t use that problem as a techrnque for getting their nose further under the tent This is what I think the U S travel crowd has done along with the help of the Federal Government, and I resent it We have a darn serious problem here and this should never have been used as a gimmick to try to get more Government money into the travel business. Let the TJSTS come in and justify what they have done with the money that has already beee given them I think they are going to have a hard time doing it. I think they will foul things up rather than help. `This is my opinion. Mr SHORT May I just make one last observation ~ We have worked with them, in cooperation with them, during the period of our existence, and it has been our view~ right or wrong, with out trying to supervise what they do, that the money that they do have hardly pays their carfare between Washington and the offices that they maintain about the world Now, assuming that there is a need for the Government to have such a bureau at all, then it would be our view I think that they should have a budget that would permit them to do whatever their function is Mr. CURTIS. I grant you that if you assume that there is a function that these people perform, you have to have human beings performing it, and they have to have expense money at least That is very true I am questioning the assumption that these are functions that govern ment needs to perform that cannot be really better performed in the pi ivate sector My rule of thumb is that the burden of proof should be the other way as to why the private sector can't perform it and there fore we have to go to government And I close by again observing that there are areas, in my judg ment, where government has to move, at least the Federal Govern ment, prejudiced as I am against any further movement on the part of the Federal Government. Mr ULLMAN Mr Short, without objection, the record will be held open for any additional comments that you would like to make in response. I would conclude by saying that in your efforts to expand tourist travel from abroad, which I think is highly commendable-I would hope that you will explore to the fullest the concept of package, all expense, low cost tours in which you have the full cooperation of the hotels, motels, transportation people, restaurants, and so on I know you are working in that direction, but I don't think we will ever get a heavy flow of traffic until we get a lot further than we are PAGENO="0222" 1000 into this concept of package tours, and I hope when you do that you will also keep under consideration the programs that will attract people way out to the west coast, to Oregon. Mr SHORT Yes, sir Mr. TJLLMAN. I know you have been working on this, and costs are involved. The 50 percent domestic fare reduction for this reason I think is a move in the right direction. I think it will enable foreigners'. to see a lot of this United States that they otherwise would not have' been able to see. Mr. SHORT. Right. I don't know whether you understand or not, Mr.. Congressman, that the fare reduction as proposed by our members in terms of the McKinney report presupposes stops at three or four' destinations and you would almost have to go from New York, if you landed there, via Minneapolis, and wind up in Oregon in order to' really be involved in that type of fare. We had that in. mind obviously' when we did it. Mr. ULLMAN. I knew that they would have to stop in Minneapolis~ and I presumed certainly they have to stop in Portland, Oreg. Thank you very much for a very, very fine statement. Mr. SHORT. Thank you very much for your courtesy. Mr. ULLMAN. Let's include Ohio, too. Mr. SHORT. Yes, sir. (The following statement and letter was received by the committee:) SUPPLEMENTAL STATEMENT BY ROBERT E' SHORT NATIONAL CHAIRMAN DIscovER AMERICA INC Members of the Committee on Ways and Means have asked why we believe it is a proper function of the U,. S. Government to operate a national travel bureau and Why we have recommended that the appropriation for that function be' increased. Earlier in our testimony we pointed out that the so-called travel gap in our' balance of payments was not the only reason which led to the Discover America' program. We recognize nonetheless that our balance of payments deficit is a national problem of serious proportions and that a solution, to that problem is the objective' of the travel restraint proposals under consideration `by your committee. It is our belief that the balance of payments deficit will become more serious unless a vastly increased effort is made to attract more foreign visitors to the U.S. We have outlined what Discover America, its members and other interests are doing and will do this year to' increase that effort. However, the task of attracttng more foreign visitors to the U.S. in sufficient numbers to reduce the balance of payments deficit significantly cannot be accomplished by the private sector of the U.S. travel industry alone, principally for these reasons: (1) Competition from other travel destinations, mostly in terms of large invest- ments by foreign governments in travel promotion has become too great Money spent by foreign governments to attract U S citizens to their countries exceeds by many times the amdunt spent by the U S Government to attract their nationals to our shores'. (2) The private sector of the U.S. travel industry represents a vital but small percentage of the total U.S. travel product. Our travel product is the sum of all of our states territories possessions and Puerto Rico all that they comprise in terms of God given and man made attractions and all of the facilities goods and services provided for travelers Most of that total product is not capable of promoting its interests or representing its interests in foreign countries. Thus, we submit that it is not only a proper function but a necesary function for the U.S. Government to operate a national travel `bureau to assist the private' sector-as our Government is doing for other industries in foreign markets- PAGENO="0223" 1001 and to act in behalf of those segments of the U.S. travel industry which cannot promote their portion of our travel product in foreign countries. Additionally, we believe it is fair and reasonable for this expenditure to be borne by our taxpayers because reven~ie generated by travel spreads throughout our entire economic com~uunity. The effectiveness of well-financed travel programs by national governments is well demonstrated by the success of other major travel destinations. We need only look to such countries as Canada, France, Spain, Italy, Japan, Greence, Turkey, Australia and others for evidence of such success. It seems academic to debate whether it is a legitimate function of our national government to finance a travel program since, with the establishment of the United States Travel Service, Congress determined that it is a legitimate ~function. Other witnesses have recommended a different type of agency. Some have pro- posed that our travel bureau be given full cabinet status. Others have suggested a corporation financed by the Federal Government but removed from the bureaucratic structure. While these recommendations have merit and should be considered, any restruc- turing of our national travel bureau should not be allowed to delay an expanded travel promotion program. The United States Travel Service (tJSPS) is the only existing agency within the Federal Government capable of implementing such a program. Also the USTS~ has had plans for an expanded program ready to be implemented for some time. It is for these reasons that we have recommended an increase in the appro-~ priation for the USTS. Dlscovrn AMERIOA, New York, N.Y., March 7, 1968. Hon. WILBUR D. MILLs, Chairman, Cloln4nitteO on Ways and Means, House of Representatives, Washington, D.C. DEAR CONGRESSMAN MILLS: During my appearance before your committee on February 29, 1968, it was suggested that section 1 of the joint resolution of the Senate and House of Representatives that led to .the establishment of the "DIS- COVE~R AMERICA" program be amended to clarify the point that it shall be the responsibility of private industry and interested private organizations to continue their efforts to attract citizens of other countries, an well as American citizens, to the scenic, historical and recreational areas and facilities of the United States of America, its territories and possessions and the Common- wealth of Puerto Rico. A proposed resolution for adoption by the Senate and House of Representatives authorizing the President to extend through 1969 his proclamation of a period to "Discover America-See the United States", including an amendment to clarify the point that it shall be the responsibility of private industry and interested private organizations to continue their efforts to attract citizens of other coun- tries, as well as American citizens, to the scenic, historical and. recreational attractions of the United States, is enclosed herewith as Attachment "A". Your consideration of the suggested amendments as set forth in Attachment "A", and your help in obtaining early passage by the Senate and House of Repre- sentatives of the suggested resolution, as amended, will be greatly appreciated. Additional information requested by Mr. Ullman and Mr. Curtis concerning the amount of money being invested by U.S. private industry to promote travel to the U.S. from foreign countries and our views on the role of the Federal govern- ment in travel promotion is being developed and will be forwarded to you shortly. Again, I want to thank you personally for giving Discover America, Inc. the opportunity to testify before the Committee on Ways and Means. The Congress, and the President, can be assured that Discover America, Inc. will accelerate its efforts, both here and abroad, in promoting more travel to and within the United States in the effort to help ease the nation's balance of payments problem. Truly, ROBERT E. SHORT, National Chairman. PAGENO="0224" 1002 A resolution for adoption by the Senate and House of Representatives of the United States of America authorizing the President to extend through 1969 his ~rociamation of a period to "See the United States" and for other purposes. Suggested amendments to the existing joint resolution. Public Law 89-235, ap- proved October 2, 1965, are highlighted as follows (deletions are in black brack- ets; additions are italic) DISCOVER AMERICA-SEE THE UNITED STATES The President is authorized and requested (1) to extend through (1966] 1969 the period designated pursuant to the joint resolution approved (August 11, 1964 (Public Law 88-416)] October 2, 1965 (Public Law 89-235) as a period to see the United States and its territories; (2) to encourage private industry and inteiested private organizations to continue their efforts under the Disco~ver America" program to attract great numbers of Ethel Americans (people] and Ihe citizens of other countries to the scenic, historical, and recreational areas and facilities of the United States of America, its territories and possessions, and the Commonwealth of Puerto Rico; and (3) to issue a proclamation specially inviting citizens of other countries to discover America (by visiting visit the fes- tivals, fairs, pageants, and other cerernonials to be celebrated in 196d] 1968 and 1969 in the United States of America, its territories and possessions and the Commonwealth of Puerto Rico. SEC 2 The President is authorized to publicize any proclamation lssued pur suant to the first section and otherwise to encourage and promote vacation travel within the United States of America, its territories and possessions, and the Commonwealth of Puerto Rico, both by American citizens and by citizens of other countries, through such departments or agencies of the Federal Govern- ment as he deems appropriate, in cooperation with State and local agencies and private organizations. SEC. 3. For the purpose of the extension provided for by this joint resolution, the President is authorized during the period of such extension to exercise the au- thority conferred by section 3 of the joint resolution approved August 11, 1964 `(Public Law 88-416), and for such purpose may extend for such period the ap- pointment of any person serving as National Chairman (pursuant to such sec tion.] of the "Discover America" program established by private industry in 1965 as a non profit organi~atson to carry out the purposes of section 1 of this reso `Zution. Mr. ULLMAN. Our next witness is Mr. Paul Friedlander. Mr. Friedlander. Mr. CURTIS. Mr. Chairman, let me comment how pleased I am to have Mr. Friedlander, who is the travel editor of the New York Times, come down here as a witness. He is in my judgment one of the most knowledgeable people in this area. Mr. TJLLMAN. We are extremely happy to have you before the com- mittee, Mr. Friedlander. We know of your great knowledge in this field. Will you identify yourself and proceed as you see fit. Mr. Biivrrs. Mr. Chairman. Mr. ULLMAN. Yes. Mr. Bnrrs. I just want to comment this is the only way I can travel, through his section of the New York Times. Mr. TJLLMAN. That is true of a lot of us. STATEMENT OP PAUL L C. PRIEDLANDER, TRAVEL EDITOR, NEW YORK TIMES Mr. FRIEDLANDER. That is a tremendous responsibility. Thank you, Mr. Chairman. I am going to put my watch down here and I promise not to abuse your patience. What I have to say will not take long. PAGENO="0225" 1003 My name is Paul J. ~. Friedlander, I am travel editor of the New York Times; I am also president of the New York Travel Writers Associatioii. While I appear as travel editor of the New York Times, I do not Pretend to represent the editorial opinion of the New York Times as set forth in its editorial page. John B. Oakes is editor of the editorial page of the Times and he needs no help from me to make his position clear on travel taxes or other matters. As you may know, he originally favored in his page a travel tax until he saw the amorphous proposal that the a*clmimstration dropped in your laps, whereupon his enthusiasm cooled rapidly. I will make one other point in explanation. I am probably the only person with a nonvested interest to testify before your committee on this subject. Regardless of how your committee or Congress votes or does not vote on the travel tax, the New York Times will in all probability be continuing to function as a daily and Sunday newspaper, and as far as I know I should continue to function as its travel editor without any increase and with no decrease in salary. At least that's the way it was when I left the office yesterday. So when I speak in opposition to the administration's tax proposals, I speak for the traveling public and for myself as objectively as I can on a subject upon which I have a strong feeling, but no economic or political self-interest. I *do not bring you a long statement full of statistics. It seems to me you gentlemen have been most patient in listening for the last couple of weeks to tables of statistics and argmnents based on millions of tourist.s and millions of dollars. I do not want to impose upon your patience further, especially since most people who know anything about the travel industry recognize that most of the statistics that are bandied about have very little validity. They are guesses and estimates and most of them are made, alas, on too little information to be considered even good "guesstimates." Even the officials who have been besieging you with these statistics and arguments will admit privately, not in public, if you press them hard enough, that this is true. I refer you to the report of the task force to the President of the United States which polished this off in one sentence: Further improvement is also needed in the quality of statistics which are used in estimating the travel accounts in our balance of payments. This report did go on to quote further the Bernstein report which has commented previously on the poor quality of Government's fiscal and travel and balance-of-payments statistiQs upon which you are asked to act. A working committee of the task force was not quite so polite, and von have seen that report published in the Congressional Record of February 5, and I will quote three little paragraphs. It sa.ys: Statistics in the travel field, especially from the U.S. government, leave a great deal to be desired. Major decisions of national policy are being made on' the basis of statistics on the national travel gap, etc., that expert observers believe have a high degree of error. S9-749---GS----pt. 3----*1~ PAGENO="0226" 1004 The samples taken by the Office of Busines Economics, Department of Com- merce for calculating the inbound and outbound volume of travel expenditures from which the so-called travel deficit is derivOd are regarded by your working party as inadequate neither well balanced nor large enough not taken frequently enough suffering from an undue timelag, and uSing antiquated sampling and tabulating methods. If you will check the records of your hearings you will find that the Secretary of the Treasury appeared here on February 5 and in his prepared statement admitted that he did not know how many Amen cans had traveled in Europe in 1967 The latest figure he had was for 1966. Mr Fowler said, and I quote The figure was undoubtedly higher last year although the exact number will not be known for sornie months. This bothers me because this is strictly a head count that has to be taken It is taken daily by the Immigration people Every time `my body comes through Immigration they are counted I don't see why there is sudh a lag and a weakness in our figures You have heard all the argument that this proposed restriction of free travel by Americans through clumsy cumbersome taxes is a vio- lation of the American's basic inalienable right to travel freely `tnd to spend his own money There is no need to belabor that point any further, except to point out that I don't think it would be very American for you or for Con- gress to require your constituents to put up a bail bond like a criminal before being permitted to leave the country, which is what this pro- posed tax is You make a declaration of how much you have in your pocket and how much you are going to spend and you put up a bond or prepay ment of a tax, which to me is like a bail bond I resent it and I th1nk most of your constituents will too. I think this tax is an impossible tax because it is impossible to write so it falls in any kind of equity upon the `population. You heard that this morning from the man whO was testifying `for the retirees. It is a tax that is impossible to sell the American people, from what I hear from them, and I firmly believe to their Representatives in Congress Worst of all, it is `absolutely impossible to enforce. The bootlegging of prohibition days, which some of us elder citizens can still remember, will be nothing as compared to the flouting of the law that this tax will lead to and which generates further flouting `of other laws. The Treasury Department proposals are based on a couple of other fallacies as wild-eyed as `some of their statistics. They speak of the "jet set" as if it actually existed This, gentlemen, is utter nonsense There are a handful of people who flit around the world, getting their names in the so-called society or f~male pages of the newSpapers. I would hazard a guess-I am really only half joking, I am half serious hero--that if you added them `ill up you would get maybe 64 people, most of them not very impres sive except to themselves and their friendly society editors I must admit that some travel writers, especially, magazine editors, h'tve helped create this bogey man of jet setters They did it in order to make their copy look `brighter. They thought they could mislead PAGENO="0227" 1005 some of us common garden variety people to lick our chops over such fancy talk. The Treasury would have you inflict their impossible travel tax on over 200 million Americans to stop the so-called flow of gold by this corporal's guard of fictitious name droppers, the "jet set." I don't believe you gentlemen have been taken in by this silly argu- ment and I don't think it needs any more time to be stolen from your busy day. The other major fallacy I find is the illusion, by many people in the Treasury Department, that people travel only to spend money. Let me tell you from what I see of our readers and what I hear from them and from my experience in the travel business after some 23 years in it, people do not travel to spend money. They don't travel to shop and buy gifts and things they don't want. People-I am ta]king a~bout real people, not the "jet set"-~people travel first and foremost to travel. Shopping and spending abroad is an accessory after the fact of travel, not before it. People spend to travel-they do not travel to spend. They leave home to travel. They don't leave home to buy perfume and other things. They buy them as an accessory after they are there and because they happen to be there. The ultimate basic fallacy behind much of the talk about balance of payments and balance of trade is the attempt to create-by repeating it over and over again-the impression that there is actually a travel gap, a separate part of the economy. There is no question that foreign travelers now spend less in the United States than American travelers spend abroad. It is also true that we spend more money abroad for Scotch whiskey than the British do for our American brands of liquor. Can you translate that into a gap that means none of us should drink Scotch whiskey for the next 2 years. I rather doubt it. If you want to bring the matter up to date, what about the millions of dollars pouring out of the country right now to buy copper aibroad because of the cop- per strike? Do you call that a copper gap? There was an article in the Times yesterday that said the total spent in hard dollars, depleting our gold, in the last 8 months for copper that was not being mined here but had to be purchased throad was $250 million. This is something that `ought to be tossed in the pot when you are talking about travel and other gaps. If you are really serious about wanting to plug the gold drain, I suggest you listen to the advice of General Eisenhower, whose judg- ment on matters military is still eagerly sought after. I heard him in a press conference in Palm Springs last month in which he advocated bringing home the half-dozen divisions of Ameri- can troops in West Germany. I did not ask him that question. Some- one else did. So I am not presenting my own argument. I have heard estimates from various sources that General Eisen- hower's proposal, including the spending by military dependents abroad, would achieve a saving of about $700 million spent abroad. These figures also I can't vouch for because I am not a statistician. If you are serious about plugging the gold drain, if the Treasury is serious, they might well look to the Interior Department, to the American Virgin Islands. Its officials report, and they told me this PAGENO="0228" 1006 only yesterday, its tourist business totaled $75,035,860 for fiscal year 1966-67. Of this figure, they said, spending in gift shops and liquor stores totaled $32,904,000 1-Tow much of that amount do you think remained in the Virgin Islands ~ How much of it ~ ent leaping over the Atlantic Ocean to the wholesalers and manufacturers of Europe, who deposited those dol- lars immediately in their local banks and away it went into the gold situation ~ What makes anyone think that the money spent in the Caribbean islands, as well as in the American Virgin Islands, in Mexico and Central and South America does not ~nd will not find its way just as quickly to the central banks in Europe as the dollars spent in Vietnam find their way into the hands of European gold dealers in France and elsewhere? This debate could go on forever, but it is getting late and I see my time is running out, and I want to finish with just two short points I would like to know what anyone intends to do with the millions of dollars the Treasury Department hopes to squeeze out of the American traveler with the proposed 5-percent transportation tax. I question whether this is simply another device in anti inflation, a so called anti inflation tax measure, or will the money be put to some good purpose, presumably in behalf of de~ eloping travel to the United States, or let's say some good purpose. There is one solid idea that has been presented to your committee for a joint Government-private industry private corporation that will undertake to sell America to foreign tourists, replacing the attempts to do so with ~ government agency like the U.S. Travel Service. It is also put forth in this Industry-Government Special r~ ask Force. I think you ought to look very seriously at this proposal, gentlemen. I think this idea was also produced by the National Association of Travel Organizations. In reply to some of the points Mr. Curtis was making before, I think a quasi-government, a semiprivate organization possibly like the Rand Corp. idea, might be able to spend money as required to meet the needs of the ~rogram, and they might do it more efficiently than a government body could, enlisting at the same time the support and money of private industry. I suspect that without the terrible restrictions of a government agency this type of a quasi-government body, half private and half government, might better adopt the American sales techniques pro- posal to the job of selling America abroad as a tourist country. I suspect somewhere in this area you might find a businesslike approach to this problem. Thank you, Mr. Chairman. May I, before I finish, reply to a question Mr. Curtis raised to someone else before? A part answer to your question of what pri- vate industry is doing abroad is in this task force report on page 19 under "Actions Initiated": "Twelve U.S. trunk and international air carriers"-these are only air carriers-"advised this task force that they are increasing their promotion and advertising budgets outside the United States in 1968. Together they will spend $16.5 billion for PAGENO="0229" 1007 advertising and prt~motion overseas, an increase of $35.5 million over 1967." I don't happen tO have the ship figures. I couldn't find the ship figures in here. Another point on the question you asked about what private in- dustry is doing. When the New York Times published its own Paris edition, which we did for nearly 6 years, we published five times a year special visit U.S.A. sections. I know about them because I had to get them out here in America. We produced them in New York, matted them, and flew the mats to Paris where they were printed as part of the Paris edition. This was strictly a private enterprise operation. The Times did it ostensibly to make money. Obviously we didn't make much money on it because they shut down that operation after a few years, but the advertisements in it were from private enterprise and from some foreign governments. Mr. ULLMAN. Thank you very much, Mr. Friedlander. I know Mr. Curtis has some questions, and I just want to make a comment. When I first introduced the "See the U.S.A." resolution, I received considerable adverse criticism from travel writers around the country as being a rather provincial approach to our balance-of-payments problem, but subsequent to that time there has been, I think, a con- siderable shift of opinion among the travel writers. I am pleased now that you are advocating an extension of this approach. I think it is a very constructive one. I would merely ask you this one question: In your pages in the New York Times what percentage of your space is devoted to travel outside the boarders of the United States as against inside? Mr. FRIEDLAND~E. Mr. Chairman, I have never run a measure on that. I am not sure. You are including Canada, Mexico, and Latin America as outside? Mr. ULLMAN. I would rather just include the borders of the United States and its territories. Mr. FRIEDLANDER. I am guessing. I would have to make a measure. I would say over the years we probably run 70 percent editorial space on the domestic and Hawaii, Alaska, American Virgin Islands, Puerto Rico, and probably 30 percent, or 75-25 percent. I could well be off there, but that is roughly the ratio. Mr. ULLMAN. That is very interesting. I ~had the impression that it would be reversed in yourpages. Mr. FRIEDLANDER. Last Sunday we put out our big international section. That ran about 56 pages. This was our big international effort. Those 56 pages were all foreign. That same Sunday we also got out a 20-page domestic section, which was just United States. I don't think that even included Canada. But the rest of the year, the other 51 weeks of the year, the predominance is domestic. Mr. ULLMAN. That is good. Mr. Betts. Mr. BE~rrs. Mr. Friedlander, do I understand from your remarks here that you would be opposed not only to this particular proposal but to any travel tax? And I ask that because in your presentation one of your objections was you felt it would be impossible to administer, PAGENO="0230" 1008 and I hear rumors that there may be some move to simplify this tax to maybe something like a head tax I would just be interested to have your comments as to whether you are objecting to going to any type of travel tax. Mr FRIEDLANDER Yes, I do, on a philosophical basis I think there ought not to be any barriers to the free movement of people I want our people to see the rest of the world, and conversely and even more emphatically, I would like to have the rest of the world see us because we have something to sell here You cannot convince me that anyone from behind the Iron Curtain who spent a couple of weeks in the United States would not go home convinced that we didn't have a lot mm e here than they have there This is our biggest asset I think we have done a very weak job of selling I don't think you can convince people to come on over and see What we have if you put any barriers in front of them and in front of us. In that connection, President Johnson proposed the other day in a letter to Congress that you eliminate the visa restriction and that we reciprocate. I think this is a long-overdue proposal. I would like to endorse this 100 percent Anything that stands in the way of the free motion of people, impedes the free movement of ideas, I don't think we can afford that Mr. TJLLMAN. Mr. Curtis. Mr CURTIS Just on that point do you feet that one of our big problems is these barriers that exist in the visa area Are there any others ~ This visa problem has been pointed up to the committee along with other problems Are there any other barriers that you think of that might be removed that are interfering with people coming to this country ~ Mr. FRIEDLANDER. Yes. I think Government could do it very easily. We could do something about it much more convenient physically and much happier in the welcoming of people into the United States at our gateways I think that we don't have enough customs inspectors, I don't think we have enough immigration and health people at the ports, to handle the flow of traffic at the peak periods The facilities in which these men work, I think, are abominable in many respects New York's Idlewild or Kennedy Airport is a disgrace at peak loads Remember, this is the first image people have of the United States, and those piers on the North River in New York City are a disgrace, freezing cold in winter, beastly hot in the summer, no place to sit down With the conditions these men work under, the cannot possibly be expected to treat these people as the should. The men, themselves, are working under terribly difficult conditions There is also, I think, the question of, once the people get in this country-of course, you are talking about barriers by the Government Mr CURTIS Yes, I am thinking of what government can do, like in this visa area. I know some people have told me that people: in certain sections of Europe still think that they have to be finger printed, that there are a lot of questionnaires that they have to go through. Another group was telling me that when they were planning con ventions of various organizations in this country, they might find someone who is a Hungarian or Rumanian or Czech as one of their officers Then they couldn't come so they canceled the convention PAGENO="0231" 1009 Mr. FRIEDLANDEIi. That is a very important point you make, Mr. Curtis. We have lost a great many conventions to Montreal, Quebec, and Toronto because the scientific meetings of physicists and the like will have men from behind the Iron Curtain, and they have not been able to get visas. They have had to wait weeks and months to get their visas. This is something that government could move on immediately. If the President's proposal is adopted, this would include, I should think, automatically Bulgaria and Yugoslavia, which last year abol- ished the need for a visa for American citizens. So it would seem to me their scientists would be allowed to come in. Mr. `CURTIS. It seems to me we need to make a bigger distinction than we apparentiy do between people who are coming over in package visits, conventions, or short-term things, as opposed to what has been so much of our traffic before, that is people coming over as immigrants. There you have, of course, a lot of reasons for long forms and paper- work and so on, but apparently we haven't made this big distinction in the amount of paperwork between people who are just going to travel over here and those who plan to live here. I don't know enough about this, and I am just asking if this is true. Mr. FRIEDLANDER. I think you are quite correct. The Europeans do it differently. If you are going over to Europe to live, you have to have certain working papers. If you are goinng over as a tourist, you need nothing but your U.S. passport. Mr. CtrnTIs. Yet some people have said to me that one reason that the European countries don't require so much is because every hotel- keeper inspects you passport. He has it there and the local police have it. Over here we don't have that kind of system and supposedly we save them all that trouble by asking the questions ahead of time. I was interested in your feeling that this is an area that we need to move on. Apparently the administration is moving, I think, possibly as a result of some of the testimony that has come out in these hearings which have been going on. We have to go on over to the House session now. Thank you very much for your appearance. Mr. FRIEDLANDER. Thank you. Mr. TJLLMAN. Thank you, Mr. Friedlander. You have been very helpful to the committee. The Committee will stand adjourned until 10 a.m. tomorrow. (Wherupon, at 1~: 37 p.m., the committee adjourned, to reconvene at 10 a.m., Friday March 1, 1968.) PAGENO="0232" PAGENO="0233" ADMINISTRATION'S BALANCE-OF-PAYMENTS PROPOSALS FRIDAY, NARCH 1, 1968 HOUSE OF REPRESENTATIVES, CoMMI~E ON WAYS AND MEANS, Washington, D C The committee met at 10 a m, pursuant to notice, in the committee room, Longworth House Office Building, Hon A Sidney Herlong, Jr, presiding Mr HERLONG The committee will be in order The first witness this morning is Mr. Floyd Robertson. Mr. Robert- son, would you take your place at the witness stand please? STATEMENT OF FLOYD ROBERTSON, ASSISTANT TO GENERAL DI- RECTOR, NATIONAL ASSOCIATION OP EVANGELICAL'S, AC'COM PANIED BY REV WADE T COGGINS, ASSISTANT EXECUTIVE SECRETARY, EVANGELICAL FOREIGN MISSIONS ASSOCIATION Mr ROBERTSON Thank you, sir Mr HERLONG If you will please identify yourself for the record together with the gentleman with whom you are associated I will appreciate it Then you may proceed in your own way Mr ROBERTSON Thank you, sir Mr Chairman, my name is Floyd Robertson I have with me the Reverend Wade T Coggins, who is the assistant executive secretary for the Evangelical Foreign Missions Association. During all of his adult life Mr Coggins has served either as a missionary overseas or as a mission executive and he will be available in case you want to ask him questions I serve as an assistant to Dr Clyde W Taylor, who is the general director of the National Association of Evangelicals Dr Taylor regrets very much that he could not be here to make this presentation. We want to express our sincere appreciation for the opportunity to appear before your committee and are grateful for the time you have given us to make a brief statement. Confessing our inability to evaluate the overall issues, we are not disposed to take a position for or against the travel tax program as proposed by the Treasury Department We are grateful for the privilege of bringing to your attention some of the adverse effects such a program would have, unless modified, on the approximately 100 missionary boards we represent, and the 15,000 missionaries serving overseas under those agencies In the ielatively short time since the travel tax program w'is first (iOu) PAGENO="0234" 1012 proposed we have heard from a large number of mission executives expressing concern about its application to the missionary endeavors. These brief comments will reflect a consensus of these concerns and you will note that they are confined to a limited area of the entire program. The Treasury report advocates the continuation of "the exemptions now applicable to the tax on amounts paid for domestic flights" and also advocates the same exemptions from the transportation tax as expanded. We strongly recommend that all missionary personnel on official business representing a bona fide missionary agency in the United States be included in these exemptions. The basic reason for this recommendation is summarized in a brief quotation from one of the letters we received this week and I quote Within the groups we represent there are approximately 15 000 missionaries and missionary executives who are doing people-to-people and Peace Corps-type work at no cost to the government On the basis of the good will these people are generating and the appreciation for our country created by them we certainly have an argument for exemption if anyone does. Mr Chairman, you will recognize this as a biased position but we sincerely believe it is fully justified not only by virtue of our current involvement, but by past experience. I was a career officer in the Navy. We were with the marines in Guadalcanal in 1942, and stayed with the U S Pacific Fleet until we reached the Philippines in 1945 I am not `it liberty to tell you how much the past activities of our misslon'iries in that part of the world became a material asset in winning the battles of the South Pacific, but I would suppose that several members of this committee are not without knowledge in this area. It requires only a moment's reflection to realize the value of our missionaries in our current situation in Southeast Asia As important and essential as military victories are in their place, we all recognize how vain and futile they are if this is all we have Indeed the same might be said about economic battles which are the issues under consideration here We submit to you, sir, that the by product of our missionary endeavor inevitably contributes to the best interest of our Nation and its security on a scale far greater than any dollar drain it may create. On the other hand, we fail to see how the granting of such exemp tions to missionary personnel would significantly hinder the travel tax program Even if it could be demonstrated that it would be desirable to apply the tax in occasional cases the total number of missionary personnel involved is too small to make a material difference. Some of our member agencies have expressed concern about the effect o~f the proposed tax program on the ministry which we know as "short-term service." These "short-termers" go as official personnel of the mission to replace temporarily `iregul'tr missionary or to sui pie ment his work This problem would be met by a general ex~ rnption on official travel by missionary org'tnizations Otherwi'~e the ext~ `1 Cx pense involved would be almost prohibitive in some cases severely cur- tailing some programs In another letter received this week, an intei esting comment is m ide pointing up the fact that the missionary wifl not escape some of the consequences .of the travel-tax program in any case,. and it would be a double hardship' on missions if missionary personnel are subjected to the tax. This statement is made: "Nations affected would undoubtedly take some retaliatory action to offset the loss of sales to persons vaca- PAGENO="0235" 1013 tioning and sightseeing in their countries. The missionary in the country would most likely take the brunt of this." Missionary personnel would be affected by the proposed change in customs allowance per trip, but since this would not limit our essential functions or operations, we interpose no objections. Whether it is ~ ise or not will have to be left to the judgment of the legislators. The tax on daily living expenSes is another matter. Since missions personnel travel on a frugal budget the exemption amount of $7 per day would suffice in most cases. By the same token, in circumstances where it was necessary to exceed this amount, the tax would make it all the more difficult to meet expenses; yet the contribution to the objective of the travel-tax program would be virtually nil. In summary we are urging the exemption of official missions per~ sonnel from both the transportation tax and the expenditure tax. A valid consideration is the possibility of abuse if missionary per- sonnel are exempted. We do not feel this would be a serious pr6blem, but recognize that safeguards might be desirable. One way to do this would be to place a ceiling on the annual expenditure for overseas travel by each missionary agency based either on its total budget or the number of missionaries serving outside the United States. More investigation would he required to determine which would be the most equitable and feasible to administer. Mr. Chairman, we will be pleased to answer any questions you or the members of your committee have about the testimony we have presented. Mr. HERLONG. Do you have any questions, Mr. Utt? Mr. TJ~rr. I have none, no. Mr. HERLONG. I would like to just say thank you for this statement, sir. I for one am aware of the wonderful work that the missionaries did do prior to World War II to make things easier for a lot of our people who' were over there. You are certainly to' be complimented on that and in my judgnient you `did a great deal and you have done a great deal niore for many of these countries than all the foreign aid programs put together have done. I just want to compliment ~ou and tell you that I appre&~iate the con- structive suggestions that you made in this statement that you have given us. We shall certainly look carefully into it. Thank you both very much. Mr. ROBERTSON. Thank you, sir. Reverend COGGINS. Thank you, sir. Mr. HnRLONG. The next witness is Mr. Leon 0. Stock. Mr. Stock, do you have a statement. STATEMENT OF LEON 0. STOCK, PEAT, MARWICK, MITCHELL & CO., `ON BEHALF OP H. L HEINZ, CO., STAR-KIST FOOD'S, `GENESCO, INC., OLIN MATHIE~SON CHEMICAL CORP., ATLAS CHEMIcAL CORP., STATES MARINE LINES, STANDARD' PRESSED STEEL CO., TItE GILLETTE CO., MAX FACTOR & `CO., AND DATA PROCESSING FINANCIAL & `GENERAL CORP. Mr. STocx. No, sir. Mr. HERLONG. You just want to speak- Mr. SPOOK. Just a few words. PAGENO="0236" 1014 Mr. `HERLONG. All right, sir. Will you please first identify yourself for the record. Mr. STOCK. Mr. Chairman, my name is Leon 0. Stock. I am a prin- cipal in the international accounting firm of Peat, Marwick, Mitchell & Co. I am here today on behalf of the following corporate clients: H. J. Heinz Co., Star-Kist Foods, Genesco, Inc., Olin Mathieson Chemical Corp., Atlas Chemical Corp., States Marine Lines, Standard Pressed Steel Co., the Gillette Co., Max Factor & Co., Data Processing Financial & General Corp. Mr. Chairman, I believe that remedial action is required by this committee to overcome the damage which I anticipate as the result of the recently promulgated regulations by our Department of Com- merce, specific'dly, the regulations dealing with the mand ito~ ~ iep'ttri ation of profits. I am not here to quarrel with mandatory repatriation as such. However, I do believe that it is entirely wrong for the Department of Commerce to provide for mandatory repatriation of profits on a U.S. taxable basis. It is my understanding that we are confronted with a dollar problem and not a tax problem, and the dollar problem can be resolved through a repatriation without taxation. The current regulations of the Commerce Department provide that to the extent that foreign profits are required to be repatriated to a U.S. parent company, the foreign subsidiary shall transfer in dollars those profits to a bank account in the United States in the name of the parent company. Now, any time a subsidiary transfers funds to a U.S. parent com- pany you have a dividend. That dividend consequently means U.S. taxation. Now we could have just as easily had the dollars return home by simply providing, amOng other things, that the foreign subsidiary shall transfer amounts representing its earnings to a U.S. bank account in the name of the foreign subsidiary itself and the foreign subsidiary would agree that the funds so transferred to a U.S. bank account will remain in that account for a period in excess of 12 months and cer- tainly not to be removed or withdrawn before the expiration of the Commerce Department regulations and our dollar crisis. Now, if the transfer were made for a period in excess of 12 months, then for the purpose of our balance of payments position no foreigner has a short-term claim against the United States. As such this de- posit would represent a dollar inflow and would enhance the position of the United States in terms of balance of payments. Now, there are other ways in which the dollars could be returned home without taxation. So we on the outside are asking ourselves: Do we have a dollar problem, or do we have a tax problem? If we have a tax problem, then it would appear that the problem belongs here and not in the Department of Commerce. I respectfully submit that the tax impliçcations arising out `of the regulations promulgated by the Department of Commerce are in direct contravention of the Revenue Act of 1962 which prescribes the `rules for the taxation of overseas earnings. Let us consider just for 2 or 3 minutes the effect of this regu- lation if it is permitted to continue. A typical case would he an un- PAGENO="0237" 1015 developBd country such as the Republic of Ireland In order to in dustrialize the country, attract foreign capital, foreign know how, and provide job opportunities for their people, they necessarily have to offer tax incentives and cash grants An American company enters the Irish picture by establishing a manufacturing subsidiary in Ireland It assumes all the risks and all the hazards that go with an undeveloped country because of the tax incentive This regulation would require that Irish subsidiary to ship back all or most of its profits to the American parent company where it would be taxed, United States wise The Irish exemption, accord ingly, would be completely nullified by the U S tax and in a sense we have the ridiculous position of an undeveloped country like Ireland granting the equivalent of foreign aid to the United States by waiving their tax in favor of the American tax Now, the net effect must be that these subsidiaries already in Ireland will find ways and means of engaging in expansion, perhaps ill advised and premature expansion, in order to avoid repatriation and un- necessary taxation. With regard to the developed countries, let's take a country like France The American company has a subsidiary in France The French subsidiary pays 50 percent corporate tax It is now required to repatriate French profits to the American parent company and in the course of that repatriation, as required by the Commerce Depart- ment iegulations, the French will assess `i withholding tax of 15 per cent on the repatriated amount That 15 percent only serves one pur pose It enhances the French treasury to the deti iment of the United States and the taxpayer Now, there is no reason why French profits can t be put on deposit here without taxation in the name of the French subsidiary under terms which will make it mandatory for those dollars to remain here during the period of our crisis Gentlemen, to conclude my discussion, I think that when this corn mittee initiated the Revenue Act of 1962 and provided favorable provisions for undeveloped countries, you must have had in mind in part the fact that if foreign capital, American capital, helps to in dustriahze the undeveloped countries, we, the United States Gov ernment, will have to provide that much less foreign aid The Commerce Department regulations run directly counter to that philosophy as reflected in the Revenue Act of 1962 To conclude, we on the outside are very much puzzled by what would ~ppear to be `t rather callous indifference on the part of our Treasury Department to a regulation that has heavy tax overtones such as the one we are considering here The Treasury Department says, "We didn't promulgate this regu lation Thei efore, it is not our responsibility" But I can't conceive of a treasury department anywhere in the world not being concerned with a measure which in essence is a tax measure, and for this reason, gentlemen, I think that this committee must consider the problem and help get it resolved Thank you Mi HERLONG Thank you very much, Mr Stock, for your very forthright presentation. I for one appreciate the problem that you have and I am sure Mr. Utt does too. PAGENO="0238" .1016 Do you have any questions, Mr. TJtt? Mr TJTT I have no questions I want to say that I agree that foreign investments are the oniy ones that bring back money into the United States, or eventually when the dividends are repatriated, and that there should not be a mandatory repatriation just in order to get another tax bite Then of course it is going to force you to borrow again in foreign markets at a higher rate of interest and use dividends for expansion Mr STOCK Sir, I might add in addition to what you just said that 4 or 5 ~ eeks ago I had a meeting with the Assistant Secretary of the German Treastiry and he took occasion to tell me that his gov ernment was very much concerned at the fact that German industry ~s as not exporting enough capital so that one day the flow back of foreign exchange on foreign investments would not be forthcoming to Germany~ They were doing everything in their power to encourage German industry to establish subsidiaries outside the country. He said, "Your restrictions on overseas investments we find rather pleasing because it enhances our opportunity for German industry to go out and get a foothold in various countries." And I might add that the Government of Ireland, with whom I took this matter up about 5 weeks ago in Dublin, is understandably very much alarmed because their progi `tm will go right down the drain if repatriation is not permitted on a nontaxable basis. Mr. HERLONG. Mr. Burke will inquire. Mr. BURKE. Do you know what the business community abroad or foreign governments think of the repatriation requirements? Mr. STOCK. The Irish Government representatives with whom I dis- cussed the regulations in Dublin are concerned as to the effect they may have on their industrialization program, particularly the U S tax on repatriated profits. Our offices in Eurol?e have made the point that the taxable nature of the repattiation requirements will serve to enhance foreign tax reve nues through the withholding of taxes Mr BURKE Should not a foreign subsidiary which is free of foreign taxat1on be required to distribute its foreign earnings not needed in the business and pay U.S. tax? Mr. STOCK. In the case of an underdeveloped country in which the business risks and hazards are great, tax incentives must be. offered. A requirement to currently distribute dividends would simply serve to nullify the benefits of the foreign tax incentives. Thus, U.S. capital would simply not he attracted to the less- developed countries desperately in need of foreign capital and know- how The Revenue Act of 19~ reflects an understanding of these underdeveloped countries' needs. Mr HERLONG Thank you very much, sir We appreciate it Mr. STOCK. Thank you, sir. Mr. HERLONG. The next witness is Mr. Evan L. Krogh. is Mr. Krogh here, K-r-o-g-h? If he isn't here the next witness is Mr. Ed Hall. Mr. Hall, we know you well; but for purposes of the record would you please identify yourself and proceed u'~ your own way? PAGENO="0239" 1017 STATEIV[ENT OP LVAN S. BALL, PREEDO1VI, 11W. Mr. HALL. My name is Evan S. Hall, secretary and chief engineer of the Freedom, Inc., Farmington, Conn. I brought down two state- ments. The longer one I would ask to be put in the record. Mr. HERLONG. Without objection that statement will be included at this point in the record. (Mr. Hall's prepared statement follows:) STATEMENT OF EVAR S. HALL, SECRETARY, FREEnOM INC. (Summary by Milton Friedman) "How low we have fallen! The United States, the land of the free,~ prohibits its businessmen from investing abroad and requests its citizens not to show their faces or open their pocketbooks in foreign ports. The United States, the wealthiest nation in the world, announces that its foreign policy will no longer he deter- mined by its national interest and its international commitments but by the need to reduce spending abroad by $500 million . . . less than 1 percent of total con- siimer spending. . . . The President has not hesitated to recommend tOtal Federal expenditure approaching $200 billion." Travel tax red tape will prevent people from traveling abroad more than it will raise $500 million revenue which, after all, isn't a pint in the whirlpool. The President's Balance-of-Payments Program starts from a false assumption (worry- ing about the wrong deficit) and is unnecessarily complex and pitifully inade- quate. It will not stop our creeping inflation (from budget deficits) from running away to ruinous inflation. What will? Our trouble starts from a policy mistake. Our economic policy has been deficit spending of credit created by banks as they "monetize" the bonds, to achieve adequate economic growth and almost full employment with "reasonable price stability". This "reasonable price stability" is a fraud, just another name for price inflation. Inflation doesn't just happen; it is a crime committed by Govern- ment. Inflation caused the free-market price of silver to exceed the coin value, inviting people to profit by hoarding silver coins causing them to disappear. Prices now are about three times what they were in 1934 when the commitment was made to buy gold from, or sell gold to, foreign governments and their central banks at $35 an ounce. Reducing the buying power of the dollar to about one- third what it was in 1934 invited France and other nations to profit by trading their inflation-weakened dollars for gold from our reserve at $35 an ounce, caus- ing half our $26 billion gold reserve to disappear. Foreign claims of $33 billion on the remainiflg $11 billion are still outstanding. What ought we to do? Reduce the $3.5 billion balance-of-payments deficit? No. We must reduce the budget deficit to zero, to restore and then maintain the buying power of the dollar, and achieve free-market price stability as a solid monetary and fiscal framework within which economic growth and employment will surpass the record of the past seven years. Congress has the power to manage money in a way that will keep the free- market price level stable. Congress has the power; all it needs is know-how and the will to act. Economists or not, anyone familiar with elementary algebra knows that ______ the number of DOLLARS spent = average commodity PRICE the number of units of COMMODITIES paid for = free-market PRICE level If Government could raise the numerator, dol1~rs, nit the same rate that business raises the denominator, Commodities, the value of the ratio, Price, would be stable. But how? Neither the Federal Reserve (with monetary measures) nor the Administra- tion and Congress (with tax and fiscal measures) can predict and deal correctly with the velocity rate of turnover of dollars being spent next year-or next week. We need an automatic governor which, if the free-market price level rises, will raise the rate of a tax on the national income, taking dollars out of our personal pockets and reducing the demand for commodities-and conversely-making the free-market price level stabilize itself. Automatic free-market price stability! All we need is a law that will untax business and apply the incentive of profit (and risk of loss) to all concerned (employers, employees, and the tax collector), a law that will: PAGENO="0240" 1018 (1) Enable employers (instead of withholding and paying income and employ- ment taxes under the Internal Revenue Code of 1954 as `amended) to withhold a single tax on profit, `salaries and wages. Broadest tax base (national income) insures lowest rate. (2) Raise (or lower) the tax rate automatically `as the free-market price level rises (or falls) and issue limited amounts of new money (currency and deposits) to raise the quantity of money as business raises the quantity of goods, to restore and maintain the buying power of the dollar and establish free-market price stability (and to overbalance the budget and reduce the bank-held debt). The dollar will return to its position `as the internationally accepted money unit and capital reserve good as gold at $35 an ounce; the drain on our gold reserve will cease and gold will flow in. Our competitive position in world markets and balance of payments will improve. With a strong and `stable dollar, contracts will be valid and the same pay will buy the same or Jetter living year after year. (3) Pay the balance of profit after tax (or the loss), partly in cash dividends and partly in business property ownership credited (or charged if a loss), to the owners in amounts proportional to their several business property and per- sonnel ownerships as measured by their respective `amounts of money i~nvested (book value) and ye'ar's pay. Comparisons made from annual reports show that, in a profitable business, whether you are an employer (an owner Of business property) or an employee (the owner of yourself, a part of business personnel), you will get your part of profit ~nd may pay a higher tax, yet the change to this single-tax law will pay you a take-home raise. (4) Pay government employees an after-tax "dividend" added to their pay, from and in proportion to the `billions they save `and return to the Treasury. They will work more efficiently, reduce waste, and spend less. (5) Let the needy change from partial to total security, adequate cash aid added to their other incomes, if any, to enable them to buy food, clothing and housing, plus payment of all their medical bills, locally administered by social workers and the clergy, and paid from income-tax revenues. No accounting overhead. Lowest cost. Free-market medical care for all. Total security. When employers and employees are limited partners receiving their parts of profit or loss, they will all try to increase profit and prevent loss. No strikes. Dividends on the ownership of business property (stock) acquired by employees reinvesting part of their profits will care for seniority and retirement in the natural way. No need for pensions. When income distribution is just and cur- rently complete, we can buy all the capital goods and consumer goods in the free market as fast as we produce them. Ever-normal inventories. Continuous employment. No recessions. For civilization's basic economic problem, income distribution: the right answer. An example of strikeless and steadily growing prosperity in partnership capitalism will shine with a light so bright it will pierce the iron-bamboo cur- tain and expose K'arl Marx as a quack. Communists `and other socialists will be left without a mission, left with no "wage slaves" to "liberate", left with nothing to fight for. Their "wars of liberation" will collapse. We can lead the world toward peace. Mr. HALL. And the shorter one I will read and comment upon. Mr. HERLONG. Do you have a copy of the statement for the record? Mr. HALL. Everybody has them. Mr. HERLONG. I didn't see it here. Mr. HALL. There are two statements. The one is on both sides of one page-that is a two-page statement-and the shorter one is only one page. Mr. HERLONG. Thank you. Mr. HALL. Let's go through the shorter one and I may have some comments on the way. Travel tax red tape will reduce travel rather than raise $0.5 billion revenue. Investment restrictions are self-defeating. The 10-percent surtax is simple but inadequate. The $3.6 billion balance-of-payments PAGENO="0241" 1019 deficit would take care of itself if we would eliminate the $8 to $30 billion budget deficit. We worry about the wrong deficit. And doing nothing now will impose more of the top-rate surtax, ruinous price inflation. Inflation caused the market price of `silver to exceed the coin value, inviting people to profit by melting silver coins, causing them to disappear. In similar fashion, inflation caused the real price of gold to exceed the price fixed in 1934 `by our commitment to buy gold from, or sell gold to, foreign governments at $35 an ounce, inviting France and other nations to profit by trading 34 30-cent dollars for a $35 ounce of gold from our reserve, causing half our $26 billion gold reserve to disappear. Foreign claims of $30 billion on the remaining $12 billion are still outstanding. Technically, we are broke,' and a lot worse than broke. Our trouble stems from a long-continued economic policy mistake (unlimited deficit spending of credit created by banks as they "inone- tize" the bonds, to achieve economic growth and full ~employment with "reasonable price stability"). This "reasonable price stability" is a fraud, just another name for pr~ce inflation. I might put in here that a wise and honest government would never tolerate inflation. It would manage its money ma way that would keep the free-market price level stable. Congress could, and should, manag~ money in a way that would keep the free-market price level stable. `Anyone familiar with ele- mentary algebra knows that the number of dollars spent divided `by the number of units of commodities paid for is equal to the average commodity prióe and that can be equal to the free-market price level. If Government could raise the numerator, dollars, at the same rate that business raises the denominator, commodities, the value of the ratio, price, would be stable. Now, as a matter of fact, for the last several years by deficit spend- ing without any limitation on it we have been increasing the money supply of the country at about 12 percent a year, while business has been increasing the supply of commodities about 5 percent a year. This is the cause of price inflation. It is money infiatioh, the cause of price inflation, and no govern- ment should do that. If we had a stable price level just think what that would mean? We could plan and invest and save with confidence in the future value of the dollar. Contracts would be valid and the same pay would buy the same or better living year after year. We wouldn't have any of this trouble. We wouldn't have lost any gold. We wouldn't have lost our silver coins. We wouldn't have im- posed the cruelest tax of all on the poor-price inflation. It is the duty and responsibility of any government to maintain the value of its money substantially constant. Neither the Federal Reserve (with monetary measures) nor the' Administration and Congress (with tax and fiscal measures) can predict and deal correctly with the velocity rate of dollars being spent next year-or next week. We need an automatic governor which, if the free-market price level rises, iriul raise the rate of a tax on the national income, taking dollars out of our personal pockets (reducing the value 89-749-68--pt. 3-16 PAGENO="0242" 1020 of the ratio, price) -and conversely-making the free-market price level stabilize itself. Automatic free-market price stability; never, no more inflation, no deflation All we need is a law that will enable employers (instead of with- holding and paying income and employment taxes under the Internal Revenue Code) to withhold a single tax on profit, salaries and wages; and issue limited amounts of new currency to raise the quantity of money as business raises the quantity of goods, to restore and main- tain the buying power of the dollar and establish free market price stability as a solid monetary and fiscal framework within which economic growth and employment will surpass the record of the past 7 years. Overbalance the budget and reduce the debt. Pay the balance of profit after tax (or the loss), partly in casl~ :dividends and partly in business property ownership credited (or charged if a loss), to the owners of business, giving the employers and employees a take-home raise TJntax business. When you have a tax on gross personal income you are not taxing business at all You tax profit once as it is distributed to the individuals, to the owners of business You don t tax it twice TJntax business. Stop warping business decisions with taxes. Apply the incentive of profit. (and risk of loss) to all concerned (employers, employees, and the tax collector). Give everyone a personal stake in high profits. Set an example of strikeless and steadily growing pros- perity Communists and other socialists will be left with no "wage slaves" to "liberate," left with nothing to fight for. Their "wars of liberation" will collapse. We can stop communism something you can't do by military force, and lead the world toward peace. "To assure the integrity of the dollar at home and abroad" the committee in executive session could vote for the chairman to introduce the freedom t'tx bill now and set up hearings on it Mr HERLONG Thank you, Mr Hall I would like to comment simply that I think we have been shooting at the wrong deficit all the time too and we could get some help from that area if we could persuade some people not to spend so much money. Do you have any questions, Mr. IJtt? Mr. TJrr. No, sir. Mr. HERLONG. Thank you very much. We appreciate your contribu- tion to the committee Mr HALL Do you realize that I have in this bill of mine without repeaking the Internal Revenue Cod~ taken all the complications out of it? This bill begins "Every employer, instead of withholding and paying taxes and income and employment taxes under chapters 1, 2, 3, 6, 21, 22, 23, 24, and 25 of the Internal Revenue Code of 154, as amended, shall withhold a flat percentage on profit, salaries, and wages and pay the balance of profit after tax (oir the lOss) to the owners of business the property owners and the personnel owners, in amounts proportional to their respective a~mounts of money invested and year's pay." Mr. HERLONG. Thank you very much. May I say at this time that there have been a number of other state- ments that have been filed with the committee for inclusion in the PAGENO="0243" 1021 record, so without objection they will also be included in the record following the testimony that has been given. This completes the hearing schedule on the current balance-of-pay- ments proposals submitted by the Treasury Department. The record of the hearings will remain open for the submission of any data and so forth which has been requested until the close of business on Friday, March 8, 1968. When the committee adjourns today we will adjourn to meet again on Wednesday, March 6, 1968, at 10 a.m. in executive session on this subject. The committee will now stand adjourned until next Wednesday morning. Thank you, all of you.. (Whereupon., at 10:33 a.m., the committee adjourned.) MATERIAL RECEIVED FOR THE RECORD CONGRESS OF THE UNITED STATES, Housn OF REPRESENTATIVES, Washington, D.C., March 6, 1968. Hon. WILBUR MILLS, Chairman, Committee on Ways and Means, house of Representatives, Washington, D.C. DEAR Ma. CHAIRMAN: I am writing concerning the President's travel tax program which was recently presented to the distinguished Committee on Ways and Means. All of us, as representatives of the people, share with the President deep concern over our balam~e of payments deficit. I feel an obligation to join in the quest to reduce this severe deficit. I have attempted to carefully review this complex proposal and to carefully assess testimony offered to your Committee. specifically in terms of the effect of this program on low and middle income persons and elder citizens, If we are going to accept the Administration's travel tax program, then I believe it is essential that we broaden categories specifically to exempt such groups as elder citizens over 65 years of age. Americans work hard all their lives so that they can enjoy the benefits of retirement. This includes the right to travel, perhaps even to visit their ances- tral homeland. It is inconceivable to me that these elder citizen~ should be required to ~ay any expenditure tax. I have carefully studied travel figures and costs, and I can see no significant benefit being derived from including older Americans under this program. Such inclusion may indeed prohibit a disproportionate number of retired citizens on fixed incomes from enjoying travel opportunities. For instance, using the latest passport figures, approximately 150,000 older Americans annually travel outside the Western Hemisphere. Based on average daily expenditures of $143.73 as outlined by the Secretary of the Treasury before your Committee, this means citizens over 65 will pay around $8.5 million an- nually in expenditure taxes under this program. This is a paltry amount when you consider savings under the expenditure tax program have been placed in the neighborhood of $250-$300 million and when you in turn consider the restrictive effect that it would have on elder citizens. The proposed travel tax program also contains a provision exempting students for educational purposes, if lie spends at least 120 consecutive days abroad. The provision includes students enrolled full-time at a foreign educational institution and those engaged in full-time educational activities related to a course of study in the United States'. In my judgment, students pursuing educational activities overseas for any length of time should be exempted from the travel tax. I urge the Committee to drop the 120-day provision. I also believe that greater effort should be made to encourage foreigners to visit our country. To achieve that end, we must strengthen our travel promotion program. The plan to offer "travel stamps", which I co-sponsored, is a positive PAGENO="0244" 1022 move to induce foreigners coming to the United States for the first time. In addition, I believe the recommendation of the Task Force on Travel should be carefully reviewed. Such policies would not only help to equalize our balance of payments but might replace the need foi stringent travel restrictions Mr. Ohairman, in considering the Administratiom's proposed travel taxj pro- gram, .1 urge that the Committee on Ways and Means give special attention to the foregoing suggestions. With kind regards, I am, Sincerely yours, LEONARD FARBSTEIN, Member of Congress. CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, Washington, D.C., March 7, 1968. Hon. WILBUR B. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: I am writing to submit for your consideration an amendment to the proposed legislation to tax the foreign travel of Americans. Like you, I am not persuaded that this legislation is either necessary or wise. But if, in your judgment, it becomes necessary to enact this legislation, I consider it important that in so doing the Congress not defeat American foreign policy objectives in the less developed countries. I would like to propose that your Committee exempt from the provisions of the tax any travel under- taken in those countries officially designated by our government as "less developed". You are aware, of course, that President Johnson has-despite the balance- of-payments problem-made special appeals for assistance to the less developed countries. He has~ set up a special category in order to avoid discouraging American investment in these countries. Clearly, he believes it is in our national interest to support the economic growth of these countries. In recent testimony before the Committee on Foreign Affairs, Mr. William S. Gaud, Administrator of the Agency for International Development, stated that the sums spent by American travelers in the less developed countries was- in terms of our international payments deficit-really quite negligible. His~ testimony indicated that the inclusion of the less developed countries within the scope of this legislation would be far more damaging to them than it would be advantageous to the United States. I conclude from Mr. Gaud's statements that exemption of the less developed countries from this legislation would not meet any objections from the Administration and might, in fact,, be strongly endorsed. The legislation in question, as I understand it, already proposes to exempt the Western Hemisphere from the travel tax. My proposal would, in effect, add the countries of Asia and Africa, less those whcih acquire substantial foreign exchange from oil exports. Western Europe, where the overwhelming proportion of American tourist dollars are spent, would not be affected. I appreciate your consideration and I look forward to testifying before you on this amendment at any time. With kind regards, I am, Sincerely yours, LEONARD FARBSTEIN, Member of Congress. STATEMENT OF HON. FRANK HORTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK I wish to thank the Chairman of this Committee for the opportunity to testify on this important legislation. I am here in the first instance to express my firm opposition to the travel restrictions which your Committee is now considering, and in the second instance to suggest that there are far better alternatives to~ these travel restrictions. It is imperative that we resist the urge to choose short term and dramatic answers to problems which require long term solutions. PAGENO="0245" 1023 What we need are workable alternatives which will overcome the serious balance of payments deficit position in which we now find ourselves. Iii my opinion the Pr~sident's travel tax is just such a short term and a negative solution to this serious economic problem. I do not intend to take your time with the many technical objections that can be made to the travel tax proposal. I do not believe that anyone can question the fact that this is a most inequitable tax, and a difficult one to enforce. If this proposal were adopted, we would be in danger of Inducing a "bootleg" era with respect to travel abroad. 1 wish to stress also that the proposed restrictions are wrong in principle. It has long been a cherished freedom of the American people that they have a right to travel freely without undue restrictions anywhere in the world-that is, anywhere in the world except in those very few danger spots where their lives or property are in clear jeopardy. Let us not forget that every time an American goes abroad he becomes an ambassador of our way of life. Not only does he get a better understanding of the needs, the way Of life and thinking of the people he meets, but they, in turn, get a better appreciation of our country. This is a benefit that we should not lightly toss aside. If we were in the position where such a proposal would either settle or be even a major step towards the solu- tion of our balance of payments problem, then I feel that the people would be willing to temporarily relinquish this "cherished freedom". But this is not the case. Amiy restriction of this nature would only serve to destroy the image of the economic leadership we have built with our investments abroad and this factor could hurt our balance of payments more severely than any returns a travel tax could realize. I admit, of course, that the President's proposal does not prohibit travel abroad but merely places a tax on such travel. This is true for those who can afford the tax, but this is not true for those Americans who have scrili1ped and saved a lifetime for a trip abroad, or for students and educators whose travel and study abroad is important to a nation which is the leader of the free world. For the first time in the history of our nation American banks are acting as international financial institutions. By enacting a travel tax of this type we would he admitting that we do not have the financial leadership capable of finding equitable .solutioiis to our balance of payments problem. We might learn a lesson from Britain, or Canada which, in the past resorted to travel restrictions as a solution to their balance of payments problem and subsequently abandoned them. I am strongly opposed to these taxes because they constitute a direct slap in the face to our foreign partners with whom we, after many months of effort, successfully negotiated the Kennedy Round. You will recall that the President in his Economic Message of February 1 stated, "The Kennedy Round was com- pleted on June 30, the most successful multilateral agreement on tariff reduction ever negotiated." He continued, "We will continue to work with our trading partners in the GATT and in other bodies to find new approaches to the liberal- ization of world trade with urgent consideration given to known tariff barriers." I think it completely inconsistent to consider the travel component of our balance of payments deficit apart from exports and imports of goods. Surely the purchase of a plane ticket is in principle no different from the purchase of a foreign automobile. There is hardly a foreign owned airline that is not spending many times more money in the U.S. than it receives from the passage of Amen- cans going abroad. Do we expect American planes to fly to Europe empty to pick up European passengers bound for our shores? It is foolish to believe that we will be able to attract an increasing number of foreign visitors to this country at the same time that we are putting formidable roadblocks in the path of our own people who wish to travel abroad. Furthermore, I would like to add that I think it highly probable that even our own American carriers-both airlines and the mnerchant marine carriers-are likely to suffer. It seems unwise to design programs to increase the operating differential subsidies we pay for our merchant ships when they are engaged on regular trade routes to Europe, and at the same time take action which threatens their revenues. I am certaIn that it has occured to the members of this Committee that the imposition of such a ProPosed tax would invite retaliation from those countries that would be affected. Why should we endanger the economics of our staunch PAGENO="0246" 1024 European allies for whom the tourist business is a vital ingredient of economic stability and growth? We have witnessed the efforts of the Bri~ish to put their economic house in order by means of a painful devaluation. We find ourselves partially in this present economic difficulty because the Administration's financial advisors failed to come to the realization that the devaluation of the pound was inevitable. Regardless of the fact that our support of the pound was one of the factors which caused our present economic crisis, Britain has every reason to expect that the reduction in the cost of travel for Americans and other foreigners in the British Isles would mean a healthy spurt to the tourist business in Britain So too for countries like Ireland Italy Greece and Norway which would be severely hurt if these taxes have the effect they are designed to achieve Does it ra'tionally follow that America would on the one hand put the stability of the dollar on the line in support of the pound in crisis and then turn around and intentionally destroy one of the prime incomes that Britain has'? I think it does not and any of these countries which would be drastically affected would be likely to retaliate in kind. ~ ~ 0 In essence I am convinced that the approach of the President a travel restric tions is completely negative I feel so particularly since there are very reasonable and practical alternatives to the tax I think it is much more important to do far more to encourage travel to this' `country, rather than curtailing the benefits of travel abroad to our own citizens Some of these alternatives are already familiar to you You know of the efforts of the United States Travel Service which even Within its modest budget is starting to be very effective Certainly increasin~, appropriations for this agency would do a great deal to attract many more foreigners to our shores and would be in keeping with our past policies I want particularly to call the attention of this Committee to another proposal which I am sponsoring along with 17 other members of the House H R 14779 the Travel Incentive Act of 1068 Under this bill each European tiaveler coming to the United States for the first time would receive from our Federal government stamps worth $100 in transportation and accommodations I am firmly convinced that this incentive could attract at least half a million additional European tourists to this country each year On the surface we might suppose that this hundred dollars per tourist for 500 000 tourists would cost our government $50 million but this is not so The net cost of the program will be zero because of the jobs and income generated by this increased travel to America The total amount of this subsidy to European `travelers would find its Way back to the0 U S Treasury in the form of added tax revenues This bill would benefit both government and privato enterprise It would achieve three worthy go'sls unrestricted travel for our citizens as in the past strengthened international understanding and a decided improvement in the balance of payments It is very disturbing to me to think that the Administration has put forward a proposal of this kind which is in many ways inconsistent which contains so many elements of danger to international goodwill and which actually thwarts a basic solution of the balance of payments problem itself Mr Chairman once again I w ould like to thank you for your careful attention to the testimony which I have offered today in regard to the proposed travel tax I hope sincerely that my views will aid you in making a just and wise decision on this proposal. 0 CoNGREss OF THE UNITED STATES, Housn OF REPRESENTAITVFS Washington, D.C., March 5, 1968. Hon. WILBIJR D. Mii~s, 0 0 0 0 Chairman, Committee on Ways and Means, Hoase of Representatives, Washington, D. C. DEAR MR CHAIRMAN The President s proposed tax on international air fares and travel outside the Western Hemisphere causes me great anxiety. I am espe- cially concerned about the effect the `tax would have on the American Field Service International Scholarship Program As you know this program sponsors the exchange of American and foreign students Thousands of foreign students attend secondary school for one year in the United States living in a. typical home situation and participating in all of the family activities The benefits are long lasting and incalculable PAGENO="0247" 1025 Hundreds of American students receive the benefits from living in another country, and additional thousands participate in a chaperoned summer tour of foreign countries under A.F.S. auspices. Having served as a chaperon for such an education experience in the summer of 1960, I know personally the value this experience has for our students. Under the President's proposal, each of the students would be subject to the 5% tax on air fares, and the summer program tours would be subject to the general travel tax proposal. I believe strongly in the significance of the A.F.S. program and oppose any action which might stall, hinder, or disrupt the program in any way. If the Committee recommends favorable action on the President's proposals, may I suggest that an exemption be granted the A.F.S. program. I am ~tire I speak for the thousands of students, parents and other persons who have seen this splendid program in action. Respectfully, BURT T~. ~ALCOTT, U.s. Uongre~sma'fl. STATEMENT or lION. ED REINECKE, A REPRESENTATIvE IN CONGRESS FROM THE STATE OF CALIFORNIA INTRODUCTION Mr. Chairman, I am deeply grateful for this opportunity to present my views on the taxes the administration has proposed to cut back the deficit in the travel component of our balance of payments. I fully concur with the admin- iStration and, I am sure, with all the members of this committee that the balance of payments deficit is a serious matter and needs Congressional as well as executive attention. However, I am thoroughly convinced that the pro- posals of the administration with respect to the various taxes designed to restrict the travel of Americans abroad are unsound in principle and unworkable in practice. I would urge you to reject them. INCONSISTENT POSITION OF THE ADMINISTRATION From the evidence that has been accumulating in the two months since the President, on January 1, made his appeal to the American people to forego travel outside the Western Hemisphere for the next t~o years, including especially the testimony your committee has already received, it seems clear that the' admin- istration had hardly thought through the consequences of its recommendations. It underestimated that value of travel abroad, both to our own citizens, and to the countries which they visit. It had totally inadequate data on which to deter- mine any kind of equitable and workable expenditures tax. To the best of my knowledge, the administration has even at this date not yet released an estimate of what revenues this expenditures tax is expected to yield. It failed to realize the full extent to which these taxes are contrary to the spirit of the Kennedy Round, and how they are all too likely to revive retaliatory protectionism on the part of those nations who are most adversely affected by a Sharp drop in Ameri- can tourist travel abroad. An ironic sense of the administration's uncertainty, not to say it~ ambivalence of purpose, is reflected in the fact that in the very week that the administration's chief spokesman, Henry Fowler, Secretary of the Treasury, submitted to you the administration proposals, every Congressman received a stack of pamphlets from another agency of government, the Public Health Service, entitled, "1967-68 Immunization Information for International Travel." These were clearly designed to make it easier for Americans to travel abroad, to see that they wOuld be healthy during their sojourn in foreign lands. Handing out this kind of literature for free is hardly a way to tell constituents that your government doesn't want you to travel abroad if it is' not essentiaL A CONSTRUCTIVE APPROAOH TO THE TRAVEL DEFICIT Fortunately there have been rec~nt signs that the administration itself is pay- ing less attention to this negative approach to solving this balance of payments deficit and considering a more positive approach, putting more emphasis on how PAGENO="0248" 1026 we can encourage more foreign visitors to this country, rather than restraining our own people. This is a matter which can involve the welcome cooperation of government and business. Signs of such working together towards a mutually beneficial goal are already to be seen. The President's Business~Government Task Force on Travel on February 19 announced a series of steps which will or can be taken to attract more foreign visitors here. Seven U.S. hotel-motel chains have cut rates for visitors from outside the Western Hemisphere by up to 40 percent. The three largest car rental agencies have cut their rentals by 10 percent for these visitors. If government and regulatory agencies approve, there will be a 50 percent re- duction of domestic air fares and 25 percent reductions in round trip air fares to the United States, as well as reductions on rail, steamship and charter bus fares. If the Congress approves, visa requirements for business travelers and tourists from outside the Western Hemisphere will be waived on trips of up to t~0 days; "hospitality cards" will be supplied them entitling them to discounts on spending in the United States, and permission would be granted them to land at more than one United States port on cruise ships. These steps, together with a possible strengthening and expansion of the United States Travel Service, should, I believe, do far more towards rectifying the balance of payments deficit, and do it positively, than the administration tax measures themselves which attack the problem in an essentially negative way. It would also be constructive to take more active measures to stimulate export of goods from this country, possibly providing businessmen with tax incentives to increase their promotional activities abroad, in order to familiarize potential foreign buyers with American products and their particular merits. s~uciric FAULTS OF THE ADMINISTRATION'S TRAVEL TAX PROPOSALS With the promise of these constructive steps, I do not need to take much more of your time, Mr. Chairman, in pointing out the specific reasons why I believe the Congress would be making a serious mistake if it were to pass these tax measures. I will list but six reasons. 1. The tax represents an effort to restrict the travel of Americans that runs entirely counter to our belief in the freedom of movement and expression of all Americans. It fails to. recognize that Americans abroad are our best ambassadors. International gooths ill and understanding are fostered by the freedom to travel by Americans abroad just as much as by foreign visitors here 2 The tax will hit most severely the low to moderate income tourist the student, the retired, and many with relatives abroad. It will be no deterrent to the wealthy, those whose substantial purchases have the most harmful effect on the balance of payments. 3. Not only the individual students and moderate income traveler, but many organized gioups of students and other cultural groups would be seriously affected by the expenditures tax Such groups uoually plan expenditures down to the last penny taking advantage of group rates at every opportunity so to obtain maximum cultural and educational benefits from their travel. It is clear that the additional expense which this tax will impose will be sufficient to prevent most of these groups from making and planning trips, and will severely curtail the number of participants in other groups The reduced numbers in turn will raise the cost for those remaining in the group, since many travel and accommodation rate reductions depend directly on the size of the group. 4. The tax is counter to the spirit of the Kennedy Round. Travel should not be considered. as an isolated factor in the balance of payments. There is abundant evidence that payments by Americans for passage on foreign air and steamship lines, and to an only slightly lesser, extent within foreign countries themselves, return in substantial measure to this country in terms of purchases of planes, machinery, food, and other commodities and services. If the taxes proposed *by the administration should be enacted, they might perhaps cut down on the deficit in the travel account, but these would be an adverse effect in the export of U.S. goods and services. 5. It is futile to expect that foreign countries would not retaliate against the imposition of a travel tax, when the stability of their economies, in many instances, is dependent on the tourist trade. G. The expenditures tax, a major part of the administration's travel tax proposals, is administratively difficult to enforce and relatively easy to evade. PAGENO="0249" 1027 Customs and Internal Revenue personnel would have to be increased by more. than 1,000 to administer the provisions of the act which require a deposit before departure and a record of expenditures for final computation of the amount of tax due. The pre~.s has already suggested a variety of means by which the would-be traveler could circumvent payment of the tax. We surely don't want to return to a bootleg era, such as we had in the 1920's. CONCLUSION Therefore since these taxes would be an unwarranted infringement in the freedom of Americans, and would invite retaliation, since the purpose of the tax can be achieved far better by the encouragement of travel to this country, and since it would be most difficult to enforce, I respectfully urge this committee to reject the President's travel taxes, and to face squarely the more basic issues in the balance of payrnents dirnculty, those that derive from inflation in his country, and an unduly unrestrained level of government expenditures. CONGRESS OF THE UNITED STATES, BOUSE or REPhESENTA'IIVES, TVashington,D.C., March 8, 1968. Re Proposed Tax on Foreign Travel. Eon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, H 208 Capitol, Washington, D.C. DEAR MR. CHAIRMAN: I would like to offer a few brief comments on the pro- posed tax on foreign travel. It is my understanding that hearings were con- cluded last Friday but the transcript will remain open until March 8. Since a number of witnesses wished~ to appear, rather than take up the Com- mittee's time, I thought a short letter would suffice. It would be appreciated if this letter could be made a part of the record of the hearing before your Committee. Although I know considerable testimony has been received on this point, I would also like to make it clear that I am opposed to taxing the activities of the American Field Service (AFS). Because of the proposed educational exemption for European stays of over. 120 days, the impact would only affect the AFS's summer program. In 1966, 867 (150 of whom were in Latin American countries) students went abroad. This tax if applied to AFS would have a substantial impact on international student exchange. Its implementation would reduce the num- ber of participants, narrow the group to those who could meet the extra expense and place an added burden on AFS funds. In a time when understanding among the various peoples of the world is crucially important, hindering exchange-type programs which allow Americans to live, not as tourists, but as participating members of foreign communities, would appear inadvisable. This is particularly true when the number of Ameri- can students allowed to participate is directly related to the number of foreign students who come to this country. In the 1966-67 school year, 3,107 foreign students came to the United States and 360 American students went abroad. If the reason for these takes Is to aid the balance of payments problem, it would appear imposition on this particular program would achieve the opposite result. It would be my hope that your Committee would lay aside the entire travel tax and instead recommend a substantial reduction in U.S. Government spending abroad. However, if a travel tax is reported from Committee, then I would hope that provision would be made to exempt the AFS and other worthwhile exchange programs from payment of the tax. With best personal regards. Sincerely, ROBERT V. DENNEY, Member of Congress. STATEMENT OF MARVIN L. Escu, A REPRESENTATIVE IN CoNGREss FROM THE STATE OF MICHIGAN My first reservation to the travel tax program stems from its limitation on the traditional freedom of movement that I hold to be basic to the values of any free people. The understanding, tolerance, and vast scope of educational experience PAGENO="0250" 1028 gained through international ~trave1 are self-evident and pricele~ss benefits to our aspirations of individual self development mutual understanding and inter national cooperation. * I feel that this aspect of the proposed travel restrictions deserves intensive consideration-perhaps more consideration than any other single practical or economic argument for or against the program. Although such a tax might well prove to he technically constitutional, the people of this nation and their repire- sentatives in Congress will not accept a severely restrictive tax on foreign travel as a legitimate means of righting an economic wrong if at the same time it brings forth a complex array of objections and reactions that stem from sources much deeper than economics-sources within our traditional framework of freedom of movement and the spirit of international brotherhood Where can the line be drawn on who can justifiably be taxed? Are we to exempt a st~ident who is studying in Europe for six months but discriminate against the many students who will perhaps only have the opportunity to spend a summer abroad for study and travel? The additional taxation will impose few limitations on those who travel frequently and on unlimited funds But what will happen to the retired couple, or the average working couple who have saved for many years to raise and educate their children and finally have "just enough" savings to enjoy an economical and well deserved few weeks in the country of their choosing'? What will happen to the plans of those who have planned their once in a lifetime trip back home to their native lands'? There have been numerous proposals from the travel industry from members of Congress and from the industry government Task Force on Travel to increase foreign travel in the United States. This is a constructive proposal and suffers from few of the disadvantages of the Administration's tax program. There is also more that can be done to limit non-essential military expenditureS outside the Western Hemisphere. The travel tax, then, is not the only method available to improve this aspect of our balance-of-payments deficit. It is certainly not a desir- able method. It is to me, and to many of those I represent in Congress, not an acceptable method. Since the proposals for a travel tax program were outlined to this Committee by the Administration. I have received hundreds of thoughtful letters from my constituents. Their comments serve as excellent documentation of the spirit of the American people. I would like to take this opportunity to bring some of their statements to the attention of this Committee~ because you are involved in con sideration of a plan which is not simply a balance-of-payments measure; but a plan with far-reaching ramifications for our future relationship within the inter- national community and for our own national democratic traditions. It is not possible to develop a good taxing program when any such program is based on a highly q'uestionable concept The question raised in the following letters offer a serious challenge to that concept THE IMPEEssIoxs OF A STUDENT. SUMMARY OF POThTS American national interests can be more adequately protected by moans which when compared with the proposed travel tax are more suitably respectful to the constitutional liberties of United States citizens j The right to travel abroad is an important aspect of the citizen s liberty guaranteed in the Due Process Clause of the Fifth Amendment 2 Any travel tax such as presented by the administration severely handicaps and runs counter to intrinsic objectives of higher education 3. The political impact of a travel tax would be to en~ourage the retardation of American thinking, back into unrealistic, isolationism. 1. The right to travel abroad is an important aspect of the eiti2en's "liberty" gnara'ateed in the Dne Process Clause of the Fifth Amendment All United States citizens have the right to move from state to state as a fundamental privilege under the Constitution, according to Crandall v. Nevada, 6 Wallace 35 18 L Ed 745 (1868) This case stated the doctrine which shortly thereafter became the Fourteenth Amendment The factual situation has interest ing analogies to restriction `of' international travel. The court held that a state cannot levy a tax upon persons residing in the state who may wish to get out of it and upon persons not residing in it who may have occasion to pass through it. PAGENO="0251" 1029 In Kent v. Dulles, 357 U.S. 116, 78 S. Ct. 1113, 2 L. Ed. 2d 1204 (1958), the right to travel abroad was recognized as a fundamental right of all citizens und6r the Fifth Amendment. The language of the case is particularly clear: "Freedom of movement across frontiers in either direction,, and inside frontiers as well, was a part of our heritage. Travel abroad~, like travel within the country. . . may be as close to the heart of the individual as' the choice of what he eats, or wears, or reads. Freedom~ of movement is basic in our scheme of values." (at pp 125, 1118, 1210) The court regarded the Constitutional right to travel as being well established and closely related to rights of free speech and association. Recognizing the importance of each citizen's right to travel, President Eisen- hower sent a message to Congress in 1958 which said: "Any limitations on the right to travel can only be tolerated in terms of overriding requirements of our national security, and must be subject to sub- stantive and procedural guaranties." (Message from the President-Issuance of Passports, H. Doc. No. 417, 85th Cong. 2nd Sees.; 104 Cong. Rec. 130443). Here it can, be seen that the right to travel is not absolute, but there is the suggestion that the degree of restraint on travel must be weighed against the dangers to national security. Congress, then, cannot exercise its' legislative powers under reasons of "national security" without due regard to the right to travel which may be affected. The sweep of Congressional power over matters of "national security" was dealt With in Aptheker v. ~ecretary of state, 378 U.S. 500, 84 5. Ct. 159, 12 L. Ed. 2nd 992 (1964). This case held Section 6 of the Subversive Activities Control Act of 1950 unconstitutional for sweeping too broadly across the Fifth Amendment protections in its attempt to restrict passport privileges of members of Communist organizatios. The right `to travel is central to the discussion, and one is left with the question of whether there should be any restriction of that right when matters of "national security" are absent or only distantly related~ The concurring opinion of Justice Douglas is' notable on the latter point: "Freedom of movement is kin to the right of assembly and to the right of association. Absent war, I see no way to keep a citizen from traveling within or without the country . . . unless he has been convicted of a crime or unless there is probable cause for Issuing a warrant of arrest." (at 378 U.S. p. 520, S. `Ct. p. 1671) The proposed travel tax clearly restricts every citizens' Constitutional right of movement. Granted, `the basic purpose of the plan is not to prevent travel to Europe, bu't to reduce as much as possible the amount `they spend when they get there. But, is not the eff cot of a travel tax on many people the same as a prohibition? 2. A travel tar, such as presented by the administration, severely handicaps and runs counter to intrinsic objectives of higher education. In a country that places such emphasis upon the educational process, European travel contributes invaluable understanding in respect to our cultural heritage. The President's proposed travel tax will cause immediate reductions in student travel abroad. University of Michigan President, Robben Fleming, has sent a tele- gram to the President, urging student exemptions from the travel tax. Otherwise, he fears, education abroad will seriously suffer. Most educators agree. The President repeatedly vows his support of open and better higher education for everyone. Just recently, he has proposed an increase in the financial aid avail- able to students. Travel and education go hand in hand. Education in the Great Society can be complete only if it includes the enlightenment which results from association with peoples of all countries. Any educational policy which includes a travel tax, disallowing exemptions for students, is patently inconsistent with itself. 3. The political impact of a travel taa~ would be to encourage the retardation of American thinking, back into unrealistic isolationism. A healthy world economy is in the United States' best interests. Such an objec- tive is critically hampered by a travel tax policy which restricts the exchange of people and ideas. Serious consideration should be given the National Association of Travel Organizations' suggestion to "compete, not retreat" on the market for foreign visitors. In line with `that alternative is the proposal by Senator Jacob K. Javi'ts to adopt national travel policies which improve domestic travel for foreign visitors. A travel tax is not the only answer to the "balance of tourism pay- ments." PAGENO="0252" 1030 ~ History has ~howu the pitfa11~ of American attitudes which assume that isola- tion from the world community is possible Now more than ever Congress should search for indirect means to achieve the same ends And not the least of these avenues might lead through the tightening of military spending since the greatest single budgetary expenditure is for defense To oversimplify a bit who want to see the day when * an American can afford a visit to foreign countries~ only by enli~ment in the U.S~ Navyl ~ ~ ~ JOSEPH G MASON ~ ~ : . : ~ * ~ Uni'versity of MieMga'a Law $clvool, Ann Arbor Michigan The LIsLE FELLowsHIP, INC., Ann Arbor, Mich., February 1, 1968. DDAR REPIiESFNTAIIVE E5CH I am writing this letter to express the deep concern of the I isle Fellowship Inc about the proposed heavy tax on foreign travel which does not include adequate exemption for students or faculty travel ing abroad for educational purposes In his State of the Union Addi ess President Johnson did express In general terms that students faculty and researchers might not be included in the tax proposal for travel abroad during the coming year. I would recommend that this general statement be specified and that the exemption from any proposed tax be seriously considered for students, faculty and researchers My experience as the International Director of the Lisle Fellowship, Inc.'s international Educational Programs for over thirty t~o years h'is led me to know that students should be free to travel abroad as a part of their educational experience, en though their funds are limited, it is during the years of their college and/or graduate work that young adults have one summer or year free to travel abroad. I would note that the expenses for the travel of mos~ students are paid in the United States and while abroad the students actually spend meager amounts of money, especially when compared to the commercial tourist who is traveling with ample funds for high class living when abroad and who intends to bring large amounts of purchases home from abroad. If it were necessary to make a distinction on the types of travel which would. be exempt from a special tax, I believe such a distinction should be made for those students who are to participate in and travel abroad, whether for a summer or a year round experience, with recognized educational programs. Those students could be exempt from any proposed tax on international travel through a letter of confirmation of their participation from the educational institutions and agencies with which they are associated. I would put a very important emphasis on the fact that to put barriers in the way of young people participating in educational experiences in which they can come to know other peoples: and other parts of the world, would be most un- fortunate in a time when the United States has a very large part to play in developing cooper~tionamong nations, in building for a more equalized standard of living among all peoples and especially in planning constructively for peace. Students who have the vision and foresight to broaden themselves in the under- standing of ether cultures and peoples will bring the leadership the United States needs in its government services, in business and in education. We should not cut off the very best possibilities for developing adequate broad minded understanding future leaders through a prohibitive tax on educational travel Sincerely yours, DE WITT C. BALDWIN, International D ?rcctor FEBRUARY 4, 19438. D~R CONGRESSMAN ESOH I view with great alarm the proposal of the President that Americans be taxed for travel outside the Western Hemisphere Many of us have planned such travel because of family connections My wife and I wish to visit her family in Germany this spring and the prospect of government actions counter to our trip is distressing to us This proposal on the President s part is not a new one Three years ago be suggested a head tax for approximately $10000 per foreign traveling American The unpopularity of the idea forced him to drop it immediately And no~i he is at it again. PAGENO="0253" 1031 Possibly you might agree with us when we suggest that our international econnmic situation should best be viewed with `a strong suspicion that the primary drain of U.S. gold reserves ahro:ad is not via prtiirate citizens `but d~ie, mainly, to the various and `sundry foreign expenditures of. our government. These are not days for Americans to $ restrained by what could bie construed by our international friends as being an isolationist poli~cy. Many informal beneficial diplomatic relationships result by our travels abroad. Please relay my point of view in this matter if and when it is discussed in Congress. And, naturally, I hope that you will agree with me. Thank you. Sincerely yours, ALAN K. STONEX, qo4Anc4lman, City of Brighton, Mic~h. AN~ A1~BOR, Mxcii., Fe~iruary 13, 1968. Hon. MARVIN L. Escir, U.$. Bouse of Representatives, Washington, D.C. Sin: The proposed travel-i~estriction taxes must not be passed. I am vehement on this issue, not because I wish to go abroad, but because I have already been. In 1955, my father, a professor at Michigan State Uniiver~ity, took my m'othe'r, my three sisters and me to Florence, Italy. This was h'is long-awaited sabbatical, and we six lived o'n less than $3000 that year. We weut into debt, of course, but we have never doubted that it was the most enri~hing-'--the most profitable- experience of our, lives. I was ten, with the ten-year~old's provincial view of the world. What an extraordinary `eye-opening experience it was for me! My parents enrolled us in an Italian school, and suddenly we became aware of `a totally new system of education. We learned-fluently-a completely new language, encountered new ways of thinking, new customs, a new religion. For the first time, we saw real poverty: crippled children roam4ng the streets in `search of food, pathetic families living in the still-unreconstructed shells of bombed-out buildings, deformed `an'd half-clothed beggars huddled in corner's. We saw the splendors of Florence too-not many te'n-yea'r-oldS `have the chance to visit Dante's tomb, or see the David, or walk along the Ponte Veec'hio. And best of all, we met the Italians.; we ate their cuisine, we became their friends. W'e were, without intending it, our own private Peace Corps: not rich American's spending a luxurious `holiday, but middle class Americans learning about other people. We loved the Italians, and I think they loved us. I cringe at the thought that today we s'houid ~e asked to curtail such activity as "our patriotic duty." My father wa's not teaching that year and thus', like most private citizen's, would not `h'ave been exempt `from restrictive taxes'. Whose loss would it `have been if we bad stayed at home? It would, ultimately, `have been our eonntry"s. The good will we helped to build might `have been infinites- imal, but collectively such tiny contributions may help establish world peace. I am now `a tea'cher und I try to teach and live concern and compassion for other human beings to the ~2 teenagers I `see every day, and the 1100 or so with whom I come in contact. Suddenly the benefits of my experience are multiplied a hundred- and a thousand-fold. We cannot erec't an economic Berlin wall around `ourselves. We must let ordinary,, well-meaning middle class citizens build the bridges of understanding and peace that governments and treaties and ambassadors sometimes cannot, Sincerely yours, Mns. DONALD S. OWENS. THE UNIVERSITY OF MICHIGAN, Ann Arbor, February, 11, 1968. Representative MARVIN EscH, House of Representatives, Washington, D.C. DEAR CONGRESSMAN EscH: . . . There is one feature about `the proposed `travel tax which I find extremely unfaSr: that is the proposal that teachers and students must be out of the country for more than 120 `days in order to get `the educa- tional exemption. Many professors and graduate s'tudents doing serious research cannot afford to take a 120 day ttip either because of expense or because of academic calendars. Ma'ny of them are, `however, able to make `serious research PAGENO="0254" 1032 trips oi~ 4~O-1OO clays length during which they do much valuable work.. The 120 day requiremelit will be grossly unfair to serious researchers and will in many cases per~suwde professors and students to stay overseas longer than they had intended in order to take a'dvantage of the 120 day rule I hope that you will continue your opposition to this ill thought out measure Yours very truly, . JAcoB M. PRICE, Professor of History, University of Michigan. ANN ARBOR, MICH., February 8, 1968. Di~&n REPRESENTATIVE ESCH Although I can readily see the necessity of cutting down on the outflow of dollar~ in order to halanice our internal monetary status, I want to voice my op~sition to one of the methods that PresIdent Johnson !~5 been airing recently To restrict travel or tax it along the lines he has suggested has the following drawhacks: 1 To adminListrate the sliding tax Isdale would be very difficult would require many more personnel at the cuntoms points (thus inerealsing the amount of money needed for customs officials salaries) would conceivably cause tremendous traffic jams at the major customs points 2 It will undoubtedly aliertate many of our present allies ~wtho rely heavily upon the American tourist dollar as an integral part of their economy 3 It will impose a restriction of freedtm unlike any previously imposed upon the American people other than in times of war. 4 It will in fact be a statement to the world that we are pulling back into an isolationist position at the very time when no country can afford to do so I hap pen to feel that the more people of all ages ~lio travel abroad the more chance we have of coming up ~With seine sound international policies (at least in cases where the public has a voice) If we wish to cut down on dollars spent abroad and further good will among our allies it seems obvious that our best move is to pull as many of our troops as poisisible out of the places where they are no longer neOded and/or wanted- i e Germany and other European countrids Sincerely Mrs JOAN B SMITH STATEMENT OF HON ROBERT 0 TIERNAN A I~EPRESENTATIVE IN CONGRESS FROM THE STATE OF RHODE ISLAND Mr Chairman I wish to go on record before this committee in opposition to the Administration s proposals to levy a head tax on United States Citizens who travel outside the Western Hemisphere to reduce duty free allowances on goods and gifts purchased abroad from $100 to $10; and to reduce the current duty free mailed gift from $10 to $1. The Administration explanations for these proposals have not been candid or logical What is glossed over by the Administration is the administrative cost to the Federal government if these proposals are enacted. We hear very little of the additional Customs Service man hours that would be necessary to inspect return- ing travelers. We hear very little about the cost of additional postal man hours. In order to make this tax bring in the estimated revenue, it would be necessary to scrutinize more carefully incoming packages and purchases of returning tour- ists. Obviously, this requires additional governmental outlays. All of us in Congress recognize and are concerned with the present monetary crisis which includes our balance of payments deficit. Many members recognize and realize however, that the so called travel deficit can be reversed with positive measures such as those outlined by the Special Task Force on Travel and by our colleague the distinguished member from Wisconsin, Mr. Reuss, when he intro- duced his Travel Incentive Act two months ago. The last few weeks I have been in contact with a number of my constituents who have recently returned from Europe. I have been told that our friends in Durope are very much concerned with this attempt to restrict American travel to their countries. They are generally upset and genuinely disturbed by the pros- pect of such negative action. It is the opinion of my constituents that much harm has already been done to our friendships in Europe and they will be aggra- vated to a greater extent if our government pursues its intentions in this area. PAGENO="0255" 1033 Mr. Chairman, freedom of movement and the right to travel is in my opinion just as essential In our society as are the rights of association and of p~aceful assembly. I cannot in good conscience vote to restrict this right. Without objec- tion, I include as part of my remarks copies of correspondence relative to the travel tax proposal. D'Enuico TRAVEL AGENCY, Providence, ILl., March 4, 1968. Hon. ROBERTO. TrERNAN, Longworth Hou.se Office Building, Washington, D.C. DEAR SIR: We wish to assure you that we are in complete accord with your opposition to any travel restriction or travel tax. The damage this proposal for restrictions and tax can cause are well known to you, and your opposition is greatly appreciated. Thank you for your support. Very truly yours, JOSEPH J. D'Ennico. MARTINEZ-MARTRLL~ T1~AVEL BUREAU, Iwc., Providence, ILl., March 5, 1968. Congressman ROBERTO. TIERNAN, Longworth Ho'use Office Building, Washingtou, D.C. DEAR CONGRESSMAN TIERNAN: We are very pleased to learn from your letter of February 29, 194~8, that you are opposed to the President's proposed travel restrictions. We have noted the increasing Congressional opposition to these pro- posals through the trade publications. We feel that these proposals would not pass the Congress. Still, there is concern in this agency because we are now experiencing a very idle period. We blame this idle time to the initial shock of the proposal. People call on us every day to find out about the taxes and restrictions, and when they will become effective, but they do not make reservations. This agency has been and still is an ethnic agency. It deals mostly with Italo- Americans. Our income is completely dependent upon their travel to Italy where they visit families they have left to come to this country. We do have many clients who travel to other places in Europe, but Italy is always included so that they may see distant relatives and the `biitbpiac'es of their parent's. Our clients are not intres'tied in travelling to Hawaii or around America, or to the other countries within this hemisphere. If they have the money, they want to go to Italy. Some of our clients still intend on going to Italy, but for most of them, `the burden `of a `tax is too great. These people arc factory workers and in the low to middle income bracket. They have saved, in many instances, for years to take this trip. If these people cannot travel to Italy, because of the restrictions, this `agency will be out of `business by the end of this year. Phi's year our `agency, in an attempt to' expand from an ethnic agency reputation, se't up two tours and took on a charter group to Ireland. We are now in the process of cancelling one group and revamping th'e second tour, `due to a `rise in eancella- tion~s of the participants and the lack of time `to fill the va.ciancies. The charter to Ireland is filling, but hotel an'd car-rental bookings which are normally large are very `small. With the loss of the expected tour cothmissions `and the expense and effort to initiate them, and the incalculable losses due to the lack of bookings for the coming summer season, we will have a very lean year. Should the proposals become law, we will have to close `our doors. This applies no't only to us, but to all the other agents who are basically ethnic. It must be remembered that `agents repreisient others. If agents start to close down because of lack of business, it is a reflection of something larger. We think that the proposals of the President would have an adverse and far-reaching effect on the whole travel industry. We wish you the best of luck on `our behalf and wish to thank you for advising us o'f your position. Thank you, also, for giving us the opportunity to explain our situation in relation `to the proposals. We are Sincerely yours, PAUL V. FOLEY, Treasurer and Manager. PAGENO="0256" 1034 FIELDS AND CUSICK TRAVEL SERvIcE, 1NO., Warwick, RI., March 5, 1968. Congressman ROBERT 0. TIERNAN, LOngworth House Office Bwilding, Washington, D.C. DEAR CONGI ~SSMAN TIERNAN Thank you for your letter of February 29 requesting my opinion on the President s recent proposal on tra~ ci of Uniteçl States citizens abroad. It is hard enough for increasing numbers of Americans to accumulate the extra money to finance an excursion to a foreign country without having to pay the government for the right to take the trip. One of the serious criticisms of the tax proposal, we feel, is the infringement on their rights a's Americans to travel as they please. I would like to see the administration put more emphasis on programs to attract foreign visitors to the United States. Travel is *our greatest educator and the link which allows an understanding between the peoples of the world. I am glad to hear `of your opposition to the `tax and wish you success in the House Committee on Ways and Means. Sincerely yours, MARY B. RUvKEY, Treasurer. PLANTATIONS ThAVEL: SERvIcE, Providence, RI., March 9, 1968. Hon. ROBERT 0. TIFJRNAN, Longnorth House Office Building Washington D C DEAR CONGRESSMAN T~TERNAN I wish to acknowledge with thanks your letter dated February 29 regarding the President's recent proposal to levy a tax and also to impose certain restrictions on the travel of United `States' citizens to countries located outside the Western Hemisphere. I was pleased to note from your letter that y'ou have opposed the proposed tax and I agree with you wholeheartedly that there are other and more construc- tive means `by which our balance of payments can be reduced. It appears to me that in addition to rupturing the friendly relationship we now enjoy with many nations, we could conceivably lose a great amount of export business if such taxes and `limitations are imposed.. I am attaching a copy of a statement made by Mr. John M. Frazer, Jr., Sen- ior Vice-President of the Swedish American Steamship Lines and a copy of an editorial written by Mr. Irwin Robinson, Publisher of our travel paper entitled, "Travel Weekly". I believe these gentlemen have expressed the feelings of every- one associated with the travel industry. I would like to take this opportunity to tell you that as: one of your constitutents I am a resident of the Buttonwoods section of Warwick. Sincerely, WILLIAM L. PRARSoN. [From Travel Weekly, Feb. 13, 1968] THE PLOT To KILL TRAVEL (By Irwin Robinson) The "solution" which the U.S. Treasury Department has' recommended to ease the imbalance of travel payments suggests psychiatric rather than economic analysis. It is grotesque in concept, an administrative monstrosity `and clearly the path to chaos for the general public and disaster for the travel industry. The proposal looks more like psychedelic art than a blueprint for monetary improvement. It could h'ave been conceived only by people far removed from everyday reality. Thus, it confirms persistent reports of the presence, in the inner sanctum of the Treasury Department, of a group of influential "think" men who suffer from `acute traveiphobi'a, w'ho are either unaware or `disdainful of America's global commitments `and whose idea of ultimate triumph is to erect an iron super-curtain that would insulate our peripatetic population from any `contact with "furriners". In attempting to whip American ti~avo1ers iiito line and the travel `business out of existence, `the Treasury has assumed a posture that is strangely out of PAGENO="0257" 1035 whack with the professed beliefs of the White House, the State and Commerce Departments and lawmakers. By ignoring the considered views of travel experts and seasoned economists~~ who believe overwhelmingly that the proposed cure will either kill the patient or create problems greater than those which now exist-the Administration has undermined its own recently-appointed task force and taken the steam out of travel industry efforts to develop positive alternatives to the Treasury crackdown. The Treasury would create a police-state atmosphere by requiring the traveler to disclose the contents of his pockets and wallet-with frisking authorized as an added touch of coziness. Under the threat of sizeabl'e penalties, he would face the frightening task of applying an intricate formula to estimate what his tax might be. A fat fine hangs over him if he miscalculates. How many addi- tional customs agents or secret service men it will take to make sure that the citizenry is cowed iuto compliance, and what will happen to scheduled de- partures when thousands of passengers mill around in an arithmetic fog, are subjects not covered in the Treasury panacea. Secretary Fowler assured his Congressional listeners that "the mechanics of the expenditure tax would be relatively simple." The "technical explanation" that followed would make an IATA resolution look like a model of Mother Goose simplicity! * * * It is now incumbent on the travel industry to assign top priority to mobilizing every argument and every ounce of support it can muster to defeat the Treasury proposal. Regrettably, this means that for the time being at least, less emphasis on positive measures that would help narrow the "travel gap," notably an intensified campaign to stimulate more traffic from abroad. "0vEn5IMIPLXFIED flIAGNOSIS" In the opinion of many who can detect only fallacy in the proposed restrictions, the weakness of the Administration case sitems chiefly from the two questionable assumptions that Washington has tried to foist on the public as fact. One is the oversimplified diagnosis of the so-called "travel gap," and the other is the apparent belief-or, at least the pretense-in Washington that the U.S. can successfully attract a substantial volume of westbound travel while severely curtailing the traffic going out of this country. There is ample reason for examining more minutely the burden which the Administration has assigned to travel as the major culprit of the dollar imbalance. The fact, which has been cited repeatedly but which the Administration prefers to ignore, is that the travel portion of the dollar gap cannot properly be iso- lated and treated as though it existed in a vacuum. It is part of a considerably broader problem-a crisis that certainly stems largely from our commitments in Vietnam and our millitary and aid expenditures elsewhere. And, by the same logic, the overall dollar imbalance cannot be segregated from the total foreign trade picture. The man in the street has heard so~ much about our dollar "deficits" that he must believe the U.S. has an unfavorable balance of trade. Nothing could be further from the truth. The latest figures, far 1966, show that the U.S. ex- ported $30 billion worth of goods and services and imported $25.5 billion. This resulted in a balance of $4.5 billion in favor of the U.S. BALANCE ALREADY FAVORABLE It should be noted that a good part of that favorable balance came from the very Western European countries that would now be seriously hit by re- strictions on American travel. For example, our exports to Western Europe exceeded our imports by nearly $2.25 billion. We sold 50% more to France than we bought from the country; our exports to Holland were four times as great as our imports; U.S. exports to Greece, exceeded imports by three and a half times; and the ~nargin in our favor with Spain was over three times. These are important tourist destinations for Americans-and the dollars they pour into those countries make it possible for U.S. manufacturers to sell their goods abroad. Choking off the flow of dollars stifles production and checks prosperity in cities and towns throughout America. 89-749-68-pt. 3-17 PAGENO="0258" 1036 When travel agents write their Congressmen in opposition to the travel strait- jacket the Treasury proposes, they should bring home the importance of U.S. exports and travel dollars in terms ea;dh community understands. For example, tourist dollars create jobs in New Brunswick and Rahway, N.J.-com.munities Whose prosperity depends on several large chemical and medicinal industries. The travel agents of that area-and the residents, too- should know that in 1966 the U.S. exported nearly $2 billion more worth of medical products than it imported. Thousands of jobs in Rahway, New Bruns- wick and other communities have been sustained by the flow of U.S. tourist dollars abroad-dollars which make it possible for many foreign countries to buy our chemical and medicinal products'. The same story can `be told about Moline, Ill., known for its production of farm implements and other machinery. In 1966 the U.S. exported $11 billion worth `of machinery and transportation equipment, compared with imports of $5 billion, a favorable balance of trade exceeding $6 billion in th'is one category alone. Tourist dollars helped make it possible for foreign countries to spend these huge amounts, and thousand's of wage-earners in U.S. cities and towns `derived the benefit. The State of Washington is another area that is sensitive to the interfiow of tourist dollars. Foreign airlines have purchased over $4 billion worth of American equipment and thousands of well.cpaying Washington jobs can be traced directly to it. The finger of guilt does not rest steadily when it is pointed at U.S. travel habits. * * * * * * * The question of `how `aggressively the American travel industry can push "Visit USA" cannot be answered until Congress gives some inkling of its stand on the Treasury proposals. If the hard line sticks, the travel business faces a peri'o~ of serious dislocation, with a very real likelihood of reciprocal `action on the part of other governments. It is difficult to believe that the Congress of the United States would knowingly support `a disaster plan of such `dimensions, SwEDIsH AMERICAN LINE, New York, N.Y., January 1968. DEAR TRAVEL AGENT: You have undoubtedly seen in the press and in the State of the Union message that President Johnson is considering `as'king Congress to restrict travel abroad in order to help reduce the balance of payment `deficit. Swedish American Line ships are registered in Sweden, `and the balance of payment with Sweden has always been very favorable to the United States. In the past decade `there have always `been more `commodities exported from the United States to Sweden than `from Sweden t'o the United States, thereby always reflecting a deficit for Sweden. The latest report for 1967 indicates that $weden spent $135,000,000 more in the United states than the United States spent in Sweden. ~`uring 1967, Swedish American Line spent 49.44% of its U.S. revenues in the United States for supplies and operational expenses. These costs incorporate a variety of expenses such as provisions, `advertising and publicity, port charges including stevedoring, commission t'o U.S. travel agents', as well as `salaries, in- surance and pension plans for our U.S. employees. The percentage goes up to 58.74% when we take into consideration financial commitments, insurance premi- ums for our fleet and the portion of our crews' salaries which is paid here In U.S. dollar's. During the `past year, `th'ere `has `been increasing talk about the U.S. Treasury's "gold outflow" problem. This is, .as you know, the result of `a continuing deficit `in the balance of payments between the U.S. and othier countries. For some years the United States have been investing, len'di~'ig, and spending more dollars abroad tha'n it receives in return from other countries. The Government claima th~t $1.9 billion `of this deficit is accounted for by the imbalance of tourist expend- itures outside the United States. What this figure fails to `state, however, `accord- ing to a study by the American Express Company, is that about 33% of the monies *s'pen~t `outside this country by tourists went to North American countries, primarily Canada and Mexico, and of t'he money spent elsewhere in the worl'd, 30% went `for "non-pleasure" travel. In m'any instances, th'e American tourist dollars spent `abroad actually help improve the U.S. payments problem., for indirectly `the's'e dollars `help finance fo'reign p'ur'ehastes i0f United S'tates `goods and services. PAGENO="0259" 1037 In Sweden, the Swedish American Line has a Visit America program, whereby we urge people to visit their friends and relatives in the United State~s in line with the United States Travel Service suggestion. This program was inaugurated about five years ago, and has proven very successful in bringing Swedish tourists to this country. Not only does the Swedish American Line bring dollars into the United States~ as outlined, but it also plays its part in proidding a high standard of vacation cruises for American tourists to island nations and territories in the Caribbean~ As four majocr islands in the Oa'ri'bbean are part of the United States and tourism is the major industry of the isiandis-a,cc'ounting for `80% `and more of their national revenue-~we are assisting the `great tourist demand for `sea trans~orta- tian to the Caribbean islands. The United States would eventi~ally `suffer sub- stantial losses if ship carriers we're to be curtailed in their operations. We thought you would like to have this inforniktion. It means your clients do not have to feel emb'a'rrataed `or unpatriotic when they cruise with the Swedish American Line. On the contrary, they are participating `in a two-way trade that is advantageous to the United States and its international payments. We think it is important for you to understand this, because `o'f the attempts being made to limit American travel, whi'ch we feel would n'ot he good business in the long run for the United States. If Swedish companies are not permitted to earn American d~oiiars, then it could well be that Sweden would be `requ'ired to curtail `purchases of American goods in order to imIpr~ove her adverse trade balance with the United `States which would further `aggravate the U.S. `deficit of payments. The fa~ts, as outlined herein, pertain to Swedish American Line `and Sweden and, if you agree with us, you may wish to communicate your feelings to your clients and send a letter to your legislative representatives. Sincerely yours, JoHN M. Fa~snn, Jr. ~en,ior Vice President. ATJT0M0BILE CLFB OF RHODE ISLAND, Cranston, 11.1., March 6, 1968. Hon. ROBERT 0. TIERNAN, Longworth House Office Building, Washington, D.C. DEAR CONGRESSMAN TIERNAN: I welcome the opportunity to record with you the concern expressed by many of our 63,000 members about the proposed re- strictions on the travel of United States citizens abroad. It seems to us that the Treasury Department's proposal has serious weaknesses: 1. It discriminates against those who have most to gain from travel- students, teachers and other low-income individuals. 2. It would be unwieldy, if not impossible to administer, and undoubtedly costly. The many opportunities for evasion are already obvious. 3. While no one can calculate the revenue which this proposal might bring the government, it seems obvious that these dollars will make no real con- tribution to the root problems. 4. It is already apparent that enactment of these restrictions will lead to retaliatory measures by various of our good customers abroad. I believe `that the constructive approach to this problem is far better than any restrictions on travel. I believe that the United States Government should do everything in its power to bring more travelers into the United States from other countries as a positive way of offsetting part of the dollar gap. Our Olub and the American Automobile Association h'ave always supported the principle of freedom to travel as a basic right of all free people. It is on this thesis that our opposition to the restrictions is based. Cordially, E. S. HARDING, Ecoecutive Vice President. PARAGON TouRs, Providence, RI., March 1L 1968. Mr. ROBERT O~ TIERNAN, Member of Congress, Washington, D.C. DEAR Bon: Thank you for your letter relative to President Johnson's proposal on travel restrictions outside of the United States. PAGENO="0260" 1038 Paragon has made our views heard with our local Congressman and Senators. I guess my not contacting you was a small goof ; your letter addressed to me was not read but rather was left on my desk since I was in Ireland at the time. Bob, I very much appreciate your very personal interest in our industry prob- lem and I can assure you that your views are the correct ones. My recent 7-day visit to Ireland and the personal conversations that I had with many members of the Tourist, Hotel, and Sightseeing industry convinced me 100% that we have made the wrong type of impression as a result of President Johnson's speech. Had a re union dinner with Bill Keenan Dick Tiernan and Bob Aldrich at the Red Coach recently and would love to have you join us on a future get-to- gether., (Usually a Saturday night) * Best personal regards, Jn~c PENLER TEADEwINJi5 TRAVEL,. Providence, RI., March 4, 1968. I-Ion. itonaRT 0. TIEIiNAN, Longworth house Office Building Washington, D.C. DEAR BOB It is my understanding that the House Committee on Ways and Means is holding hearings on the President's recent proposals imposing certain travel restiictions on United States citizens Naturally, being in the travel business and having only recently expended a considerable sum on new office facilities, I am unalterably opposed to any travel restrictions. However, in addition to my personal feelings, I am convinced that such a move would have far-reaching repercussions in many areas that, in the end, would defeat the intent of the legislation. Literally thousands of Americans in the travel field, including the many allied services, would find their livelihood in jeopardy, and I think careful screening of facts by the Committee would find that foreign travel Is not the prime cause of the problem. Travel is indeed a luxury, and in light of the heavy war expenditures, I do believe that a 5% tax, similar to the one on domestic travel, would be in order and would not cripple our industry; however, restriction of any kind, I believe, is uncalled for and not in keeping with our American way of life I would certainly appreciate your cooperation in informing the Committee and the Congress of my feelings. Sincerely yours', D L GOFF President PRIcE LRAVEL SERvIcE INc Providence, RI., March 1, 1968. Mr. ROBERT 0. TIERNAN, Long'worth House Office Building, Washington, D.C. DRAB Mn. TIERNAN: We were very happy to receive your letter expressing your' oppos:Itioii to the President's proposal of taxing foreign' travel. Naturally, we are opposed to this unjust bill. But rnor~ than that, we are opposed to any method of taxation that would impose a hardship on the middle class of citizens who are constantly being taxed to the utmost on all sides. A travel tax would discriminate against the working man who saves and saves for a trip, and then is told he must travel like a pauper on barely enough money `to exist. And any tax that reads as complicated as the proposed travel tax seems a bit ridiculous. If travel is permitted in this hemisphere, what would stop people from leaving `the country from Canada? They certainly could bring all sorts of money there, with no restriction. In our experience with travelers, we have found that the word "restriction" seems to affect our fellow citizens in a strange manner, much as the bull is affected by the red cape.'. We hope you will do your best to fight this tax proposal, and appreciate your efforts `to see justice served. Very truly yours, SIIERMAw `S. ERIOE. PAGENO="0261" 1039 COLLETTE TRAVEL SERVICE, INC., Pawtucket, RI., March 4, 1968. Mr. ROBERT 0. TIERNAN, Longworth House Office Building, Washington, D.C. DEAR MR. TIERNAN: With reference to your letter of February 29, 19438, our agency would definitely like to go on record as opposing the suggested tax on United States' citizens traveling abroad. Very truly yours, DANIEL J. SULLIVAN, President. PAWTUCKET TRAVEL AND Touuis~ AGENCY, Pawtucket, RI., March 5. 1968. Representative ROBERT 0. TIERNAN, Longworth House Office Building, Washington, D.C. DEAR REPRESENTATIVE: In answer to your letter dated February 29th, re- questing our view on the Pre~siden't's proposed international travel tax We are answering this in the following paragraphs. By far the number of people who enter this office in search of any foreign travel are as much against the restrictions as we are. Only one person has ex- pressed his views in favor of the travel tax. I am sure you have heard all of the cries opposed to the travel tax, but have you heard anyone a~k why his or her freedom of free movement has to be re- stricted. Regulation and restriction go hand in hand beading toward a non-free society. From the travel agent's point of view, the damage has already taken hold. Booking are down and so is our Bank Account. There will be more travel agencies up for sale this year than ever before. Very truly yours, JOHN C. SWIFT, Manager. JOHN F. DAVm~PORT AGENCY, Pawtucket, RI., March 4, 1968. In re President's proposal for tax travel. Hon. ROBERT 0. TIERNAN, Longworth House Office Building, Washington, DXI. DEAR CONGRESSMAN TIERNAN: I am very pleased to learn that you are oppos- ing the suggested tax on foreign travel that has been propose'd by President Johnson. There are hearings being held I believe, by the House Committee on Ways and Moans in Washington on the tax, and in the name of t'hous~ands of citizens in the Pawtucket area I would appreciate you making known that the common ordinary tax payer is very ulset with the proposed tax because they feel thht it is not goIng to reduce our balance of payments deficit as indicated by the President. I personally am involved now with 90 peoph~ who are t~'aveling on June 24 to Scotldn.d to viOit their famPies, ~ome of wl~om they will probably never see again, and they have been saving to make this trip for 3 to 5 years. Many of the American people are retired people and this seems to be the majority of people who are taking tours to Europe at the present time. There was a meeting of the above group yesterday and I read your letter to them and asked them to write you and advise you of their feelings. Very truly yours, JohN F. DAVENPORT. EAST SIDE TRAVEL AGENCY, INC., Pawtucket, R.I., March 4, 1968. Hon. ROBERTO. TIERNAN, Longworth House Of/Ice Building, Washington, D.C. DEAR MR. TIERNAN: We thank you for your letter of February 29th and hereby wish to inform you that we oppose the Travel Restrictions proposed. We find PAGENO="0262" 1040 the general public most definitely opposing these restrictions and feel that the re- percussion caused by imposed restrictions will be such that will prove detrimental in many phases to the United States Government. We should try to promote travel within the United States by easing travel restrictions to foreigners by the United States Embassies in the respective countries and by inducing travel within the United States with attractive offers to visitors to our many natural and man- made wonders. We thank you for your consideration on this matter. Sincerely, VALERIO MELLO. [Editorial, second of a series, broadcast by WICE General Manager James K. Racket on Thursday, Feb. 15, 1968] WICE, Providence, R.I., February 15, 1968. WICE believes that President Johnson's travel-tax proposals must be defeated and we urge the State's congressional delegation to exercise all possible influence to insure the swift death of this plan. While WIOE fully supports efforts to solve the balance-of-payments problem and the concept, "See America First," we `offer the following reasons why our representatives in Washington should "kill this bad bill." 1. The plan infringes upon the basic rights of Americans to freedom of movement, and comes dangerously close to "caging" all Americans with eco~ nomic restrictions. 2. it hits hardest the "little guy" while `imposing no real hardship on the wealthy "jet set." 3. Many well-informed people believe the "gold drain" can be `slowed or halted with action in several other areas where enormous amounts of federal money flow overseas-endlessly. 4. Foreign travelers planning vacations in `the United States may very well institute a boycott of America. 5. The travel-tax may pose a serious `threat to the economies of several nation's'. 6. It will create another mountain of federal "bureaucratic red tape" and the hiring of hundreds of new government employees. Now who pays? Everyone! Everyone-except government officials-all the "posh junkets" at taxpayers' expense will continue untaxed-everyone except person,s with permanent overseas residences-everyone except students and busi- nessmen who spend more than 4 months overseas. But what about you who may have close relatives in Italy, Portugal, Ireland and many other countries? What about the people who have "seen America first" and have been saving for that one, big vacation-of-a-lifetime? What about the "little guy?" The travel-tax plan is unduly restrictive, discriminatory and practically un~ enforceable and we urge you to deluge our congressional delegation with a torrent of mail. Write Senators John Pastore and Claiborne Pell, Senate Office Building, and Representatives Fernand St Germain and Robert Tiernan, House Office Building, Washington 25, D.C. Urge them to "kill this bad bill !" [Editorial, third and last of a series, broadcast by WICE's General Manager James K. Hackett on Feb. 19, 1968] WICE, Providence, ft.I., February 19, 1968. This is the last in the series of WICE editorials concerning the President's travel-tax proposals. To further investigate these proposals, WICE spoke with Don Perry, a public relations assistant to Treasury Secretary Henry Fowler, and asked him to clarify the exemptions to the proposed travel-tax. He told us there is no exemption for persons with close relatives abroad who might have to make a trip back to the "old country." This is contrary to President Johnson's state-of- the-union message. Thousands of Rhode Island and Southern New England residents have relatives outside the western hemisphere-mothers, fathers, sis- ters, brothers, but even in case of emergency, a trip back to the "old country" would not be exempt from the President's travel-tax. However, all government of- ficials are exempted. We asked Mr. Perry if that included congressmen and their staffs and he replied. "Yes, if they are on official business." (Congressmen, by the PAGENO="0263" 1041 way, are allowed fifty-dollars a day traveling expenses, tax free, of our money. The President proposes to tax you heavily if you spend more than seven dollars a day overseas.) Mr. Perry made one other enlightening statement: "This tax is aimed at the medium income person." Obviously, it's not going to impose any particular or unusual hardship on the wealthy. Summing up, the American tourist is not responsible for the balance-of-pay- ments problems. Major blame lies in many other areas and on the federal gov- ernment's doorstep. However, the American government proposes to penalize the average American because of it. The entire plan is regressive; it is unduly re- strictive, discriminatory, or as one senator put it "class legislation." Wilbur Mills, Chairman of the House Ways and Means Committee, has stated publicly that the Committee will have a tourist-tax bill ready for passage before Easter. WICE urges you again to write your representative and senators. Congressmen do pay attention to mail from you their constituents. Help preserve a basic free- dom-the freedom of movement. Write and help "kill this bad bill." CONGRESS OF THE UNITED STATES OFFICE OF THE MINORITY LEADER HOUSE OF REPRESENTATIVES Washington, D.C., February 26, 1968. Hon. WILBUR MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: Enclosed is a copy of a letter from Mr. Ell D. Compton of Toledo, Ohio, which I respectfully request be made a part of the record of the Committee in its hearings on the President's proposed travel tax. Mr. Compton points out an aspect of the President's proposals which merits the attention of the Committee, and it is for this reason that I am pleased to submit it to you. Sincerely, GERALD R FORD Member of Congress ELL DEE COMPTON, Toledo, Ohio, February 22, 1968. Hon. GERALD FORD, House Offtce Building Washington, D.C. DEAR REPRESENTATIVE FORD May I call to your attention dangers inherent in pi oposals recently made to Congress by Secretary of the Treasury Henry Fowler concerning a 5% tax on overseas air and chip transportation and a graduated tax of 15% to 30% on expenditures over seven dollars per diem in overseas travel Passage of these proposals into law would result in a major reversal of our government s policy to encourage international student exchange programs Those of us who have long been associated with American Field Service (AFS) International Scholarships in our local communities are aware of the grave threat the proposals offer to this and other student exchange programs AFS brings teen age foreign students to live for one year with American families and sends American high schoolers to live with foreign families for periods of from eight to fifty weeks The taxes referred to above would seriously threaten the AFS program especially those scholarships granted to American students ~,ent abroad during the summer program AFS operates on a limited budget and such increases in transportation and travel costs would severely curtail the number of scholarships available AFS has emphasized choosing qualified American students to go abroad regardless of their families economic status Many families could not meet such additional expenses. We were host family for a Turkish AFS "daughter" in the 1966-67 school year, and our own daughter, Olivia, (now a freshman at the University of Michigan) spent a most wonderful and enlightening nine weeks as part of a PAGENO="0264" 1042 family in Quito, Ecuador. We had looked forward to increased opportunities for other youth not to a cur tailmen of this program We urge that AFS be exempted from such overseas travel and expenditure taxes. Very truly yours, ELL DEE COMPTON. CONGRESS OF THE UNITED STATES,, OFFICE ~F THE MINORITY LEADER, HOUSE OF REPRESENTATIVES, Washington, D.C., February 21,1968. Hon. WILBUR MILLS, Chairman, Committee on Ways and Mean~s, House of' Representatives, Washington, D.C. DEAR Mn. CHAIRMAN: Enclosed is a copy of a letter which I received from one of my constituents Mr Walter Derylo of Grand Rapids Michigan who is a student at the Pontifical North American College in Rome. May I respectfully request that his letter be made a part of the record of the Committee in its hear- ings on the President's proposed travel tax. Mr. Derylo points out an aspect of the President's proposals which merits the attention of the Committee, and it is for this reason that I am pleased to submit it to you. Sincerely, GERALD R. FORD, Member of Congress. NORTH AMERICAN COLLEGE, Rome, Vatican City ~S't ate, February 16, 1968. Hon. GERALD FORD, U.$. House of Representatives, Washington, D.C. DEAR REPRESENTATIVE FORD: I am a citizen of Grand Rapids and am writing to you with regard to the proposed traveling tax, which has recently been sub- mitted to Congress by the Honorable Henry Fowler, Secretary of the Treasury, on behalf of the admini~tration of President Johnson. I would like to state my objections to the ijili in toto and then present a particular problem which con- fronts myself, my family and my friends. There is considerable doubt in my mind that the tax measure will achieve the desired results. If we spend less money in western Europe, it seems likely that these countries will spend proportionately less in the United States. Thus the balance of payments deficit will be affected very little, except perhaps in an adverse manner Certainly it will deal a death blow to the campaign to attract more European tourists to the United States. A studied effort to increase the foreign market for American products seems to me to be the more logical attempt Indeed one could speculate on the damage the proposed tax would do on trans portation services presently purchasing Ameiiean products Granted my doubts about the economic effectiveness of the measures, I am opposed to the added strain that these measures would cause within the Atlantic Community. The tax could well lead to a series of reciprocal measures which could reverse the present tendency toward economic cooperation and be the first in a series of selffish, self-defeating protective measures. If it appears that it will be impossible to defeat the entire bill, then I would ask you to make representations for the following group by writing an amend ment to the bilL I would be deeply gratified if you would present our case before the Congress on this matter The representation is on behalf of FRAE Friends of Roman American Ecciesiastics. It was founded eleven years ago with the purpose of bringing to Rome at the most economical rates the parents relatives and close friends of students here at the Pontifical North American Oollege who are ordained each December to the Catholic Priesthood while completing their four year course of theological studies. Similar to a funeral, wedding or graduation, an ordination is a family affair in which the entire family i~: ac- PAGENO="0265" 1043 customed to being present in order to share in the joy of the occasion. However, since the financial status of most students' families would prevent an ordinary tour of Europe, a special group, the above mentioned FRAE, was organized on their behalf to greatly reduce the cost of the trip, which would, in the vast majority of cases, be totally unthinkable without such an organization. In the past planes have been chartered, and various other benefits have accrued to the members of FRAE, thus making the trip possible. However, I feel that the current proposals before Congress would place a totally unmerited burden on my parents, relatives and friends who have saved for a considerable period the funds necessary to make the trip this next Decem- ber. I feel also that since the proposed taxes would expire in October of 1969, our guests would be victims of very unfortunate circumstances. Therefore, I would ask specifically that members of PRAE, 1968, who will take one of the chartered planes from the United States next December, be held totally exempt from all provisions of the tax bill. Last year there were four such chartered flights which brought over 600 people to Rome for the ordina- tion. With these facts in mind, I trust that you will consider my request very seriously. I realize that it may seem like a selfish request. On the other hand, under the circumstances, it would be very unjust to my family and friends in light of the fact that it is difficult for them to make the trip under ordinary circumstances. I myself could never have studied here were it not for scholar- ship funds. I trust, therefore, that you will consider my case. I will be most anxious to hear from you in the future with regard to this matter. Sincerely yours, WALTER DERYL0. CONGRESS or THE UNITED STATES, OFFICE OF THE MINORITY LEADER, H0IJ5E OF REPRESENTATIVES, Washington, D.C., Febrnary 20, 1968. Hon. WILBUR MILLS, Cha/irmon, Committee on Ways and Means, House of Representatives, Washington, D.C. DaaR Mn. CHAIRMAN: Enclosed is a copy of a letter which I received from one of my constituents, Mrs. Lucile E. Hager of Grand Rapids, Michigan, which I respectfully request be made a part of the record of the Committee in its hear- ings on the President's proposed travel tax. Mrs. Hager points out an aspect of the President's proposals which merits the attention of the Committee, and it is for this reason that I am pleased to submit it to you. Sincerely, GERALD R. FORD, Member of Congress. GRAND RAPIDS, MICH., February 19, 1968. Hon. GEHAJD FORD, Washington, D.C. DIIAR Mn. FORD: Regarding the proposed tourist tax I have a proposal to make which I hope might be taken under consideration. It seems to me the Senior Citizens, 65 and up, should be exempt from this tax. Some have been saving a life time for the pleasure of seeing the European continent during their leisure days, their funds are limited and each passing year lessens their op~ portunity to go. For them it's sort of a last chance thing, and, they have little enough to brighten their last years. I hope you may ponder this suggestion and introduce such a proposal f or consideration. Very truly yours, LUCILLE E. HAGER. PAGENO="0266" 1044 CONGRESS OF THE UNITED STATES, OFFICE OF THE MINORITY LEADER, hOUSE OF REPRESENTATIVES, Washington, D.C., February 20, 1968. Hon. WILBUR MILLS, Chairman, Committee on Ways aiad Means, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: Enclosed is a copy of a letter which I received froni Theodore II. Hubbell, Professor of Zoology at the University of Michigan, which I respectfully request be made a part of the record of the Committee in its hear- ings on the President's proposed travel tax. Professor Hubbell points out an aspect of the President's proposals which merits the attention of the Committee, and it is for this reason that I am pleased to submit it to you. Sincerely, GERALD R. FORD, Member of Congress. THE UNIVERSITY OF MICHIGAN, MUSEUM OF ZooLoGy, Ann Arbor, Mich., February 15,1968. Hon. GERALD R. FORD, House of Representatives, Washington, D.C. DEAR SIR: President Johnson's proposal for a tax on foreign travel will doubt- less come before the House soon for consideration. I wish to register a strong pro- test against it as it affects the claus of persons that includes my wife and me. We are among the group of retired educators, scientists and middle-income profes- sional people who have saved for years to be able to afford an extended trip after retirement. We are at an age when postponement might well prove to be per- manent. We must budget carefully to be able to travel at all, and the added tax may well make our earned and long-anticipated visit to foreign lands impossible. This of course, is the intent. We realize that the balance-of-payments deficit con- stitutes a serious problem, but the travel tax is not the way to solve it. In par- ticular, cutting off the older group to which we belong would have little effect;* we are not the heavy spenders. The tax will have little impact on the wealth, and will not seriously reduce their spending abroad. We are not unpatriotic, and if imposition of this tax were the only possible solution and would do the job we could accept its necessity and give up our plans. To us,. however, it seems evident that there are other and more effective measures that can be' taken, w'hich would not infringe upon our right to use our modest savings as we have long planned to do, and which would not penalize elderly persons like ourselves who have no time to lose. Our particular case, described below, is' merely a special instance of a situation that confronts thousands of others, for whose hop'es and expecta- tions the tax would be equally catastrophic. `I am a professor at the University of `Michigan, until last year also Director `of that institution's Museum of Zoology. My retirement `begins in July, when I `shall be ?1 years old. My wife, who will also retire `at the same time at age 70, has `worked in :the Institute for Fisheries Research o'f the `Michigan Depart- ment `of `Conservation `for 17 years, at first to help put our three children `through college (one `MS., two Ph. D.s), and in the last few years to `help' build up a modest travel fund. We have a few thousand `dollars' saved specifically for the purpose of travel after retirement. At pres'ent,w'e are in good health, but.of course cannot know how long this will continue. For over a year I have been `committed to atten'd the International Entomologi- cal. Congress in `Moscow in August, 1968, for which I have already paid the registration fees for my self an'd wife as member and associate member, and ha've made advance payments' to `Cosmos `Travel Agency `for, air transport, accom- modations an'd planning of the trip. After the `Congress' we will `do some `work in the zoological museum's of Moscow and Leningrad, my wife assisting me, and then visit ,a few of `the historic cities of Russia. Then we `plan `to go via `several of `the `eastern `Mediterranean countries, Iran, Afghanistan, India, Malaya `and the' Ea's't In'dies to Australia, where we will join a younger colleague from the Uni- vers;ity of Michigan f'or a month's field work on the group of insects' we `both study. Afterward we will continue via New Zealand, perhaps New Guinea~ PAGENO="0267" 1045 Philippines and Japan, and return to the United States after an absence of eight or nine months Throughout this trip ~ e will comhine work and pleasure studying insect collections in the important natural history museums doing entomological field work related to my research and also visiting many of the places we have long wanted to see. `During the past eleven years I. have been heavily engaged in admini~trative duties and public service, at the expense of my personal research. Besides direct- ing the Museum of Zoology at Michigan I have been active in the formation and operation of the Organization for Tropical Studies in site visitation and evalua tion for the Special Facilities Program of the National Science Foundation and as chairman of the Subcommittee on Systernatics and Biogeography in the U S National Committee for the International Biological Program (National Academy of Sciences) All this time I have looked forward to being able to carry out after retirement, many of the research undertakings begun earlier. To do this will involve travel and since I shall be technically unemployed I cannot deduct the `costs .of such travel as professional expense from `my income tax. The impo- sition of a travel `tax `will constitute one more, an'd perhaps the ultimate, impedi- ment `to continuation of my studies, and may well prevent me `from making the full contribution to my field of `science of which I am capable. `This `would be poor reward for the `public service I `have performed. Although our case is obviously a special one, it can stand as an example of what this tax wilt mean to' a great many older people who have made sacrifices in the `past in order to be able to travel in later life. We urge you, therefore, to o'p'pose this measure. If it seems `bound to go through, we hope that you will try to secure modifications of its provisions that will take into account age and other considerations It is for example entirely unrealistic to think that for elderly travelers an untaxed per diem allowance of seven or eight dollars w ill cover minimum costs We cannot live like young students we need `in occasional taxi or hired car to get around and we have to stay in hotels To attend the Moscow Congress will cost us at least $25 per day apiece exclusive of transportation Most of our travel has to be by plane Your efforts to prevent or ameliorate the `hardship's and injustice `this tax would `cause `to persons `in `our `category will be a'pprec iated, not `only `by us, but also by many `others, among your constituents `and the country as a whole. Yours sincerely, THEODORE H. HUBBELL, Professor of Zoology. CONGRESS OF THE UNITED STA~LS OFFICE OF THE MINORITY LEADER, HousE OF REPRESENTATIvES, Washington, D.C., February 19, 1968. Hon. WILBUR MILLs, Chairman, Committee on Ways and Means, House of Representatives Washington D C DFAR MR CHAIRMAN Enclosed is a copy of a letter from Mr W'ilter W Kayser Manager International Division Oliver Machinery Company Grand Ripids Michigan which I respectfully request be made a part of the record of th~ Corn mittee in its hearings on the President s proposed trai el tax Mr Kayser points out an aspect of the President s propoaals' which merits the attention of the Committee and it is for this reason th~t I am pleased to submit it to you Sincerely GERALD R FORD Member of Conores OLIVER MACHINERY Co Grand Rapids Mwli February 16 19b'~ Re pioposed tax on business tra~ el abroad Representative GERALD R FORD House Office Bwildsng Washington D C DEAR REPRESENTATIVE FORD: I have read your February 14th report concern- ing the travel tax which is designed to conserve dollars for our government and country. PAGENO="0268" 1046 The writer spends several months out of the year triveling abroid for the Oliver Machinery Company and no trip is 120 days in length however the total travel time easily exceeds 120 days. My travel i~ designed not to spend U.S. dollars abroad, but to win dollars so as to help the balance of payments for our government by gaining some export business I do not think that it would be proper that such travel be taxed in aLcordince with the tax schedule proposed In fact I do not think that it should be taxed at all since travel of this kind which is designed to bring i~ Ti S dollars thu ough American business ought to be encouraged rather than discouraged I Would appreciate your doing ei erything possible to eliminate such a talc from the new legislation about to be enacted Very sincerely yours WALTER W. KAY5ER, Manager, International Division. CONGRESS OF THE UNITED SPATES, OFFICE OF THE MINORITY LEADER, HousE or REPRESENTATIVES, Waahiagton, D.C., February 19, 1968. Hon WILBUR MILLS Chairman Committee on Waiys and Means House of Representatives Washington D U DEAR MR CHAIRMAN Enclosed is a copy of a letter from Dr Dick L Van IIalsem.a, President of the Reformed Bible Institute in Grand Rapids, Michigan, which I request be made a part of the record of the Committee in its hearings on the President's proposed travel tax. Dr. Van Ilalsema points out an aspect of the President's proposals which merits the attention of the Committee and it is for this reason that I am pleased to submit it to you Sincerely GERALD R. FORD, Member of Congress. REFORMED BIBLE INSTITUTE Grand Rapids, Mich., Februa'ry 13, 1968. Representath~e GERALD R. FORD, U.s. Congress, Washington, D.C. DEAR MR. FORD : Your weekly Washington Review contains `a comment on the proposed `travel tax-as I hoped you would do. I agree `that all patriotic Amer- ican's will cooperate `to defend the financial stability of our country. However, I believe that the provisions submitted `by the President are too restrictive. In connection with my work for `Christian Reformed agencies I have made several trips to Europe in recent years On some of these trips I have helped organize groups of people interested in attending religious meetings or visiting areas of historical importance Most of these trips are crowded into 22 days because the most favorable air fares fall in that time bracket This means that the average visitor to Europe spends at a higher rate for 22 days than he would if he had 30 or 40 days time to accomplish the same objectives-conse quently being liable for more tax (not because he is `spending more, hut because it happens to fall within a shorter period of `time). In other words, I `believe that the fairest `tax-if thePe must be o.ne-~should be based on total amount spent `abroad, not on how much per day (`this would require too much paper work also). The saddest part of the picture, of course-~a,s you h'ave stressed for years, is that this travel tax might not `be necessary at all if true love of country, wis- dom and self discipline bad prevailed instead of the disastrous policies of New Deal, New Frontier, New Society, and wha't have you. In fact, perhaps it is no't too late to take substantial steps in reduessing Imbalance of payments so that restrictive travel taxes can be avoided. Cordially yours, D1:CK L. VAN HALSEMA, Tb. D~, President. PAGENO="0269" 1047 CONGRESS OF THE UNITED STATES, HousE OF REPRESENTATIVES, Washington, D.C., February 14, 1968. Hon. WILBUR D. MILLS, Chairman, House Committee on Ways a1u1 Means, Longwortiv House 0/floe l3ui Wing, Washington, D.C. DEAR Mn. CHAIRMAN: Mr. George Watts, a well-known jeweler in Milwaukee. Wisconsin, has asked me to submit to the House Committee on Way~ and Means his statement on the balance of payments deficit issue. - Enclosed herewith is a copy of Mr. Watts' statement, along with accompanying information, which I hope you'll make `a part of the Committee record. Thank you. Sincerely, HENRY S. Rnuss, Member Qf Congress, GEORGE WATTS & SONS, INC., Milwaukee, Wis., January 31, 1968. HOUSE WAYS AND MEANS COMMITTEE, Washington, D.C. GENTLEMEN: Inasmuch as normal tourist purchasing abroad reflects badly on Americans as being greedy ~nd materialistic and is `a, net dead, loss to our balance of payments problems, plus a further stimulus to tourist travel at a time when a continued balance of payments deficit seriousjy threatens the dollar, we respectfully request that the Congress of the United States take action to reduce the present subsidy for tourists, which allows them to bring in a $100 per capita of merchandise duty free, be withdrawn completely. We would submit that `such competition has always been grossly unfair to American retailers, as such tourists use our shops to select their patterns and then use their jet mobility and tourist exemption to pozchase abroad. We would also submit that any hurt to the legitimate American retailer is a hurt to the government of the United States and local governments, a's well, because im- ported merchandise that comes in through normal trade channels pays salaries and wages to a tremendous proportion of American citizens; and the various corporate units that assist in the importing and distribution pay taxes, of course, to all level's of American government. Such trade that `also comes through normal distribution channels is produc- tive of long term international friendships and is not, as is tourist buying, capricious, undiscerning and non-productive. I am attaching herewith various addenda to bear on this subject. `For example, advertisements which use the tourist exemption to encourage travel; articles by columnists, who have observed tourist behavior and tourist buying abroad; and other articles that may be of interest. [This material is in the files of the committee.i With many thanks for your earnest consideration, I am, Sincerely, GEORGE WATTS. QONGRESS Q~' ~IIE IJNIT~n STATES, HousE or RaPRESENTATIVES, Washingtan, 13.0,, January 25, 1968. Hon. WILBUR P. MILLS, Chairman, Ways and Means Cammiittee, House of Representatives, Washington, D.C. DEAR Mn. `CHAIRMAN: Enclosed is a letter I have received from Mr. E. S. Chri'stofferseii, presenting his views on the curtailment of travel. I would `appreciate it if Mr. `ChrLstoffersen~s letter could be made a part of the printed record of the hearings `on the balance of payments proposal's. Sincerely yours, JOHN J. MCFALL, Member of Congress. PAGENO="0270" 1048 CHRISTOFFERSEN POULTRY, EGG, AND FEED MARKET, Turlocic, Calif., January 10, 1968. Hon. JOHN J. MC:FALL, Representative, Capitol Building, Washington, D.C. DEAR CONGRESSMAN MOFALL : We sincerely trust you will take time to read this letter `as we feel it contain's very important information which will assist you in making your deci'sio;n,s on these problems here in mention. We have heard on the news media, that President Johnson is going to request the Legislators to pass a bill curtailing United States citizens from manufao. turing portion's of their products `in `other countries and `bring `it into the United States and `also curtailing travel from the United States `to other countries by either charging "a tax on travel or limiting the amount `of money spent. This letter h'as no intentions, in `any degree, of reflecting on the integrity `of our President, but, `to give you some `idea of what we have observed `through our business `as `exporters, as well as `traveling extensively abroad. Each year, for many years, we have visited several countries i'n `selling our turkey's and turkey products. The wages in America have been increa~ed `~o high in proportion to foreign countries `to th'e extent `that each year a greater percentage of foreign products are imported into `our country. M'os't of our duties `are so low `on imports, putting our own products `at `a disadvantage cost wise. Therefore, the industry in Ameri- ca has had to resort `to build a great amount of their component parts in other countries in order to live with competition. Even our governm'ent buys from `other countries for less. In our own industry, turkeys, the Common Market Countries had `duti'es and charges of 41/~ cents pe'r pound before `the Common Market took effect. After the effective day, they rai'sed it to `airound 14 cents per pound `and have m'a'de very little adjustment since. The year before Common Market Countries `started, we `sold 21/4 million pounds into Germany, but, wi'th `this heavy increase of charges and duties, our `business thus has dropped `to 20% `of what we formally sold in Germany. The high' duties~ `and charges have greatly effected `the United States exports into the Common Market `of our poultry, but look `at all the products these countries a're shipping into America with practically `n'o duties. We have just illustrated `a few `of th'e problems industry has' in America, not only in one group of countries, but all the countries of the world. Our in- dustries are co'nfronted with tremendous imports `of fo'reign countries pr'oducts. We can keep our money in `balance if we will make a careful study of the im- ports of our agricultural and `other products into `our country and wherever they are effecting `our `own economy by putting our own people out of work. We must increase `the duties or charges on these products `thus preventing our monies from leaving our country. 1. The general wages on steel, automobiles, etc., must hold their wage line to protect America and her people against this tremendous inflation trend we are now experiencing. 2. We should ch'arge `all foreign countries, who `impose exorbitant `duties and charges upon United States products, as great a duty and or charges upon the im- port of their merchandise into the United States. 3. The State Department must be more firm in our position on any agreements than we have been in the past; thus, protecting our industry and employees in America. They also must realize that all these countries are h'ard boiled bargain makers and will `do most' anything including yel'ling and screaming to scare America into giving into their goals and purposes. 4. Any country, which we trade with, who exports their products into the U.S.A-import duties on `their products should be so set by our coun'try to' protect our employees and industries of similar products manufactured in our own country. 5. T'o curtail the government expenditures of U.S. dollars in foreign countries. A few years ago, I wrote many legislators and suggested that if five brilliant businessmen' were selected `to analyse all departments of government expendi- tures, with `the authority to hire or fire, demote or promote, we could save a stag- gering amoun't of money. Some method; however, must be devised which will accomplish wasteful expenditures through all departments. We have a lot of work to do in our own country to protect our emplo'yees and `industry. The abo've recommendations, I believe, would help to make a tremen- dons economical recovery. PAGENO="0271" 1049 We must eliminate our manufacturers problems with the competition from other countries. If we carry out the President's thinking in this matter and: not the above mentioned suggestions we would only create a bigger economical prob lem in the U.S.A. The import of merchandise with low or no duties is of greater concern to our economy. We are positively opposed to his proposals on the tax of travel and or curtailment of monies used on travel, as this would be effecting our freedom. * . We feel that the tremendous expenditures being made by our own goverinnent in foreign countries makes them possibly one of the biggest contributing factors of the excessive outflow of U S dollars This particular field should be thoroughly investigated and corrective measures taken. ; Thank you for reading this letter and we trust and feel confident that you will give it serious consideration. Wishing you and your family a Happy 1968. Sincerely yours, E. S. OHRIST0FFEis5EN, Pre~utent CONGRESS OP THE UNITED SPATES HoUSE OF REPRESENTATIVES, Washington,D.C., March 8, 1968. `Hon. WILBUR MILLS, lihairman, Ways and Means. Committee, Rouse of Representatives, Washington, D.C. DEAi~ MR. CHAIRMAN: enclosed is a letter I have received froth Miss Gloria Saltzman of Tracy, California, a former member of the Peace Corps, present- ing her views of the possible adverse effects of the President's proposed Travel ~Tax Program upon our international relations I would appreciate it if Miss Saltzman's letter could be made a part of the printed record of the hearings on the balance of payments proposals. Sincerely yours, JOHN J. MOFALL, Member of Congress TRACY CALIF March 5 1968 Congressman JOHN J MCFALL LJ.~. Honse of Representatives, Washington, D~C. ` . DEAR SIR Several recommendations have been made by the Johnson Adminis tration in an attempt to ease the flow of gold from the United States and to keep the American home This is to be done by encouraging foreigners to vaca tion in the United States and by inflicting a tax upon the Americans who desire to travel abroad, particularly out of the western hemisphere. The former recommendation is a' good one but not too feasible. The United `States is a vast and an* expensive country to travel. Few people come to the United States equipped with a trailer or camping gear a method used with increasing frequency here It will be a very long time until foreigners other than students on scholarship military officials embassy personnel etc are able to travel within the United States The latter recommendation is one I emphatically and completely disagree *with. To apply a tax upon Americans who want' to travel outside of their country `would, in fact, dO `little to really bait ~ flow of gold. More importantly, it is nec- essary to understand the* negative consequences of such an act. The ` tax would put an unnecessary hardship on certain Americans as well an inhibiting their traditional right of freedom of movement At the same time it would prove ~damaging to the ever sagging prestige of the United States It would retard the beginnings of understanding-ours and that of other nations It negates the un portance of the tourist to the nonwestern country in particular I think that I can speak from experience I have recently returned from two and one half years of Peace Corps service in Liberia West Africa During that time I traveled overland through West Africa On the way home I managed to visit in Morocco Greece Israel India Thailand Hong Kong and Japan In my PAGENO="0272" 1050 own small way (but multiplied by the hundreds of and thousands of others doing it too) I have done more for this country in the long run then a visit of a Presi dent, a Senator, or a bureaucrat. In my travels, I unfortunately, often saw the ugly American-~the man who should have stayed in Kansas if he wanted Kansas comfort, of the elderly rich woman who traveled via criticism of the government official on a fact finding mission, who in three weeks couldn't perceive and apprecia:te what I did in three days. In Japan, an elderly grandmother looked at me and said, "You know, you are like Japanese. You sure you're an American ?" Through our traveling by our becoming part of the Liberian or Turkish or Indonesian, by being what was good and simple, we helped in a deeper way, per- haps, than ~ through our teaching in the secondary schools, or at our well baby clinics or blood banks. The local U S AID official who bad misgivings about eating the local food because it was differen:t, wondered why be wasn't accepted. In the same manner, a social welfare worker hi the States wonders at her rejection in a migrant worker camp in San Joaquin County, even though she is dressed "for church", and the "clients" look as if they have spent a day in the fields (which they have). In other words, we are winning more friends, building more lasting bridges, and creating a better climate through contact with our youth, our peace corps volunteers, and other voluntary agencies. They may travel on a shoe string, but they quickly get to the heart of the matter. To the rich, to the established, what is a hundred dollar tax? He'll go anyway- of ten to the best hotel, the tourist meccas-and see little. But what about the sudent, the Peace Corps volunteer, etc? That one hundred dollars could mean the difference between his going and not going. By Americans spending abroad they are in the long run saving their country money. For instance, the tourist buys crafts in Dahomey, West Africa. Increas- ingly there is a demand for goods and a cooperative is founded Soon a national tourist center is constructed It is profitable The people within the cooperative and center are no longer in a subsistence situation, and government money can be re-allocated. As the government is able to re-allocate and pay for its own development., the contributing nation spends less. In the two and one half years I lived in Liberia, the amount of hardware and food stuffs . available in the hinterland stores quadrupled in a~nount and in variety. Why? Because the volunteer, government official, `the AID advisor were tbore to buy. As he bought more, the price lowered sonic, and more of the general population could buy. Whole new markets were started. Many students were able to attend school, for instance, because they had employment on a part time basis. The small amount of money I paid `some of my students for services is not even enough to speak about but without that mon~ey many DaniOls Jackson~s and Donahs woruhhi t be in school todiay Isut `this-a need and growth of consumer goods and higher school enrollment part of the `development and goal of a society'? Is it not detrimental to our policy in the United States to help the deireloping nations if we put a tax on visits by Americans to the very `places where the American dollar is most needed'? Is `it not better to encourage the spending `of money in this country through tax exemptions on internal vocations'~ Is it not `better to r'e allocate here at home'? Is it not better in the long run `to bring the Viet Nam war to' an end? Since returning to the States, I have worked with an O~O migrant education program in California. I have seen enough waste, ignorance, faulty planning, and misallocation-all of which is more important, than a need to tax foreign travel. I question the intelligence of letting `domestic spending pass with `so little scrutiny. When law's, such as a tax on travel come along, I f~el this country slip back, become isolationist as if the outside goes away when we close our eyes' Having lived abroad and served as a volunteer served in poverty programs here etc I,, unlike President J~ohn'son, caimot close my eyes to i~eal .issues. There is no easy way out of course This does not mean that we atten~pt anything Sincerely Miss GLORiA SALPZMAN, Tracy, Calif. PAGENO="0273" 1051 CONGRESS OF THE UNITED STATES, HOuSE OF REPRESENTATIVES, Hon. WILBUR D. MILLS, Washington, D.C., February 22, 1968. Chairman, Committee on Ways and Means, Longworth House Office Building, Washington, D.C. DEAR MR. MILLS: I am enclosing here a letter which I have received from my constituent, Mr. Richard E. Spear, who is an Assistant Professor of Art at Oberlin College, Oberlin, Ohio. I am Impressed with the views that are expressed by Mr. Spear in his com- munication on the travel tax and its effect on student and teacher trips abroad. Therefore, I would like to request that Mr. Spear's comments be made a part of the record of the hearings. If additional copies should be required for re- view by members of the Committee, and Interested departmental and legisla- tive staffs, please let me know and I will be glad to send more copies on to you. Sincerely, OHARLES A. MOSIIER, Represent at 1'v~ to Congress. OBERLIN C0LLEOR, DEPARTMENT or ART, Congressman CHARLES MOSHER, ObO~Zin, Ohio, February 8,1968. Congress of the United States, House 0/flee Building, DEAR CONGRESSMAN MOSHER: I should like to express my serious concern with the proposed legislation concerning travel outside of the Western Hemisphere. My thoughts concerning the per diem tax were expressed yesterday in an edi- torial of the New York Times: basically, that the complications and doubtful fairness of the system will undermine much of the good faith taxpayers have shown in the past in voluntary systems. I further agree that if necessary, a tax on transportation is justified. From a personal and professional point of view, however, I am most dis- turbed by the clear decision to deny students and teachers exemptions for sum- mer trips by requiring an absence of 120 days for an exemption. If, in prin- ciple, those groups merit exemptions for longer stay abroad, on what basis does one conclude that a shorter trip is not as important? As is well known, re- search and subsequent publication is prerequisite at all good schools to tenure and promotion, as well as to good teaching. Thus for the historian, social scientist, and many others involved in study of non-Western Hemisphere cul- tures, research trips are imperative. For example, I am currently writing a book on an Italian painter of the Baroque age and my plans include, indeed the book demands, many trips to Italy and `other Euorpean countries. It simply cannot be done in our libraries and without visits to Italian museums and churches time and time again. Taxation of this work, which is intimately related to my position and `teaching seems contradictory to the professed interests of the Johnson administration. Likewise, the setbacks suffered by summer student pro- grams, and even the curtailment of individual student trips I would find a serious blow to the education of American students. And this seems to be the inevitable consequence of the proposed legislation. Thus I urge you and your colleagues to consider this problem most `seriously, balancing against the economic crisis of the balance of payments the vital role of education in the United States. Thank you very much for the time and attention given to my thoughts. `Sincerely yours, RICHARD B. SPEAR, Assistant Professor. CONGRESS or THE UNITED STATES, Housn OF REPRESENTATIVES, lion. WILBUR MILLS, Washington, D.C., February 23, 1968. Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR Mn. CHAIRMAN: I have received many letters from my district opposing the proposed travel `tax program now in hearings before your committee. 89-749-68-pt. 3-18 PAGENO="0274" 1052 However, I think that none expresses so sincerely and succinctly the effect of the proposed restrictions on our elder, retired citizens as that of Mr. Henry A. Skorga which I am enclosing. If it is possible I would like to have Mr. Skorga's letter made a part of the hearing record. No reply to this letter is necensary. Sincerely, LARRY WINN, Jr., Member of' Congress. KANSAS CITY, KANS;, February 7, 1968. Representative LARRY Wiwu, Jr., Washington, D.C. DEAR Sin: As residents of your district I am writing to ask your help in get- ting some fair exemptions in the proposed tax on European travel. I am 69 years of age, my wife is 67. Our finances are limited We have saved for years to visit relatives in Europe. Our passage has been booked for some time, on the Bremën for May 18. We had planned on buying a Volkswagon (small) here and having it delivered there. Our relatives are scattered in different vil- lages and countries. A car is a necessity to get from village to village. It will be `impossible to avoid hotels and restaurants. I ask you, how can this be done on $7 a day? We plan to be gon~ 90 days. We can't afford to pay a large tax on our return. We have been paying tax on tax all our lives. Our relatives are old and so are we. If we don't go now we won't be able to .go at all. This is a real hardship on retired people We go tourist class and are not people who spend lavishly but there are neces sities that have to be met when traveling. Please see what you can do for people like us. Sincerely HENRY A. SKORGA. STATEMENT or AMERICAN COUNCIL ON EDUCATION, AMERICAN ASSOCIATION OF JUNIOR COLLEGES, AMERICAN AssocIATIoN OF STATE COLLECEB AND UNIVERSITIES, AMERICAN ASsocIATIoN OF UNIVERSITY PRoFESSORS, ASSOCIATION OF AMERICAN COLLEGES, ASSOCIATION OF AMERICAN UNIVERsITIEs, COUNCIJI OF PROTESTANT COL- LEGES AND UNIVERSITIES, AND NATIONAL ASSOCIATION OF STATE UNIVERSITIES AND LAND GRANT COLLEGES We have studied with care the proposals for restricting travel outside the West- ern Hemisphere, placed before the House Ways and Means Committee on Febru- nry 5, 1968 by the Secretary of the Treasury. As associatiOns representing Ameri- can higher education, it is our obligation to consider the probable effect of these proposals upon students, scholars, and academic administrators who travel abroad for study, teaching, research and other professional purposes. Fully aware of the gravity of the balance of payments problem we have con- cluded nonetheless `that the balance of the national interest would not be achieved by the imposition of the proposed expenditure taxes on professional academic travel. In principal, we of course share Secretary Fowler's view that the proposed restrictions are "uncongenial." In practice, we believe that they will unwisely limit bona fide academic programs and relationships which this Government has itself encouraged and supported for over twenty years. The Secretary's own testimony indicated that student and sc~holarly foreign travel comprise about 5% of the total Americnn travel abroad at which the proposed measures are directed. The exemption already provided in the pending proposals for long-term (over 120 days) foreign travel of students and scholars further reduces in prospect the number of academic travellers' who would pre- sumably be liable to taxation. The relatively insignificant outflow of dolars, therefore, which might be stemmed by the imposition of expenditure taxes upon short-term academic travel does not, in our judgment, compensate for the edu- cational and professional losses likely to be sustained. STUDENT STUDY-TRAVEL As we have analyzed them, the. proposed restrictions will bear most heavily upon short-term `academic travel normally undertaken during the summer PAGENO="0275" 1053 months. American iiistitutions, for example, sponsor well over 100 unclergradu- ate StU(ly pr()g111111s al)rOa(l durii~g those inoi~t1is iiivolviiig S()111~? S,O()O StU(ltlltS- integral in the academic offerings of the home university or college, normally conducted for credit with the threefold purpose of : (1) broadening the base of liberal education (2) iiicreasing competence in foreign languages and in the knowledge of other cultures, and (3) affording specialized study in major academic fields. Plie range of American institutions involved includes the full s1)ectrum-Pllblic and private, large and small, universities, colleges, and junior colleges. The experiential cost data which we have examined indicates that living costs to individual students for academic programs of limited duration abroad would be in excess of the $7.00 per diem general exemption proposed, thus throwing all or virtually all students participating in such programs into at least the 15% bracket of expenditures tax liability. Leaving aside the 5% travel tax con- templated, the expenditures tax liability alone could add $50-$200 or more to the individual student's total cost for summer study abroad. There can be no real doubt that summer study programs would be hard hit by such additional lia- bility, in highly specialized student programs of longer (but less than 120 days) duration, where the educational program is based upon extensive travel, the added costs could be prohibitive. We do not believe that it is iii the national interest, on balance, to curtail student programs abroad which are aimed at increasing our people's literacy in world affairs and their understanding of other cultures. The validity of this principle seems to us to have been acknowledged in fact by the inclusiofl of the 120 day exemption in the proposals as they stand. We conclude, accorcliiigly, that the distinction between long-term and short-term student study abroad em- bodied in the expenditures tax proposals is fallacious. SCHOLARS AND ACADEMIC ADMINISTRATORS We cannot but reach the same conclusion as respects short-term, profession- ally-related scholarly travel abroad and the comparable travel of academic ad- ministrators. The responsibilities of the teacher-scholar-academic administra- tor require that he normally be in residence on the home campus for at least nine months each year. As a consequence, he tends to concentrate his travel abroad for research and other professional purposes into periods of less than 120 days. The $7.00 per day exemptioii provided for foreign travel of short dura- tion is even less adequate for the scholar than for the student. It is our opinion that most scholars amid others in this category would fall w-ithin the 30% bracket of expenditures tax liability under the pending proposals. There can be little doubt that such tax liability would significantly penalize, and thus curtail, academic travel in this category. We do not believe such a result to be iii the national interest. Hence, as in the case of student travel abroad, we reiterate that the distinction for scholars and academic administrators between long- and short-term travel abroad is fallacious. We are convinced that government's own encouragement and support of the foreign travel of academic leadership has, for well over two dec'a des, amply demonstrated its belief `as well uS out's, that iricremiseti iiitel'flultiomwl c'omamunica- tion betw-een acadeniics is a sigiuificant public goal. Quite aside from the :LdvOn(e- ment of knowledge through research, it appears beyond much dispute that the enhancement of mutual nudersta nding aniong cultures, and the cultiva liii of standing imiternatiorial ties between such professional leadership groups, are priorities of a high order for this nation. `We do uuot believe it logical to curtail such scholarly activity, nor equitable to pemialize. through the proposed expendi- tures tax, the scholars or academic administrators ~vho are its veincie. TRAVEL ON BEHALF OF THE UNITED S UATES GOVERNMENT A substantial amount of short-terni foreign travel by scholars and acutd(flhiC administrators is, furthermore, undertaken tut the behest (Pr under the sPouisol'- ship of government (e.g , iii the Fulbriglit Program, the All) program, con- sultamitships antI advisory iiiiSSiofl of niany kinds. "official" delegations to inter- national meetings). Irrespective of its duration, such travel should be exempted in equity from the taxes proposed as is "United States Government Travel." In ,S~vinlnary. w-e reemphasize our concurremic'e with what has been long-stand- ing public Policy: that student and scholarly professional travel is in the national interest. We believe that it should, therefore, be exempted from the proposed PAGENO="0276" 1054 expenditures tax without regard to duration. The failure to so exempt it would result, on the basis of Secretary Fowler's own estimates of the percentage of foreign travel involved, in a wholly insignificant contribution to relief of the balance of payments problem. American Council on Eduoation.-Total membership: 1,538, which includes 1,286 institutional members, 129 associated, 70 constituent, and 53 affiliates. American Association of Jun4or Colleges.-Total membership: 757 junior colleges. Americn Association of State Colleges and Universities.-Total membership: 232 states colleges and universities. American Association of University Professors.-Total membership: 87,754. Association of American Colleges.-Total membership: 894 colleges and uni- versities, chiefly concerned with undergraduate education. Association of 4merican Universities.-Total membership: 42 United States universities. Council of Protestant Colleges and Uni'versities.-T'otal membership: 230 United States colleges and universities. National Association of State lJniversities and Land Grant Colleges.-.-Total membership: 99, including 68 land grant institutions and 31 state universities. STATEMENT OF DR. F. Gonnow ]~orcz, PRESIDENT, TIlE EXPERIMENT IN INTEIvSrA- TIONAL LIvINO As President of The Experiment in International Living, I am neither an advocate of the Travel Tax Program nor an unregenerate complainant. The E~x- periment will suffer from such proposed taxes-to some extent, it already has- but I am confident that it will survive. My position, however, is not one of neu- trality; it is one of genuine concern. My thoughtful citizen can afford to ignore the persistent gap in our balance of payments-a gap which threatens the sound- ness of the dollar at home and its strength abroad. The question is not whether something must be done, but what. For 36 consecutive years, since 1932, The Experiment has offered programs of cross-cultural education for young people from many nations. The classic Experi- ment progi~am had already assumed most of its present dimensions by the second year of operation: a two-month program for a group of carefully-selected, care- fully-oriented young people who go abroad with a trained adult leader to live and learn in another nation, usually during the summer vacation. The unique feature of the program is that each Experimenter lives alone for a month with a family in the country be is visiting. In short, the Experimenter takes his beginner's lessons in coping successfully with the people of another society. He comes away enriched; but more than that, he comes away a better citizen of his own country, with embryonic skills his nation desperately needs to fullflhl its international commitments. Responding to growing demands for more specialized language-and- area study programs, and for intensive cross-cultural orientation and training, The Experi- ment in 1962 establIshed its School for International Training on a 250-acre campus with facilities for 200 students. Since its inception, more than 2,500 persons-Americans as well as participants from abroad-have enrolled at the School for short-term programs involving language instruction, techniques of effective functioning overseas, intensive threshold orientation to American life, and area studies, including training programs for over 1000 Peace Corps Volun- teers. The School for International Training, recently recognized by the State of Ver- mont as an institution of higher education, now offers a variety of academic programs, the most recent of which is a 15-month academic and overseas intern- ship program for graduate students intending to pursue careers in international affairs. A sound case can be made that programs such as ours-and there are a num- ber of good ones-serve the national interest in ways which far transcend any adverse effect they might bring tO the balance of payments. The United States has a vested interest in the education of its youth for leadership in the world community. The young person who can function effectively overseas is still a scarce commodity. The same might be said for citizens with the capacity to analyze and understand why a foreign country reacts to American policies in PAGENO="0277" 1055 ways which to us may seem irrational; or why the United States must sometimes pursue policies abroad which defy the dictums of Anglo-Saxon common sense. Our primacy in world affairs leaves us no choice but to educate our young people for international as well as national responsibility. For this reason alone, a host of eminent leaders in education, government, and private enterprise have reached the common conclusion that a significant educational experience abroad must one day be a mandatory feature of higher education in the United States. To make the essential point, we must not discourage the education abroad of those outstanding young Americans who will staff the coming generation of citizen-leaders, for the sake of questionable short-term gain in our `balance-of- payments position. Besides, one need not he sacrificed for the other. I doubt very much that legitimate programs of educational exchange contribute enough to the deficit in o'ur balance of payments to make a noticeable difference. Let me suggest ways in which the purposes of the Travel Tax Program might be served without prejudice to those overseas programs which have genuine educational Value. First, we urge that Congress and the Administration take ~teps to remove the stigma attached to `student travel `abroad implicit in the recent proposal's. The disquieting sense of disservice to the nation can be dispelled simply by stating, unequivocally, that it is not unpatriotic to go abroad if the purpose is primarily educationaL Second, we strongly recommend that students or teachers going `abroad for even a short peri'od of time not he required to pay taxes on any sums expended on their `behalf by colleges, universities, secon'diary schools, and organizations recognized as nonprofit by the Interi~al Revenue Service, whenever these expendi- ture's constitute part of the arrangement for bona ficle educational programs. This exemption `should include payments for meals, housing, transportation, fa- culty salaries, instructional `co's'ts, or `administrative expenditures. We feel that this i's the only sound way to protect programs from severe damage by `the pro~ posed taxation. The following criteria might apply for granting exemptions: 1. That the traveler be a bona fide student at the secondary-school, under- graduate, or graduate level. Student status can be readily documented. The exemption should apply to any person who was a student in good standing within a reasonable period before undertaking foreign travel, including recent graduates, since the years during and immediately after formal schooling are those in which a young person is most inclined, and generally most available, to embark on educational travel abroad. 2. That the student go abroad on a recognized program with built-in oppor- tunities for getting acquainted with the citizens of the nation visited. There are two problems here. One is that of recognition. It is highly improbable that the Administration would wish to become involved in evaluating perform- ance and attesting to the reputability of private educational-exchange organiza- tions. The best approach might be to accept the State-granted charter of incorpo- ration of a given private organization at face value ; ,that is, the Federal Govern- ment would recognize a State's acceptance of an institution as a bona fide educational-exchange organization. The second problem is that of judging what constitutes a significant cross-cultural experience. The only practical solution, again, is to accept at face value what an organization says about itself in its literature, until experience confirms or refutes its self-description. Favorable consideration would be given to organizations offering through their program annotincements such host-culture-oriented experiences as homestays, regular use of youth hostels, employment in indigenous businesses, binational study pro- grams, and service in binational work or youth camps. In summary, under the system `outlined above, exemptions from travel taxes would be extended to bena fide students enrolled in educational-exchange pro- grams sponsored by State-chartered organiz'ations offering educative cross- cultural experiences through their program announcements. A simpler approach would be to raise the exemption ceiling for students from $7 to $15 as a more appropriate ceiling. A s'tudent living frugally-or a well- managed exchange organization sponsoring him-can budget within the $15 range for food, lodging, and in-country transportation. In fact, the more frugally lle lives, the more likely he is to come into close contact with nationals of the host country. The pressure toward thrift can only work toward the student's benefit; PAGENO="0278" .1056 but a $7 limit hardly qualifies as a realistic guidepost, given costs of living abroad today. The third suggestion focuses on the proposed 5% tax on international air travel. We don't like it, but we can at least live with it. It is nothing more than an extension of the excise already imposed on domestic air travel. There has been talk of using half the proceeds to improve domestic facilities ; for instance', by extending airport runways We would only recommend that some small part of the total be allocated to construction of low cost student accommodations-~ outh hostels, perhaps-for both American and foreign students traveling within the United States. Private organizations have done yeoman service in providing such limited facilities as we have, and in trying to raise funds for more; but private funds are simply inadequate for the task in a country of such size and complexity. A systematic injection of funds would be welcomed by all of us who feel a responsibility for promoting travel by young people within the United States. Fourth, we recommend that the Administration facilitate the sale of Goveni- ment~owned foreign currencies to private, educational-exchange organizations,~ such sales to be made in dollars paid in the United States, with equivalent for- eign currencies paid on demand abroad. Under this system, foreign-currency ac- counts would be reduced without loss of dollars and students would not be obliged to pay per diem taxes. Fifth, a special effort should be made to encourage private educational- exchange organizations to develop reciprocal programs with other nations; that is, to bring roughly as many exchange students to the United States as they send abroad. The Experiment has already demonstrated the possibilities. Last year we sent 2500 Americans abroad on our various programs; but we brought 2800 young people from other nations to the United States. As a result, we generated a net inflow of dollars. Not many organizations are presently equipped to promote and manage a two-way flow; but some of them could develop such a capability, given a little encouragement. We suggest that an incentive be written into the Travel Tax Program. If we have read the proposed legislation cori~ec~ly, we can assume that The Experiment will be taxed on dOllar expenditures abroad without regard to the net favorable balance in our dollar account. To encourage two-way exchanges such as ours, why not impose an annual tax on. net program expenditures abroad by a given nonprofit agency; that is, on the difference between expenditures made overseas on behalf of fee-paying American participants and expenditures made in the United States for fee paying participants to this country'? The per diem exemp tion, in terms of total man-days spent abroad, would be subtracted from the net figure. An exchange organization bringing enough foreign students to the United States to reduce its net dollar outflow beneath the cumulative exemption figure would not be required to pay a tax. The incentive would be a powerful one. The sixth and final point relates direc.tly to the one above. We are not alone in rec~ommending the stimulation of a heavier flow of foreign visitors to the United States as the most constructive and viable approach to the balance-of- payments prohlem~. We can only add our own strong endorsement to some of the enlightened initiatives already taken. The report of the Industry-Government Special Task Force on Trayel is a model of public-private cooperation toward sOlving a common problem without recourse to new legislation or administrative regulation. Private, nonprofit education-exchange organizations, and the thou- sands of young people they program annually, will be among the immediate beneficiaries, as discounted rates for domestic and international travel, and for food and lodging, are reflected in lower charges to incoming program participants. At present, our domestic tourist industry is not well attuned to the potentials and needs of the low-budget tourist. Travel in the United States is formidable, especially for the independent tourist who speaks little English. How far can he go on his limited budget? Given a range of time and distance, where should he go and what should he do? Where can he find a clean, moderately-priced hotel, where somebody speaks his language, in a neighborhood where he will be safe on the streets at night? What restaurants and cafeterias offer wholesome foods at competitive prices? What form of transportation is most appropriate and inexpensive for travel between two points? Where can he exchange his own currency for dollars? How can he meet Americans in their homes, businesses, or recreational facilties'? Where can he find help when be is in trouble'? Most important of all, do Americans really care about his being here? PAGENO="0279" 1057 The aiiswers to tlwse questimis lie in the single ~vorc~ "sponsorship." ~lie low- budget traveler must have access to orgaiiized ~)rog1'aIus, to various kill(ls of `I)aekage tours." within 1:iis financial means. Exl)erilnent programs, as an example hi the iionprofit category, solve these problems in advance, at a price within range of moderately ~veil-to-do foreign stu(lent~. The visitor is thereby freed to devote all his energies to the 1)11si1Ie~S of seeiiig the JTlli.te(1 States. meeting its (itizells, and getting to U11(lirstalld what the Ame]i(an way-of-life is all al)out. Every ~stuclent visitor Sh(mUi(l have the same a(lva1~tages. 1-le 1)robahly won't, however, uiiless StOl)s are taken to SiT1n~idize private sponsorilig Organizations from a variety of public 011(1 i)1'iV~ite sources. The sobering f;wt is that The ExI)erilnent can program 2.~)O slillEnts to the lJllite(l States each year only ~y raising fniids, arduously and continuously, in or(lel to underwrite a 1)ortio*n of our incoming programs and thereJ)y to offer them below cost. it i~ easy to under- st;ai~I our eiithusia~in for the l)1o~ect.e(T discouiits on travel and ace(nhlnodation ra.te~. which will surely l:)erlnit further re1uctions~ in our incoming I)1'Cgraln fees. Sl)O11~rSI1il) (all a1~() ()l)(~]~t(~ eX(.lU~iV1~1y ot the local level, provi(Iilg facilita- tive ~eivice~4 1(11 il1t(-q~lIa tional ViS!itUi~ O11~(~ tll(y 1i;iv~ :~ 1IiV((1 ill 0 eotnniuiiity. `Pl1(-~ I)(~~t (~X~lIfl1 1 ~ ~ 1( )(~iL11y-S11~)~ Oiled (~i1tt~11)ii~(S ~ )f t1~i ~ ~ `jOt Jfl~y lo*~ found ~vi thin CO SEi~V---the National ( `am 1 il f r ( 1ommun i ty Servi oes to I uteri a tional Visitors-.----comprisiiig a national rntw-ork at volmitary organizations in unie SQ major (`Oinmuinitio-. (It lll~ V ifhl UI t ~5 01 ~:upj )(itPU (lit) i~iY J IV I vol "(0 tiihu- ti oiis. a Iwa y' fr rn pri va t~ s urves. son ietimes in pa mt tram iiiun ivipa 1 govern- mont s. Typical of the services 1)rovided are `language honks' through which a non-EngI i sli-sj en king vi ~i tar (On be lut in touch, with a resilient who speaks his ha nguage : lists ol. I OW-C (St unto] 5, F (lill og houses, and other a ye rnmo(la tioiis li~ts if inexpensive mostaura,its and vafetcria~ : sightseeing aiol other useful guil(i.)ooks in many languages : social gatherings for Amerivans and foreign visi- tOt's ii~troductioiis to Aiui'riean families and to Aniericans ~viio share similar nrofe~ oni 1 in tem'ests volunteers to serve as git (10 to pal nts of interest' : and counsel on ~~-hat to (10 and how to gel around within the comniunity. (IOSER.V affiliates are plrtivuiarlv oriented to time need~ of international visitors brought to the Fnited States as guests of the ITnited States Govermi- nient a nd I login mmcd rnidr contract by various notional agencies ( i miudnig The Experiment iii I ntorna tioial Living) Many of these Inca 1 units a ic r.~ady on d willing to a tier thi~i r services to foreigmi vlsi tors in otb em' en I egumies, but only for those who caiim~ot afford a comninei'eial tour or who have come not with the intention of just sightseeing. but of ha ving a vaIl (1 educational expi-i'ien~'e. In other words, C()SERV offices, totally noim-commnercial iii tli(Ir owii right, have 110 interest in (( anl ct Jig with thei 1' (OlflhiiE'J'OiO I (ounterpa its. TI ie a vaila 1 ility 011(1 wilhi ngmmess of community volunteers a me eounterbalanced by a characteristic paueity of funds to run a professional operation, Even in a voluntary organization. there must be a full-time, professional staff committed to efficient preformance : an(i there must be a centrally-lola ted otlice with a mnodiciun of furniture, equipmemit, and ~upphies. Volunteers must be recruited, tra timed. audi supervised: correspondence anil telephone en us must be answered 011(1 in :forma- ti()mi On conhinunity resources luSt be cant in ima lly ehmeckeci, updated, and made available to the inquiring visitor. But to underline the crucial point, voluntary offices su('h as those iii the (I()SERV network are already operational, anxious to be of sem'vice to international visitors and they represent another invaluable resoni'ce in our common effort to make American eoniinunities more agreeable, accommodating, and attractive ~laces to visit. Mommy of these service agencies (10 not need much, but that much they need badly. If they could be certain of a sohi(I base of financial support, year iim. year oimt, they could expand their volunteer fnm'ces and services to an extent which would substantiall augment lcea 1 capabilities to serve fom'ehgn visitors. More ovem', they are amenable to coordination by the National Office of (IOSERV in Washington, TIC. Why not make greater use of them in fighting the balance- of-i ayments problem ? Should the Federal Govermnneiit lend a helping hand? Possibly, bitt miot Un- equivocally. The educa.tiommal-exchammge field has always beemi in a class by itself, benefiting a little now and then from Federal Governmemmt largesse, but surviv- ing by and large on its own merits. Educational exvhange is supported by tens of thousaml(1s of Amllericans, yet has m~o cohmcrent (`Omlstituency. It is funded by private individuals, Private cntem'prisies, anti local govermituemits, yet serves na- tional foreign policy goals. It lives day-to-day, hand-to-mouth, yet somnehow PAGENO="0280" 1058 manages to grow a little every year. It yearns to do more in the service of inter- national understanding yet chafes beneath a burden of perpetual financial iieed The Federal Government which could provide coordinative leadership or catalytic funds provides neither in adequate amounts Yet much is possible Let me cite an example. For a number of years, the State Department subsidized charter flights of Tile Experiment which carried about 100 outstanding young Americans every sum- mer to Greece, Turkey, Israel, Egypt, Iran, Pakistan, and India; and which brought as many young nationals to the United States from the aforementioned countries, plus Thailand, Oeylon, Lebanon, Syria, and Jordan. The charters were paid in Indian rupees which had accrued to the United States Government ac- count from the sale to India of surplus wheat and other grains. No American dollars were involved. The two-way exch.ange was enormously successful, be- tween the United States and nations with which we sorely require bonds of mutual trust, respect, and understanding. The per capita cost of the exchange to the Federal Government was $505 The Experimenter and The E~iperiment covered all remaining costs of the two-month programs. The Federal Govern- ment could scarcely hope to reap so much goodwill and educational advantage at so low a price; yet the charters were perforce discontinued when cuts were made two years ago in the program budget of the Bureau of Educational and Cultural Affairs. The need is to bolster the budget of the Bureau of Educational and Cultural Affairs for the specific purpose of providing seed money for private, nonprofit organizations willing to raise the numbers of foreign visitors they bring to the United States on their educational-exchange programs. Such funds might take the form of foreign-currency subsidies to enable them to open and administer offices abroad to recruit, select, and orient participants for programs in the United States, or to pay part or all of the costs of international travel. They m1ght also take the form of dollar subsidies to enable visitors on nonprofit educa- tional programs to travel more extensively in the United States `than their limited budgets would otherwise allow. Seed money of this kind would give our educational-exchange organizations the incentive and the means to innovate- to develop new, imaginative programs which would appeal to an ever-expanding number of potential foreign-student visitors. Still another approach might be made through the ingenious coupon plan recently proposed by Representative Henry Reuss, who recommends a post- arrival gift of $100 in coupons for every first-time foreign visitor, as a practical means of increasing the cost-competitiveness of the United States as a tourist attraction. The coup'on book could come with instructions on how to make contact with community service agencies, and with a simple `schedule of rates for basic services. Thus, a visitor might contact the COSERV office on his arrival in Cleveland; and for a nominal fee of $5 or $10, paid with a coupon, he could count on reliable advice and assistance in locating low-cost accommodations, moderately-priced restaurants, sightseeing attractions, local tours, and other amenities which would make his visit to Cleveland an enjoyable and memorable one. The voluntary agency would benefit as well-not immoderately, `but perhaps enough to confer a deeper sense of security and a corresponding willingness to innovate and expand. In conclusion, I would like to pledge the dedicated support `of The Experiment in International Living in the national effort to reduce the balance-of-payments deficit, with the sole proviso that every step we take be in the direction of reduced dollar outflow without a diminution of the reciprocal educational- exchange activity which we deem so vital and abiding a contribution to the national interest. SUMMARY (The Experiment in International Living is an independent, nonprofit, non- sectarian educational exchange organization established in 1932 and presently incorporated in the State of Vermont, with headquarters in Putney. The Ex- periment's subsidiary School for International Training has been recognized and accredited as an institution of hig~ier education by the State of Vermont.) For 36 consecutive years The Experiment in International Living has offered programs of cross-cultural education for young people from many nations. The hallmark of its programs is the homestay-one month spent living as a member PAGENO="0281" 1059 of a family in another country. In this unfamiliar environment, the participant takes his beginner's lessons in coping succes~fully with the people of another society. The United States has a vested interest in the education of its youth for world responsibility. For this reason, a host of eminent leaders in education, govern- ment, and private enterprise have reached the common conclusion that a signifi- cant educational experience abroad will one day be a mandatory feature of any good liberal-arts education in the United States. To make the essential point, we must not discourage the education abroad of those outstanding young Americans who will staff the coming generation of citizen-leaders, for the sake of short-term gain in our balance-of-payments position. There are six ways in which the Travel Tax Program might be imple- mented without prejudice to those overseas programs which have genuine edu- cational merit: 1. Congress and the Administration must somehow remove the stigma recently attached to student travel abroad. The sense of disservice to the nation should be dispelled by the unequivocal statement of Congress or the Administration that it is not unpatriotic to go abroad when the purpose is primarily edpcational. 2. Students or teachers going abroad for even a short period of time should not be required to pay taxes on any sums expended on their behalf by colleges, universities, secondary schools, and organizations recognized as nonprofit by the Internal Revenue Service, when these expenditures constitute part of the ar- rangement for bona fide educational programs, provided that: (a) The traveler is a student or teacher in good standing at the secondary- school, undergraduate, or graduate level. (b) lIe is going abroad on a recognized educational-exchange program with built-in opportunities for getting acquainted with the citizens of the nation visited. 3. Some small part of the proposed 5% tax on international air travel should be allocated to construction of low-cost student accommodations-youth hostels, perhaps-for both American and foreign students traveling within the United States. 4. The Administration should facilitate the sale of government-owned foreign currencies to private, educational-exchange organizations, such sales to be made in dollars paid in the United States, with equivalent foreign currencies paid on demand abroad. 5. A special effort should be made to encourage private educational-exchange organizations to develop reciprocal programs with other nations-that is, to bring roughly as many exchange students to the United States as they send abroad. The Experiment wishes to add its own strong endorsement to thC many initia- tives already undertaken or suggested to stimulate a heavier flow of foreign visitors to the United States as the most constructive and viable approach to the balance-of-payments problem. STATEMENT OF THE AMERICAN INSTITUTE FOR FOREIGN STUDY AND THE FOREIGN LANGUAGE LEAGUE Mr. Chairman and Members of the Committee, The American Institute for Foreign Study (AlPS), with offices in Greenwich, Connecticut, is a non-profit, non-denominational organization of American secondary school students and teachers, with over 18,000 members. It was founded in 1904 to facilitate the understanding of foreign countries, their languages and cultures by young Americans. As one of its major activities, AlPS conducts summer academic pro- grams for American high school students and teachers at distinguLshed European universities and schools; over 4,500 students and teachers participated in its 1967 summer programs. Foreign Language League Schools (FLL), with offices in Salt Lake City, Utah, is a private, non-profit, non~sectarian organization which operates summer study schools throughout Europe staffed by its own instructors. It is one of the largest, oldest and most experienced international educational institutions. In 1967, FLL enrolled 4,800 students in its summer courses at campuses through- out Europe. FLL distributes each year a number of scholarships for its sum- mer program to students from underprivileged homes, as does AlPS. PAGENO="0282" 1060 We submit this statement in order to express our concern that the Admin- istration's proposed taxes on travel outside the Western Hemisphere in their present form may seriously and adversely affect valuable summer study pro- grams conducted by AIFS, FLL and other recognized educational organizations. We also suggest possible modifications of the Administration proposals which will reduce or eliminate this harmful impact without material effect on our ~balance of payments. In particular, we will show: (1) summerstudy programs abroad provide a valuable service and their continuation is in the public interest; (2) the proposed travel taxes will impair the operation of such programs by sharply increasing their cost to students; (3) the present exemption for students who remain abroad for 120 con- secutive days or more should be amended to include students who attended boria fide summer academic programs of at least four weeks' duration; (4) at a minimum, expenditures by students attending schools abroad for tuition and textbooks and for onward travel (i.e., after a 12-hour stop outside the Western Hemisphere) to places of study should be excluded from the coverage of the expenditures tax; and (5) as an alternative to (3) and (4), the proposed $7 per day exemption for expenditures should be raised to $15 per day. `I. SUMMER ACADEMIC STUDY PROGRAMS PROVIDE A VALUABLE SERVICE TO OUR NATION Each summer, many educational institutions in Europe provide excellent courses of academic study for students from both the United States and other countries. A comprehensive listing of the cours:es pre~ared by the Counselling Department of the Institute of International Education descrIbes 194 such courses al universities and schools in 22 foreign countries. These schools gem- er~Ily offer four-week language and civilization courses. Typically, intensive lan- guage study is conducted in small groups during the mornings, and civilization * lectures and field trips are organized in the afternoonis. In 1967, AlPS summer courses were held in Britain (English Literature and History); Germany and Austria (German Language and Oivilizamtion); .S~ain (Spanish Language and Oivilization), Italy (Art History and Italian Lan- * guage); Greece (Greek :and Roman Civilization); and Russia (Russian Lan- guage and Civilization),. Summer priograms offered by the FLL in l967~ at 20 European campuses included coucses in French, German, Spanish and Italian language and civilization; Biblical histo;ry; art history; ancient civilizations ;,, and comparative governments and civilization. Summer study programs such as those .of `the AlPS and FLL are offered at ;surprslngly low cost.. A typical AlPS summer study program, involving 40 days in Europe, costs $740 for students leaving ftom New York and $890 for those departing from San Francisco. A typical six.w'eek FLL siumm.er program costs only $700 from New York. Those fees iRciudme round-trip jet air transportation, room and board, tuition, services of a chaperone, weekend trips and sightseeing. The important benefits to be obtained from sum~ner study programs abroad are evident: (a) A serious student enrolled in a summer language course in Europe will in a short period substantially increase his fluency in the language-as much as a 50 per cent increase in fluency according to tests conducted by AIFS at French and Spanish universities. (b) Young Americans enrolled in European summer study courses learn a great deal about the culture of the country in which they are studying and about the attitudes of other foreign students attending the courses. Increased international understanding is a direct benefit. (c) American teachers are able, at comparatively low cost, to upgrade their professional qualifications via study at European universities and schools. Congress has long recognized the national interest in educational study abroad, `including study of foreign languages. For example, the International Education Act passed in 1966 states "Congress declares that a knowledge of other languages is of utmost importance . . . that this and future generations of Americans should be afforded full opportunity to develop their intellectual capacities in all areas of knowledge pertaining to other countries." Other legislation intended to encourage study of foreign languages and countries includes the Fulbright Act and the National Defense Education Act. PAGENO="0283" 1061 II THE PROPOSED TRAVEL TAXES WILL HAVE A HARMFUL EFFECT UPON SUMMER STUDY PROGRAMS ~ LIKE THOSE OF AIFS AND FLL The adverse impact of the Administration s travel tax proposals upon summer study programs in Europe such as those conducted by AIFS and FLL will vary with the particular program but will in all cases be substantial It will normally be greatest in the case of programs at schools in Southern or Eastern Europe or the Near East which require substantial travel beyond the usual gateways in Western Europe. Taking as an example a 40-day AlPS Biblical History and Modern Israel course at the Hebrew University in Jerusalem (total cost to students is $990), the following rough computations can be made: Item Expense Tax Round trip charter flight between New York and Milan, Italy $240 1 $12 Transportation from Milan to Tel Aviv and return to Rome 150 Tuition and living expenses during 4 weeks at Hebrew University 150 10 days' travel in Israel 100 1 week's travel in Italy 100 Cost of chaperone's services 50 Out-of-pocket personal expenditures by student ($3.75 per day for 40 days) 150 Total taxable expenditures 2 - 760 Tax on expenditures3 78 Total tax per student 90 1 5-percent ticket tax. 2 This calculation assumes that the administration doss not intend the expenditures tax to apply-and we sincerely trust this is the case-to that portion of study program fees which remain in the United States to pay for administrative and pro. motional expenses incurred here. 3 $280 in expenditures are exempt ($7 times 40 days); $320 is taxed at 15 percent ($48); and $100 is taxed at 30 percent To be sure the tax impact will normally be less severe in the case of study programs at universities or schools in England or France With respect to these programs we estimate the tax per student at about $50 But even this amount will add more than 7 per cent to the cost of a $700 FLL program. Since many students enrolled in summer study programs come from. cost- conscious middle-income families, the effect of the travel taxes will be con- `uderable We fear a sharp decline in the number of students engaged in summer study abroad especially in programs in such countries as Israel or Greece if Congress accepts the travel tax proposals in their present form With regard to summer study programs in 1968 firm arrangements were com pleted several months ago The effect of numerous cancellations at this late stage would be extremely detrimental to the American sponsoring oiganizations the European unive~sitiés or schools involved and the airlines or shipping com- panies who have contracted to provide transportation IlL THE PROPOSED EXEMPTION FOR STUDENTS ENROLLED IN BONA FIDE COURSES WHO REMAIN ABROAD FOR AT LEAST 120 CONSECUTIVE DAYS SHOULD BE MODIFIED TO COVER 5TUDENTS ENROLLED IN FOUR WEEK SUMMER PROGRAMS In his statement of February 5 1968 submitting the Administration travel tax prograa~i to this Committee Secretary of the Trea~ury Fowler reiterated the President s concern as expressed in the State of the Union message that reduc tion of foreign travel expenditures be achieved in a manner that would not unduly penalize the travel of teachers and students Secretary Fowler also pointed out that only 5 per cent of American overseas travelers go abroad to study or teach Yet in implementing this stated concern for students participating in educational programs abroad the Administration s tax proposal provides ex emption only where such students remain abroad for at least 120 consecutive days." As noted above, American high school students and teachers who utilize the summer programs conducted by AlPS FLL and similar educational orgarnza tions are without exception enrolled in formal courses of study at recognized educational institutions. But since high school students and `teachers must enroll in those courses between the regularly scheduled semesters of their schools in PAGENO="0284" 1062 the United States, the programs must unavoidably be concentrated in abbreviated terms of study, normally four weeks in duration, during the summer months. Accordingly, for high school students and teachers, as well as many other students who attend summer study programs abroad the 120 day period of residence required by the Administration s proposal is simply impossible of attainment Thus the [20 day provision arbitr'trily bars students and teachers enrolled in bona fide summei study piograms from receiving any of the consideration that the Administration has proposed to give to other Americans engaged in study abroad. , . The proposed 120-day requirement does not have any basis in logic or experi- ence. The vast majority of the existing programs provide either for enrollment by American students in foreign schools or universities for a full nine-month "Junior Year Abroad-which programs are open only to a relatively few college stu- dents-or for four week summer study piograms such a'~ those offered by AJUS and FLL. These are virtually no academic programs that are keyed to a 120-day overseas stay. Nor is there a qualitative difference between 120-day programs and those of shorter duration. A student or teacher engaged in a full course of study for one month may be engaged in educational activity that is as much in the national interest as a coursc that last four months-since the mere duration of a study program is certainly not the ultimate measure of its value. Indeed, the value of short-term summer courses is demonstrated by the fact that the U.S. Office of Education *spends millions of dollars (under the National Defense Education Act) for short-term summer foreign language workshops in Europe and the U.S. for American public school teachers. Since the choice of a 120-day period was thus an arbitrary one, unrelated to the real facts concerning education abroad we submit that modification is war ranted The substitution of a four week minimum period of formal academic study as the basis for the tax exemption would benefit many American secondary school students and teachers who attend summer educational programs abroad These students and teachers deserve relief as fully as those (perhaps mote affluent) students who are able to study abroad for longer periods. Our proposed modification of the Administration proposal would not involve additional administrative burdens Whatever the required length of stay it will presumably be necessary to require some certificate or other evidencc attesting to the individual s status as an enrolled student This certification or other evidence can be furnished with equal reliability whether the course attended lasts 4 weeks or 16 weeks. In sum limiting the tax exemption to students remaining abroad for 120 con secutive days unjustly ignores the thousands of American students and teach ers-we estimate about 15 000-who enroll in summer study programs This limitation serves to nullify the officially expressed intention to preserve and encouiage such study abroad It is an arbitrary limitation which should be modified to exempt from the expenditure tax students and teachers who at tend full time courses of academic study for a minimum period of four weeks ~` IV. AT A MINIMUM, THE FOREIGN RXPENDITUnES SUBJECTED TO TAX SHOULD EXCLUDE THE COST OF TUITION, TEXTBOOKS AND ONWARD TRAVEL TO FOREIGN SCHOOLS In the event that the Administration's proposed exemption for students enrolled for 120 days or more in educational institutions abroad is not modified to cover participants in four week summer courses we urge that provision be made to exempt from the expenditures tax those expenses incurred by summer students for tuition and textbooks and for intra Europe travel required to reach their foreign school destinations A. As presently drafted, the Administration's expenditure tax plan gives no recognition to the fact that certain expenditures by students and teachers are unavoidable prerequisites to their educational goals and thus worthy of exclusion from the tax base Tuition costs and the expenditures required for textbooks used in foreign study programs clearly fall within this category These expenses which woHid be nominal in the aggregate, but which loom large in the budget *It is noteworthy that the charter regulations of the Civil Aeronautics Board define a special category of study group charters covering gioups comprised of bona fide par ticipants in a formal academic study course abroad and in which (1) the charterer is an educational institution or (2) such study course ~s for a period of at 7east ~ weeks' duration at an educational institution abroad CAB Economic Regulations § 295 2(m) emphasis added. PAGENO="0285" 1063 of individual high school students, surely do not represent the type of expendi- ture that is the object of the Administration proposal. They are directly and inextricahly tied to educational purposes which have acknowledged value to the United States and, on that basis, should be excluded from the c'overage of the proposed tax. B. In submitting the Administration's proposals, Secretary Fowl'er stated that the tax on expenditures would not include "the cost of transportation to and from the traveler's foreign destination-which would instead be subject to the 5 per cent tax on tickets. However, the technical explanation submitted by the Treasury Department makes clear that the cost of travel between any two points outside the Western Hemisphere will be included in computing the expenditures, tax unless it is part of an "uninterrupted" journey beginning or ending in the United States. A journey is "uninterrupted" only if the interval between the end of one travel segment and the beginning of the next succeeding segment is not more than 12 hours. The effect of this provision (perhaip's unintended) t~p'on students and teachers will in many cases be harsh. Many students travel `by air or ship charter to gateways in England or France and from therb to their ultimate places of study in Europe. Unless such students can achieve an interconnection of flights `or other transportation within the stipulated 12-hour period, the cost of the second or intra-Europe segment of their journey will be `subject to the expenditures tax. For example, students attending the AIFS summer program at the Hebrew University in Jerusalem (see `d'i~cussion at page 5 abov'e) will first take a chartered flight from New York `to Milan, Italy. (This is because the students must `share a large jet airplane with other students attending a program in Italy and also bedause charter flights to Israel are not permitted.) The charter flight is scheduled to arrive in M'ilan in the evening, and the students wll'l spend the night there, continuing their travel to Israeli the next day. Since, however, there will be more than a 12-hoi~r layover in Milan, the $1~O `per student cost of the Milan-Jerusalem segment is likely to be taxed at the 30 per cent expenditures tax rather than under the 5 per cent ticket tax; i.e., a tax of $45 instead of $7.50. It is difficult to understand the basis for the 12-hour dividing line that dis- tinguishes "uninterrupted" from "interrupted" transiportation under the proposal. Surely the proposal fails to donsider that `students and teacher's' typically travel by chartered aircraft or ship (as the most economic means available), and that chartered trips, cannot always be `schuduled so as to `connect `successive `segments within this rigid interval. The 12-hour limitation fails to permit a reasonable overnight stay for the transatlantic traveler and fails to allow some margin for unavoidable delay's due to scheduling difficulties, `equipment failure, baggage tie-ups, etc. Of cour'se, this limit also severely penalizes a one-day layover by a student or teacher who understandably might wish to `see quickly a foireign city en route to hi's ultimate destination in Europe. For `these reasons, we urge that there be excluded from the expen'ditur~s tax necessary transportation expense incurred by students and teachers in reaching or returning from their `place's of `study `abroad, regardless of whether more than 12-hour layover or delay en route occurs. V. AS AN ALTISENATIVE TO THE FOREGOING SUGGESTIONS, THE MINIMUM DAILY LEVEL OF EXEMPT EXPENRITURE SHOULD BE RAISED TO $15 We recognize that one of the fundamental `objectives of the Administration's tax proposal is `to provide a relatively `shnple tax structure, holding to a minimum the number of exception's and exciulSion's, `and thereby reducing a!dmini'str'ative complexities. With thin end In mind, we recommend, a;s an alternative to the foregoing suggestions herein, a siulgie modification ifl the cu'rrent proposal which wduld telnove many of the inequities `to students and teachers. An increase in the exempt `dai13* expenditure from the $7 figure now proposed to $15 would sig- nificantly assis't the teachers and students who participate in slummer study program'S. This chan'ge would not `alter the `arbitrary incluSion of expenses in- curred for neceSsary trip's within Europe as described above, or the inclusion of expenses for tuition and for textbOoks, but It would enable `students; to meet those expenses without exceeding the prescribed le~el of exempt c$ily expen'ditures. For the same reasot~, a $15 per `day exemption provision would eliminate the necessity for expanding the present 120-day student exemption to cover fouE- week summer courSes. PAGENO="0286" 1064 CONCLUSION AlPS and FLL are gratefuil for this opportunity to present their views; to this Committee. We respectfully urge that in the formulation of legislation, the interests of American `students and teachers pursuing summer educational pro- gram.s abroad,, as well as the national interest in the continuation of such pro- grams, not be ignored. STATEMENT OF THE INSTITUTE OF INTERNATIONAL EnUCATION The Institute of International Education is one of the major agencies involved" in the administration of educational `and cultural exchange programs, among the most important of which is the Fulbr'ight-Hays Program f'or graduate students which TIE has administered on behalf of the Department of State for more than twenty years. The Institute is concerned with the proposed legislation for a federal tax on foreign travel, as it is equally concerned with the nation's fiscal problem which this measure seeks to alleviate. The important role which educational exchange plays in American foreign. policy and in the commitment the United States has made to assist in the eco~ nomic, political and social development of emerging countries is well known., The U.S. Government has for many years supported exchange programs; for these purposes and, perhaps no less important, for the' purpose of fostering interna- tional understanding and equipping American citizens with an appreciation of' and a capacity to participate effectively in the many walks of life which have international implications. To an equal and even greater extent, foundations, pri- vate `organizations and universities are involved in this field. In his Smithsonian address, as well as in his February 1966 address to Con- gress, President Johnson urged us to' embark on a "new and noble adventure" which included among its purposes one "to' advance the exchange of students and teachers who travel and work outside their native lands'." We share this oh- jective of `the President and we are naturally anxious to protect the important field of educational exchange from erosion. We recognize that the proposed legislation will not jeopardize exchange pro- grams or imp'ose a burden upo'n participants in exchange programs of more than. 120 days duration. We are, however, troubled by the implication of this proposed legislation that' educational programs of a shorter duration are not equally valid in academic terms. It is an assumption which we do not believe to be `tenable. The scholar' who goes abroad to do two months o'f research in a laboratory or library is no less serious in his purpose and his work is no less significant than is the scholar who spends a year abroad for similar purposes. T'he professor who' gives a sum- mer course at a foreign institution is no less actively and meaningfully engaged in education than his colleague who spends a year at a foreign university. The student who enrolls for a summer semester at a foreign university o,r participates. in a summer academic program abroad sponsored by his own university or who independently spends three months in research in a foreign land is no less actively and seriously engaged in education than his fellow student who has~ the go'od fortune to spend a year in such pursuits. For many `students and scholars, the opportunity to study abroad is an im- poFtant and, sometimes, essential aspect `of their academic careers. For many, the opportunity to do so is limited to relatively brief sojourns abroad. Some" are free only during the summer. Some, particularly students, have limited re- sources which do not permit extended stays abroad. Some need only relatively' brief sojourns abroad to fulfill their academic objectives. HE administers grants for a large number of Americans; each year who' travel abroad for purely professional and scholarly purposes. Many of these grants are for periods of less than 120 days. Some may argue that, like tourist travel, `professionally-related travel for re- search or study can be delayed for a year or tw'o without undue inconvenience or loss to the individual. We. would dispute this. Travel by scholars and profes- sional people-and `students~-cannot be judged by the same criteria as to'urist' travel. The scheduling and success of a research project `may well depend on a man's presence abroad at a particular time. The student's maturation `and career.- plans may well dictate the point at which he can most effectively study abroad.. PAGENO="0287" 1065 The point we wislv to in~a~ke, i8 that there' is no defen$ib~e way to d~istingwtsh between the edu~cational validity of ~ study ecopcrieiwe abroci~I of more than 120 days a~vt one which is of 8horter d'ura4ion. ~ For th~,s fuiidajrne~ta1 reason we i~ou1d hope that this Committee wo'uld ecvempt from the proposed foreign ewpenditure tare individv,a2s who are enrolled in a full course of stuãy at a foreign ed~cat~o~ctl ~nshtution or are e'rtgagei o~ a fuU time basis in educational activities directly related to a course of stv4y leading to a degree that they are undertaking at a U.S. institution. We also would pro- pose e~vemption fOr teachers, scholars, professors a~d cd~co~tiona1~ administrators who are abroad on educational assignments whose relevance to their profes- sionaZ work is attested to by their schools or institutions. We want to bring the Committee's attention to a special problem related to individuals who s:erve for short periods on development projects administered by non-profit agencies'. The U.S. is committed to ass:ist the economic and social development of the less developed countries `of the world and encourages similar efforts on the part of private non profit organizations Many of these organizations including lIE universities and foundations are actively engaged in projects around the world which rely upon the services' of American consultants advisers `md teachers who remain abroad for less than 120 days. In the past year, TIE, alone, has spent almost 100 senior persons abroad on short term assignments to assist in the planning and administration of overseas projects Some may conduct instruc tional classes in the brief period they are abroad but most are engaged in work- ing with their foreign counterparts in an advisory capacity to plan for example a curriculum in the sciences for high school children in Pakistan to develop an inter university program of graduate business administration in the Philippines or to advise on economic development in Ghana. To have to pay a sizable tax on the foreign travel and living expenses of men employed as short term consultants would appreciably increase the cost of employing this important category of assistance for these projects and un- doubtedly reduce our ability to employ them The additional administrative procedures necessitated by the imposition of this tax are very likely to' add to the general costs of the project administration Both increments of cost add non productive expenses which cut into funds' for program purposes The issue is made more complex by the fact that organizations such as lIE and universities frequently conduct overseas projects as contractors to such gov ernment agencies as AID and there seems to be an anomaly in imposing a tax on consultants who are retained on behalf of and indeed are being paid out of government funds We suggest therefore that under way circumstances consultants advisers teachers and others serving on development projects administered by non profit agencies who are abroad for less than 120 days be ecoempt from the pro posed foreign ecopenditures tact and the transportation taco The objectives which this proposed legislation seeks to achieve are we know shared by all citizens The exemptions we propose will not we believe seriously impair our efforts to achieve these objectives and will at the same time spare from undue burden an essential aspect of our national life and of our relations with other countries COLLEGE ART AssocIATIoN or AMERICA MARvIN EI5ENBEIiG PRESIDENT RESOLUTION At the annual meeting of the College Art Association of America held in St Louis on Januray 26 1908 the following resolution was passed "We wish to express our profound dismay at the announcement of proposed restrictive measures which would limit the possibility of travel by individual citizens outside the Western Hemisphere The nature of our profession requires us constantly to visit other countries if we are properly to know and under stand original works of art and if we are to make known to others our own discoveries in pursuit of historical truth Our culture is surely one of the strongest and most creative defenses in these difficult times against the forces opposed to basic principles of our way of life but American culture cannot con tinue to be worthy of our ideals unless as scholars and artists we can corn municate freely with colleagues throughout the world Our belief that dis PAGENO="0288" 1066 interested study and research is not only necessary for the life of the mind but essential for the spiritual health of the nation leads us to speak out against restrictions which could seriously compromise the freedom of intellectual in- quiry in colleges and universities, for those who learn as well as those who teach. Most essentially, the proposed impediments' to individual movement are in strong conflict with basic human rights of free action and communication." STATEMENT OF AssocIATIoN INTERNATIONALE DE5 ETUDIANTS EN SCIENCES ECONOMIQIJES ET COMMEIICIALES COMMENIS ON THE DETRIMENTAL EFFECT OF THE ADMINISTRATION S BALANCE OF PAYMENTS PROPOSALS (ON TRAVEL TAXES) AIESEC-US is one of forty one member countries of AIESEC (Association Internationale des Etudiants en Sciences Economiques et Commerciales-Inter national Association of Students in Business and Economics) with eighty five local committees at universities in the United States AIESEC is the only mdc pendent org'tniiation that sponsors university level training in business and eco nomics inteinationally The gap between American educa'tion and practical ex perience is recognized by the educational and business communities from which AIESFO receives its support The AIESEO program is recognized for its educa tional value in helping to train students in this field trainees have an educa tional tax status and AIESEC is special exchange visitor program with vis i gianting authority for the foreign students coming to the U S AIESEC i~ on Consultative B Status with UNESCO AIESEC is a reciprocal exchange program entirely student run non political and non profit In 1967 we enabled almost 700 American students to go abroad for educational traineeship experience during their summer vacations and cor respondingly were able to place 700 foreign students in traineeship positions with American companies The AIF SEC trainee internationally pays his own transportation cost and earns a living stipend during his traineesbip period which lasts a minimum of eight weeks and often from ten to twelve weeks Because our students' pay their own travel costs and forfeit American wages to receive internation~al training experience in their fields of study the National Committee of AIESEC-US strongly opposes two aspects of the Administration s travel tax proposals One: The 120 day period for a student to be eligible for non-taxa'ble trip classi- fication AIESEO students are normally on traineeships abroad for 60 to 90 days because of their American university schedules Two The inclusion of foreign earnings in the amount subject to a forelgn expenditure tax American AIESEO trainees are paid a stipend by foreign corn panies which covers their room and board and miscellaneous expenses abroad Since their traineeship's take place in one geographical locatiOn they have little time or funds for tourist4ype travel. American students who `take AIE'SEC traineeships are seriously preparing themselves for careers in international service; many would be hindered from the traineeship experience if subjected to additional costs such as the foreign expenditure `tax, because they expect their ~foreign "stipend" to cover their costs of living abroad. Amendment and clarification of points One and Two respectively by the House Ways and Means Committee seem necesuary if AIESEO is to maintain the present level of its program for international traineeship experience in business and economics. If American students are discouraged from foreign travel, their foreign student counterparts will be hindered from traineeship experiences in the United States, because *of the reciprocity of AIESEC operations. STATEMENT OF ARTIIIJR HOWE, JR., PRESIDENT, AMERICAN FIELD SERVICE INTER- NATIONAL SCHOLARSHIPS The American Field Service International Scholarship Programs wish to record strong opposition to the Administration s travel tax and expenditure tax proposals as they apply to AFS Implementation of these two taxes without exemption for APS would represent a drastic reversal of longstanding govern mental policy to aid and encourage the AFS in the development of its programs PAGENO="0289" 1067 which now annually involve 3100 students from 60 foreign countries coming to the U.S.A., and 1400 U.S. students going overseas. For most of these young people their APS activity becomes the most meaningful educational experience of their lives. The 3000 local Chapters of AFS throughout the U.S.A., and its equally large number of volunteer committees throughout its overseas opera- tions would regard these taxes as a betrayal of the encouragement received from the U.S. Government over the past twenty years, in the course of which approximately 43.000 students have participated in AFS. The burden of these taxes would seriously impair the AFS programs and narrow the breadth of par- ticipation in them. Impact on private agencies Properly organized cultural exchange programs are vitally significant to the national interest, and, because of political sensitivities, unusually dependent upon the support of nonprofit institutions backed by private citizens. The entire relationship between voluntary agencies and the government is threatened by the Administration's failure to provide adequate exemption for these agencies. lie pact on balance of paljment8 The American Field Service Programs bring as many dollars into the U.S.A. as they send out. To impose the travel and expenditure taxes on the AFS in order to improve the balance of payment.s would be an unreasonable action. A high proportion of the hundreds of thousands of families, students and schools that have been deeply involved in the organization's activities both here and abroad would find themselves in profoumid disagreement with the government's action. AMERICAN FIELD SERvIcE, INTERNATIONAL SCHOLARSHIPS, .Ra/~ersfleid, Calif., February 25, 1968. Hon. WILBUR A. MILLS, Chairman, Committee on Wa?js and Means, Longworth Ho use Office Building, Washington, D.C. DEAR Mn. MILLS: The members of the Board of Bakersfield Chapter, American Field Service International Scholarships, are very much concerned about the Administrations proposed tax on all overseas travel. WTe are particularly concerned with the adverse effect such a tax will have on the AF~S Programs. It would, at best, seriously impair these programs and could possibly destroy them by making the costs prohibitive. Our funds are limited in that they are obtained by donations from private individuals and business firms. The AFS Programs have long been encouraged by Government Policy and have been praised by our Presidents as well as by many of our State Department Officials, as being among if not the most productive of all the programs creating International goodwill among the peoples of the World. We. therefore, earnestly urge that, should such a tax law be even considered, let alone passed, all Student, Exchange, and Educator Programs be held exempt from all tax or restrictions under such considered legislation. BEN W. KELLNER, President. AMERICAN COUNCIL OF LEARNED SOCIETIES. New York, N.Y., March 6, 1968. Hon. WILBUR D. MILLS, C/i airman, Ways a'nd Means Com'rnittee, IT. ~. House of Representatives, Was/i i'ngton, D.C. DEAR CONGRESSMAN MILLS: I write as President of the American Council of Learned Societies, a federation of thirty-three national scholarly associations in the humanities that have a total of 150.000 members, to express the concern of the scholarly community `over the current proposals for restricting travel outside the Western Hemisphere, including those brought `before your Committee on February 5, 1968 by the Secretary of the Treasury. 89-749-68--pt. 3-19 PAGENO="0290" 1068 While we appreciate fully the balance of payments problems we cannot believe that it will best serve the national interest to curtail or, `in some instances, to make impossible, by the imposition of the proposed taxes, foreign travel ,by scholars whose legitimate research interests require them to go abroad. I there- fore strongly urge that travel for scholarly purposes-whatever its duration- be exempt from `the proposed expenditure tax. The exemption already provided in the pe!nding propo~sals for long-term (over 120 days) foreign travel of scholars is a welcome one, and mu~b apprei'c!ated. But the nature of the academic year is such that research scholaris oft'en must travel within the summer months. Much of the research thus conducted is clearly in the national interest and is not infrequently prompted by the needs of the Federal government and supported by Federal `funds. In view of Secretary Fowler's testimony that student and scholarly foreign travel comprIses about five percent of the total American travel at which the proposed measures are directed, it appOars that only an insignificant outflow of dollaris would result from short-term scbola:rly travci. The damage to scholarly research that would be `caused by the imposition of expenditure taxes upon short-term scholarly travel does not seem to i~s warranted by, the minor allevia- tion of the balance of payments problem that could be expected I hope `that the `views expressed here can be included in the record that the Ways and Means Committee is compiling Yours sincerely, FREDERICK BURKHARDT, President. AMERICAN ASSOCIATION OF UNIvERsITY WOMEN, Washington, D.C., February 27, 1968. Hon. WILBUR D. MILLS, Honse of Representatives, House Office Building, Washington~ D.C. D~ MR. MILLS: The Board of the American Association of University Women at its meeting on February 24-25, 1968, approved the following statement which it wishes to bring to y~our attention. We would regret it deeply if the government finds it essential because of the balance of payments crIsis, to tax expenditures on overseas travel as we `feel i,t strikes at our long establisihed principles of encouraging free movement of people and of developing international understanding through face to face contacts. We also fear that restrictions on trade, investment and travel may `have serious repercussaons on those we have hoped to help abroad and also lead to a spiral of retaliatory action. If, however, the `tax on personal expenditures abroad is established, we strongly urge reconsideration and extension of the exemptions so that `they are related to the purpose of the `trip and not to the length of time spent abroad. Purposes justifying exemptions should include `student experience abroad related to their education, faculty research, professional enrichment and attendance `at duly at- tested conferences. In all cases the provisions should make allowance for the 14 day leeway already provided in the proposed measures. This statement, pro- posed by the AAUW Legislative Program Committee at its meeting on Feb- ruary 23, 1968, has been endorsed by a motion in the IFUW-AAUW1 Liaison Committee meeting on the same date, and by the AAUW Board of Directors on February 25, 1968. BOARD OF DIRECToRs 1 IFUW-InternatlOnal Federation of University Women. THE AMERICAN POLITICAL SCIENCE AssoCIATIoN, Washington, D.C., February 2, 1968. Chairman WILBUR P. MILLS, U.s. House of Representatives, Washington, D.C. DEAR CHAIRMAN MILLS: I want `to call your attention to the hardship imposed ttpon students teachers and scholars by the Administration's O~OPM~d tLt~ &U3tl3fl~ on travel to Europe. PAGENO="0291" 1069 Many students, teachers an'd scholars use the `summer for `study in Europe, for research, or for both coimbined with teaching. They either finance their own travel or finance it in part through fellowships and scholarships. Any increase in cost certainly will impose a hardship and work directly in opposition to our long established policy of encouraging study and research abroad. In `addition, the proposed tax nctions discriminate against all stiMents, teach- ers, and scholars who'se work requires travel outside the wesitern hemisphere. Those whiose work takes them to Latin America are not penallzEid hut they con- tribute no less tb a `balance of payments deficit. Finally, the propo'sed taxes discriminate agnins't those students, teachers, and scholars who are least well off. The tax is regressive; it hurts the poor, the younger and las's well paid; it hardly affects `the wealibhy, establisheid and highly paid. The proposed tax on expenditures in Europe is especially hard on student's, teachers and scholars who need to be in Europe for the whole three months of the summer. Many feel this will prohibit their going. We have many calls at our office protesting the proposed tax, calling attention to its unfortunate features, and pointing out how very harmful the present un- certainty is for those who must make plans now. For example, many people have already made plans, made ship reservations, and paid deposits that can- not be refunded; if unable to go, they suffer a real loss. I do hope that you will take the above matters into consideration in making up your mind about the proposed taxes. With best wishes, Cordially, EvR0N M. KIRKPATRICK, Executive Director. THE CALIFORNIA STATE COLLEGES, OFFICE OF THE CHANCELLOR, Los Angeles, Calif., February 16, 1968. Hon. CECIL KING, Member of Congress, Washington, D.C. Mx DEAR CONGRESSMAN KING: I enclose herewith a statement relative to re- strictions on overseas travel which I hope you will pass on to Honorable Wilbur Mills and have made a part of the record of the hearings on the proposals. Your cooperation and assistance are greatly appreciated. With best wishes, and warmest personal regards, Sincerely, WALTER P. 000Mns, Director, International Affairs. STATEMENT OP Mn. WALTER P. CooMEs, DIRECTOR, INTERNATIONAL AFFAIRS, CALIFORNIA STATE COLLEGES We wish to bring to your attention the views of the California State Colleges on the proposed overseas travel restrictions. The California State Colleges operate ten overseas study centers in seven foreign countries providing an unequalled opportunity for a selected group of superior students to pursue studies in specialized institutions abroad. The value of these programs to our country is unquestioned. Specialists are trained in languages such as `Chinese, Japanese, French, Spanish and German. Many of these will teach foreign languages in our public schools. Students pursue courses not generally available on their home campuses in important `technical fields. A tax on the students and faculty would make much more difficult student and faculty participation in these programs. Students attending California State Colleges are frequently from low and middle income families. The majority of our participants require loans to finance their study. By making that study more burdensome, it is less likely they would participate in the program. It would be unfortunate if overseas study would be limited to those students from families in the higher income `brackets. We respectfully request that an exemption from proposed taxes be granted to students and teachers and administrative personnel and their dependents for the full period of their time abroad. To do otherwise would jeopardize existing PAGENO="0292" 1070 programs, would make it difficult for disadvantaged to participate, and would seriously affect the training of scholars, especially in language and technical fields. WAYNE STATE UNIVERSITY, COLLEGE OF LIBERAL ARTS, DEPARTMENT OF ECONOMICS, Detroit, Mich., February 20, 1968. Representative WILBuR M. MILLS, Chairman, House Ways and Means Committee, U.$. House of Representatives, Washington, D.C. DEAR SIB: The Administration's proposal to curb travel outside the Western Hemisphere is bound to be the subject of much debate. I enclose a short formal comment on one aspect of the proptosal. However, I believe that the ~ropos~al or some very similar measure should be passed by the Congress. The nation's balance of payments must be shown capable of being brought under contrci. I `believe that travel is a good area to tax and has many significant advantages over increases in tariffs and other alternatives. My own assessment of the proposal i's that the tax rate is not high enough, the duration too short and the modus operandi is too e~omplex. This last comment does not express disagreement with the goal of progressivity, merely a lack of faith in the effectiveness of the system an'd the fear of too high !a cost in making the system work. While considering economic policy, may I draw to your attention the dangers inherent in the failure to pass some increase in the level of domestic taxation. Inflationary pressures do exist and are likely to continue to exist for some time. If curbs on foreign investment and on foreign travel are imposed, these measures are likely to divert even greater pressures on to the domestic economy and thereby to add fuel to the fire. Finally let me say I am in favor of the limitations `on foreign investment by American companies and individuals `and that I believe this aspect to be crucial to the success of the reduction of the deficit. Your sincerely., H. PETER GRAY, Professor of Economics. SOME THOUGHTS ON ONE ASrECT OF THE ADMINIsTRATIoN'S PRoPosAL To CURB AMERICAN TRAVEL DEBITS The proposals of the Administration to curb the travel deficit of the United States introduce an overt de~artu're from the traditional American policy of non~discrimi'nation among friendly nations in international trade. The present departure from tradition may be considered `less serious because it concerns "only" trade in services rather than in commodities but this distinction is not a meaningful one. In fact, there are two `elements of discrimination_one is overt and the second less obvious. The first discrimination is that the proposals would apply the ticket and expenditure taxes only to journeys outside the western hemisphere. This dis- crimination can be justified on two grounds: practicality of administration of the tax and the `lower loss rates per dollar `of expenditure resulting from travel expenditures in western hemisphere countries. Foreign exchange control or supervision would be virtually impossible across the two great land borders between the United States `and her nei.ghboris. `Equally, the Caribbean islands are so dependent upon American tourists that to impose a tax on `these resorts would `be `completely ruinous to many island economies and certainly to many individual enterp'ris~s. Further, the ratio of gold loss to travel dollar is signif- icantly less in western hemisphere countries than in `other areas. This result stem's largely from the trade patterns of the western `hemisphere nation's and on their traditional economic ties with the United States. The secon'd discrimination which is less easily justified, i's posisibly uninten- tional but is, nonetheless, one of the less attraetive features of the set of proposals. The source `of the second discrimination is the requirement that the expenditure tax rate rath'er than the ticket tax rate apply to transportation expenditures between points outside the western hemisiphere. The discrimination inherent in thi's proposal can best be illustrated with an example. PAGENO="0293" 1071 For convenience, assume that the applicable marginal tax rate on expendi- tures is 30 percent and the tax rate on tickets is 5 percent. The proposal re- quires that on the outward journey the expenditure tax applies to all travel beyond the first stopover of greater than 12 hours duration and that on the return journey, the ticket tax rate rather than the expenditure tax rate applies only on that part of the journey after the last stopover in excess of 12 hour.s duration Thus a traveler from New York to Rome would pay only 5 percent on transportation costs if he flew and returned directly from Rome. If, on the other hand, the traveler stopped off in London for more than twelve hours on the way out and in Paris for more than twelve hours on the way back, then the traveler would pay 30 percent on the London-Rome-Paris journey and only 5 percent on the rest. The reason underlying this procedure is not clear but it would seem to have little deterrent effect on~ total American travel debits although it may well reduce the volume of multi-stop tours. The proposal does tend to raise the rate of taxation on travel expenditures but raises the tax rate discrimi- natorily and without apparent reason. Finally, this aspect of the proposals seems bound to penalize business trips which are multi-stop by nature, more heavily than tourism proper. However, this problem is not the truly discrimi- natory aspect of the proposals. The discrimination lies in the fact that there are certain countries in the world which cannot conveniently be reached with- out either significant discomfort or a protracted stopover en route. These areas may be said to comprise Asia west of Tokyo' (unless `the traveler~ makes a stop- over in Anchorage or Honolulu) or east of Israel Australia west of Sydney all of Africa and Eastern Europe Some of these nations are attempting to build up their tourist industries as a source of dollar and hard currency earnings (e g Thailand India 1~enya Tansania Uganda Ethiopia) and this active discrimination against them should be avoided if possible. Fortunately, the purpose of this measure (to raise the effective rate of tax) can still be accommodated and the discriminatory aspects of the proposal re- moved by a relatively simple change. If the `stopover time is extended to 36 hours and no limit placed on the number of stopovers, the intent will be pre- served and the undesirable aspects of the differential in tax rates will be eliminated. For cruise travel the original proposal is extremely severe Since the pro posals are designed to be extremely progressive this `severe treatment of cruises is quite possibly intentional. Certainly the maritime aspect of the rate differ- ential can be kept in its original form if so desired by a simple piece of writing and the unlimited and longer stopever allowance confined strictly to air travel UNIVERSITY OF MINNESOTA, COLLEOD OF EDucATIoN, DEPARTMENT OF ART EDUCATION, Minneapolis, Minn., February 8, 1968. Mr. JOHN M. MARTIN, Jr., Chief Counsel, Committee on Ways and Means, Longworth House Office Building, Washington, D.C. DEAR MR MARTIN I am writing in protest to President Johnson s formula for balancing the balance of payments deficit by the proposed tax on `travel abroad. If such a tax is placed on U S travelers to countries outside the Western Hemi sphere, the less affluent will be hurt the most. Wealthy Americans could afford the extra cost, `but those who have saved for many years for a trip to Europe or for a long anticipated visit to the land of their birth and to `be reunited with rela- tives may be unable to do so. `Students and educators likewise would be affected. Most of them must `travel on extremely limited funds. Certainly no group of Americans can do more to improve international understanding by their people- to-people contact than our students. Even a tax as seemingly small as a 5% on ship and air fares can mean the curtailment of the successful international stu- dent exchange program. As an educator and as a person who is separated from family members residing in Furope I protest most vehemently this tr'tvel tax plan to stem the outflow of gold and dollars. Respectfully yours'; GEo~aE K. OLSON, A8sistant Prof es$or. PAGENO="0294" 1072 THE UNIVERSITY OF CONNECTICUT, SCHOOL OF LAW, February 28, 1968. Hon. WILBUR MILLS, Chairman, House Ways and Means Committee, Longworth House Office Building, Washington, D.C. / DEAR MR. MILLS: On February 22 the New York Times published the en- closed letter to the editor which I forwarded to them. I am sending you this copy with the thought that you may see fit to add it to the public testimony being given before your Committee in connection with the proposed foreign travel tax. Very truly yours, ROBERT WHITMAN, Associate Professor of Law. [From the New York Times, Feb. 22, 1968j REDIAPE IN TRAVEL TAX THE UNIVERSITY OF CONNECTICUT LAW SCHOOL, West Hartford, February 14~, 1:968. To the Editor: The Administration's proposals for taxing overseas travel highlight the lack of attention our drafters of legislation can pay to the practical problem. of involving taxpayers in a. mountain of red tape, establishing an administrative nightmare for enforcing the collection of our taxes and encouraging tax evasion. The Treasury has asked for both a fiat excise tax on overseas transportation and a graduated tax on daily expenditures abroad. The procedure which it envisions to implement the collection of the latter tax requires the overseas traveler to estimate at the time of his departure the amount of money be is likely to spend abroad. He must then pay a tax based on this estimate on his departure and file a statement of the amount of money he plans to take with him. Upon returning, another statement must be filed to indicate the money brought back to this country. Then, within sixty days, a summary statement-a formal tax return-must be submitted. Undoubtedly, it will be the paper work, rather than the tax, that will dis- courage travel abroad. If, in spite of all this~ an overseas trip is taken, the tempta- tion to the taxpayer to attempt to evade the tax appears formidable in view of the obvious difficulties which will arise in auditing returns. If a tax on overseas travel makes any sense, a tax which is more realistic from the standpoint of implementation is called for. ROBERT WHITMAN, Associate Professor. PEOPLE-TO-PEOPLE, Washington, D.C. Hon. WILBUR MILLS, House of Representatives, Washington, D.C. DEAR SIR: This memorandum is presented in behalf of the People-to-People organization as it is involved in travel activities through its various committees. It should be emphasized at the outlet that People-to-People is a private, non- governmental, non-profit organization. It is financed solely by funds from the private sector in the form of contributions from foundations, corporations, indi- viduals and from membership dues and nominal fees for services rendered. The movement was launched by President Eisenhower in 1956 and for the first lIve years 0/f its activity was given administrative guidance and support by the United States Information Agency In 1961 it became a private coiporation with a Board of Trustees composed of nearly one hundred distinguished American citizens. General Dwight Eisenhower served as chairman 0/f the Board until a year ago. He continues as Chairman Emeritus and maintains a keen interest in the total operation. The present honorary chairman is President Lyndon B. Johnson. The Honorable George V. Allen now serves as Chairman of the Board of Trustees, having assumed the position at General Eisenhower's request. The PAGENO="0295" 1073 Board of Trustees, through its Executive Committee, directly sponsors a number of activities involving private citizens in international relations on a person-to- person basis at the community level. This program of personal diplomacy is administered through the National Headquarters in Kansas City. The scope of People-to-People is very broad as evidenced by committees rep- resenting the following groups: Health (S.S. "Hope"), Handicapped, Engineers and Scientists, Sports, Hotels, Music and Sister City Affiliations. In addition, important activities are carried on under the Travel Program, Community Chapter programs, School and Classroom matching service, Letter Writing, etc. Under the aegis of People-to-People, more than 300 American towns and cities have been linked in Sister City relationships with counter-part cities overseas. In addition, over 100 Community Chapters have been organized across the country to carry out programs involving international person-to-person con- tact with foreign nationals at the local level. One of the most dynamic specialized Committees of the People-to-People movement is the People-to-People Sports Committee which has provided sports equipment for groups in developing countries and has arranged exchanges of sports groups between the U.S.A. and countries overseas. It is clear that the implementation of the People-to-People concept is based on the assumption that citizens of different nations will be able to move freely across international boundaries. Current tyavel legislation under consideration threatens this free movement of persons and thus endangers the effectiveness of the People-to-People program which is essential to the development of inter- national understanding. If we are to have an effective program we must be a two-way street, travel to and from the United States. It is our view that efforts should be accelerated to increase personal con- tacts between U.S.A. citizens and overseas nationals. Current discussions re- garding proposed legislation to restrict travel activities of people concerned with establishing effective inter-cultural personal relationships have already tended to discourage the continuation of such activity. This is the greatest handicap we have faced since the formation of People-to-People, Inc. in 1956. It should be emphasized that People-to-People actively promotes visits of foreign nationals, individually and in groups, to U.S.A. communities. Through the years a growing number of persons have traveled from foreign cities to visit counter-part cities in the U.S.A. It is estimated that in 1967 the People-to- People Sister City Committee was responsible for approximately 13,000 visita- tions between 330 American cities with their counterparts abroad. Under this program, equal emphasis is placed on travel in each direction. Under the aus- pices of the People-to-People Sports Committee, foreign nationals in athletic groups, visited counterpart teams in the U.S.A. during 1967. People-to-People Community Chapters in 52 cities were involved in providing over 2200 homestays for nearly 900 Europeans during 1967. In 1968 it is ex- pected that the chapter groups will welcome over 2000 Europeans in their com- munities. Steps are now being taken to accelerate the influx of Latin Ameri- can, African and Asiatic visitors to U.S.A. communities. President Lyndon B. ~1ohnson commenting on the Tenth Anniversary of People-to-People said: "In only a decade of devoted efforts you have joined the hands and hearts of millions of Americans with their fellow men around the world, I share your faith that these abounding friendships will help in the coming decades, as in the past, to create the universal alliance for brotherhood which is the prayer of all free men." The future of People-to-People, Inc. is in the hands of the U.S. Congress. We appeal to you and respectfully request that we not be penalized by this legis- lation but rather be encouraged to further our aims~-international peace. Sincerely, Mns. C. B. SWANSON, Uhairma's, J3Jcoeeutive Committee Board of Trustees. STATEMENT OF RUTH R. PUEKAPLE, PRorucTs CONSULTANT, NATIONAL STuimN~r YWCA The National Student YWOA supports the proposal of the Council on Inter- national Bducational Exchange, to which we beleng and with which we have PAGENO="0296" 1074 been cooperating in testing the effect possible travel taxes would have on students. Further, we reaffirm the importance of American students going abroad as important in developing international understanding and good will. Important as the fiscal problems of the United States may be, it is important not to sow the seeds of even more serious problems for the future. Ignorance on the part of American citizens of the problems and viewpoints of other peoples, and false concepts about the United States could prove very costly to this country. There are five aspects of the proposed legislation which we feel are especially serious, and which at the minimum we urge be changed. 1. Treat nonprofit agencies the same as academic institutions First, we would petition that the programs `of nonprofit agencies receive the same consideration as those of academic institutions, so long as they maintain similar standards of performance and excellence. For instance, in 1967 the YWCA sponsored a Seminar in India which was directed by Dr. Huston Smith of the Massachu'setts Institute of Technology. In 1968 we will have a project in the United Kingdom with one of the professors from~ the London School of Economics directing the seminars. Although these are not designed essentially as academic programs, they include serious study and discussion and real encounter with the people and culture of the countries, so merit the same consideration as more formal course oriented projects. 2. Remove the 120 days requirement A corollary of the above is the unfairness of the 120 day requirement for a program to be tax-exempt. Many students are taking courses in America univer- sities where the sequence requires them to remain in college for four consecu- tive years, but they are able to supplement this with summer programs over- seas. Once they graduate they will be tied-down with responsibilities, so that the only time for them to go abroad and personally experience the impact of other cultures is during the summer breaks while they are in school. They should not be penalized just because they cannot be gone for the magic 120 days. We would urge exempting any program on the basis of its quality, rather than on the basis of duration. 3. All international travel should be taa~ed as transportation not ecopenditure We strongly recommend that the transportation tax of 5% be levied on all international travel purchased prior to' departure from the United States, rather than on-going travel taxed as an expenditure. Groups going to Asia and Africa especially, but also those going into Eastern Europe, physically, psychological and educationally need a break rather than continuing directly from the U.S.A., to these more distant places. For instance, our seminar going to India sto'pped for a couple of days in Athens to rest-up before being thrust into the very extensive pro. gram designed for them in India, thus also providing an opportunity for the group to get acquainted with each other, and to establish their own group rapport. For those who had never been out of the United States before, it gave them a slight experience of an in-between culture, so that they would not judge India solely in terms `of the U.S.A. Were the tax on on-going travel to be levied on the basis of' "expenditure" rather tha'n "travel", this would virtually eliminate such s'tops. However, it would not mean a dollar savings for the United States, but would radically weaken the program. 4. Taco-free base raised to $10 per day We recommend that the tax-free `base in figuring expenditure taxes be raised to $10 per day. Room and board in the so-called poorer nations can be obtained for less than $10 pe~ day. However, our `programs in Japan and Finland could' not `have :been financed on less than $10 per person `per day. The educational value o'f the program would be threatened `were students not able to attend concerts, special events reflecting the culture of the people, etc. Although it is not possible to include much on $10 per `day, with `such an allowance by careful budgeting- some important events `could be included, and the tax `burden would not `become prohi'bitive. .5. Overseas administration not tacoed We strongly petition that `the cost of, progamming overseas projects not be taxed on `the `30% basis, as `implied `by the advanced information. For instance, when the YW'CA `of the U.S.A. arranges a project in a foreign country, we trans- fer small funds, a `few hundred dollars, to the YWOA of the country asking them PAGENO="0297" 1075 to make preliminary arrangements, and help set-np the program. This makes possible a richer and better program than if we attempted to work out the details from the United States We will pay a small amount to the Professor from the London School of Economics whose leadership will greatly enrich the pro gram Such payments by tax exempt agencies should not be taxed The dollar flow is minimal and the programs abroad much better by virtue of this type of ~cooperation with agencies abroad However they cannot be expected to perform such services without remuneration Finally we of the National Student YWCA are not seeking special privileges Rather we know that we are more or less typical of other similar agencies and we have cited examples out of our own experience to explain our basic principles. We trust that the Committee will take into consideration these very important concerns. VETERANS OF FOREIGN WARS OF TIlE UNITED STATES, Washington D C Mare/i 6 1968 Hon WILBUR D MILLS Chairman Ways and Means Committee House of Representatives Washington D C M~ DEAR MR CHAIRMAN This is in reference to your hearings on the Adminis tration's balance-of-payments proposals. The Veterans of Foreign Wars is deeply concerned that the request of the President to forgo non essential travel with the recommended tax on travel ex penditures will cause much hardship on the dependents of those veterans who are buried overseas. In anticipation of the Admimstra'tion proposals our National Commander in Chief Joseph A Scerra wrote a letter to the President expressing our views respecting this part of the Administration proposal A copy of that letter is enclosed. In the event your Committee should approve the Administration reconimenda tion concerning a tax on travel expenditures it would be deeply appreciated if the exemptions were broadened to exclude Gold Star Mothers' and other depend- ents who may, on occasion, visit the graves of their sons who were killed or died on foreign soil while serving in the Armed Forces of the United States and are buried overseas. With all best wishes, I am, Sincerely, FRANCIS W. STOVER, Director, National Legislative ~Service. VETERANS OF FOREICN WARS OF THE UNITED STATES Washington D C January 16 1968 The PRESIDENT, The White House, Washington, D.C. DEAR MR. PRESIDENT: The `purpose of this letter is to' inform you concerning the need for exemption of certain United States citizens' from overseas' travel restrictions which according to the press are being contemplated by the United State's government. I am referring Mr President to those who travel overseas to visit the graves of U.S. `servicemen who have given their lives for our country. Such travel i's, in a real sense a reverent pilgrimage of remembrance One who makes this s icred journey is usually the surviving widow, ~hi1d, parent, or a close `relative of the U.S. fighting men who died `abroad to save our nation at home and ~ho is buried in the hallowed ground of a U S cemetery overseas When a Gold Star Mother, or any other surviving loved-one makes' that sad, but spiritually necessary trip `to a military graveside overseas the trip is usaually made pos'si'ble `only through the savings accumulated iittle~by-little over a long period of time Thus, one who make's this sacred journey in order to kneel at the grave of a fallen hero can hardly be classified as a member of the "international jet set" who travels for fun. PAGENO="0298" 1076 We of the V.F.W. believe that no financial penalty should be imposed on the next of kin or loved-one to visit a military graves'ide overseas. To' impose any form of added tax or restriction on such a sacred pilgrimage would, in effect, amount to penalizing those whose journey helps keep our nation's solemn pledge that `those who died in battle for us will not be forgotten. Therefore, Mr. President, on behalf of the 1,400,000 members of the Veterans of Foreign Wars of the United States, and all of those who mourn for one lost in combat and buried in a foreign field, I respectfully urge that no financial impediment or restriction in any form be imposled upon those who travel `over-~ seas to the military gr'ave'side of a loved~one or a relative. Respectfully, JOSEPH A. SCERISA, Commander in Chief. AMERICAN ACADEMY OF REr.IGIoN, WILSON COLLEGE, Chambersburg, Pa., February 20, 1968. Hon. WILBUR DEAN MILLS, House Ways and Means Committee, House Office Building, Washington, D.C. DEAR SIR: This letter is written out of intense concern about the proposed travel tax that is now before your committee. I am one of a large number of religion ~&cholars concerned with the religious- complex of Asia. A significant portion of our scholarship requires our presence from time to time on the field. Also we find it very im,portant to send our ad- vanced students for `brief visits in order to acquire `fir'sthand knowledge of their subject matter, much of which will be of service to the nation in the future. The proposed tax would make it very difficult for us to carry on our work, and I am writing to urge you `to use ~ influence you have to defeat this legislation, o'r at least make the necessary exceptions for those of us whom Asian travel is not tourism. Faithfully yours, HARRY M. BUCK, Treasurer. CATHOLIC TRAVEL OFFICE, Washington, D.C., February 16, 1968. Hon. WILBUR D. MILLS, Chairman, House Committee on Ways and Means, Longworth House Office Building, Washington, D.C. DEAR Mn. CHAIRMAN: Would you please be kind enough to note the enclosed tear sheet-this o'pen letter to the Pre,s'ident of the United States and the members' of Congress appeared on Page 14 of the January 18th iss'ue of the Catholic Standard, the January 15th issue of the Washington Post and other newspapers throughout the United States. [Material is in the committee files.] We strongly oppose the suggestions by the Treasury Department which will cost more to p'ut into effect than would be reallized by Secretary Fowler's pro- posals. May we respectfully suggest the following: (a) 5% Transiportation Tax on all International Tickets issued in the U.S. (b) Eliminate all duty free allowance, making all overseas purchases tax- able at current ra~tes. (o) Reintroduce the $10.00 head tax for all travelers entering the IJ.S. (d) Make counterpart funds `available so that travel agents and operators may purchase vouchers from the U.S. Treasury in United States dollars, for equivalent currency on whate~er countries where funds are available. This Should enable the U.S. Treasury to use up the One Billion Dollars in coun- terpart funds that have been sitting idle for the past twenty or so years. Thank you. Sincerely yours, JOHN G. HoDGsoN, KITS., President, PAGENO="0299" 1077 GENERAL CONFERENCE OF SEVENTH-DAY ADVENTISTS, Takaina Park, Washington, D.C., March 5, 1968. Hon. WILBUR MILLS, Chairman, House Ways and Means Committee, House Office Building, Washington, D.C. DEAR Sin: It has been brought to the attention of this organization that the House Ways and Means Committee is giving consideration to legislation which proposes to impose a tax on fares for U.S. residents traveling abroad. a tax on spending outside the Western Hemisphere, and to adjust certain privileges with respect to customs duties. We understand that the purpose of this proposed legis- lation is to assist in correcting the United States' balance of payments situation. The proposal makes provision for exemption from tax on spending outside the Western Hemisphere for students, and business and professional people and others under certain conditions. rphe world headquarters of the Seventh-day Adventist church organization is located in Washington, D.C. In order to guide the affairs of the church on a unified world-wide basis, and to sponsor its sound development, and to supervise its religious, charitable, philanthropic, and missionary activities, considerable overseas travel on the part of our church officials is both desirable and necessary. Such travel is not for pleasure nor profit. It is limited to such comparatively short periods of time as are appropriate to the needs, usually less than 120 days. We respectfully request that should your Committee find it desirable to recom- mend the passa-ge of legislation along the lines suggested, specific provision be made to exempt church officials traveling abroad on official business of the church from the following proposals: (1) From tax on overseas travel whether by ship, land, or air. (2) From tax on authorized reimburseable spendings abroad. We believe this request is reasonable and justified, and shall appreciate your favorable decision. Yours sincerely, W. L. PAscoR, Assistant Treasurer. NATIONAL COUNCIL OF THE CHURCHES OF CHRIST IN THE U.S.A., DIvIsIoN OF OVERSEAS MINISTRIES, New York, N.Y., February 29, 1968. Mr. JOHN M. MARTIN, Jr., Chief Counsel Longworth house Office Building, Washington, D.C. DEAR MR. MARTIN: I am writing concerning the hearings by the House Ways and Means Committee in regard to taxes on foreign travel. In its recent meeting at San Diego, on February 21, the General Board of the National Council of the Churches of Christ in the U.S.A. considered the proposals being made by the U.S. Treasury. In the debate on this matter the following points were made: 1. There are clear and important values in maintaining the highest level of personal exchange among peoples and societies. 2. The international programs of the churches in ecumenical fel1owshi~, mission and service require extensive international travel by a great many Christians, which these measures would hamper. 3. There is substantial difference of expert opinion about the relative im- portance of maintaining a favorable balance of trade in comparison with other economic goals. There appear to be other and less negative ways of dealing with the balance of payments problem. 4. The taxes proposed appear likely to have a regressive effect and to be very difficult of equitable enforcement. In light of this discussion the General Board adopted by unanimous vote the following Resolution: Resolved that international travel be encouraged and increased rather than subjected to economic restrictions. It provides major opportunities for cultural and personal exchange that contribute to understanding and peace among nations, and it is essential to expression of Christian fellowship, mission and service. The problem of balance of payments should be dealt with by other means. Among these are the encouragement of travel here by citizens of other countries, PAGENO="0300" 1078 more effective economy in military expenditures overseas, appropriate measures of monetary reform, and the fostering of an enlarged and healthier international trading economy. I would therefore urge that the House Committee report unfavorably on the present Treasury proposals for limiting foreign travel and expenditure. Faithfully, DAVID M. STOWE, Associate General Secretary for Overseas Ministries. SYNAGOGUE CouNCIL or AMERICA, New York, N.Y., Februa~y 23,1968. Hon. WILBUR D. MILLS, Chairman, House Ways and Means Committee, House Office Building, Washington, D.C. DEAR MR. CHAIRMAN: We have following with great interest the proposals of the Administration to impose certain restrictions on travel abroad because of our country's unfavorable balance of payments situation. President Johnson and Secretary Fowler have indicated that a number of exception.s are to be made to these suggested restrictions. The Synagogue Council of America, as the national coordinating agen~cy for the three branches of Ajmeriean Jewry with which are affiliated over four million Jews, baa a special concern in the proposed legislation insofar as it would affect pilgrimages of a religious nature. It is our considered judgment, which we trust you will share, that individuals of all faiths traveling abroad `on religious pilgrimages to religious shrines and Holy Places `should not be prevented from doing so by the provisions of the newly~propoaed legislation. We would urge, therefore, that the legislation clearly provide an exemption for travelers in this category. We consider this to be a matter of great importance and we would welcome an opporttinity of testifying on this subject before your Committee at the time that you will be holding hearings on this proposed legislation. With many thanks for ~o'ur kind consider!ati'ons, I am, Sincerely yours, RABBI HENRY SIEGMAN, Ecoecutive Vice President. THE METHODIST CHURCH, Philadelphia, Pa., February 12, 1.968. Hon. WILBUR D. MILLS, House of Representatives, Washington, D.C. MY DEAR CONGIiESSMAN MILI~s: Newspapers report that you have announced that there will be some kind of a foreign travol tax bilL In a very significant editorial in the Miami Herald (February 8, 1908) the actual dollar value of such `a tax to the solution of our financial problems is seriously questioned. The editorial points out that processing such a tax will require the handling of 12,600,000 pieces of paper to be filled out by travelers and the addition of 1,000 new customs men. The I.R.S. will be required to handle 6,600,00G additional travel reports and it adds the statement that the President has already proposed the expanding of the Federal work force by 45,600. What then will be .the actual net gain? The editorial also endorses you in your stand for the `reduction of Government spending. Because of my position I am in touch with `a wide `section of public opinion, much `of. which can find no organized expression and the impression, both as regards to the Federal proposals for new taxes~ and those of the Governors of the States, is to take more `of the public's ra~pidly shrinking dollar in order to spend more and not to presierve our fiscal soundness by saving more dollars through :su'b'stantia,l and real Government reduction in spending. The proposed travel tax as presently drawn i~s grossly discriminating and self-defeating. Business can charge the tax off and pass it on to their consumers. The rich will not be bothered by it and will continue to spend as much abroad as their fancy dictates. Dollars may be taxed but none saved from this group. All Government-connected foreign travel, tenuous o'r necessary, along with those who can find some connection with the party to travel, is exempt. But all foreign travel for those of very modest means bears' the full burden of this PAGENO="0301" 1079 tax and all non-profit organizations, with no way of passing the tax on, must also bear the full burden of it The bill as presently drawn will put an adth tional heavy finanelail burden on the Chu~rch~s,, especially, and their admlnistra~ tion of their worldwide interests. The Ohurches in their world connection.s are strong forces for world peace and brotherhood and for the improvement of the American image abroad, yet this tax penalizes them for rendering this service and gives them no choice but to reduce their necessary travel or to seek voluntary funds to pay for it. For instance, it seems most inconsistent to tax up to 30% the necessary trips which the officials of our Church Chaplains commissions to our Chaplains in foreign fields who are in fact rendering tremendous Government service. And it appears to me just as discriminatory to tax up to 30% the necessary living ex penses of Bishops and other world Church bodies who will attend the Lambeth World Conference of Bishops in London in August of 1968, even though from the standpoint of accurate knowledge on world conditions this Conference will be the most effective gathering, along with the World Council of Churches meet- ing in Upsala, Sweden, which is subject to the same travel tax penalties, which will be held in 1968. The morale of the American public and their confidence in Government ad- ministration is rapidly deteriorating. We wonder if this travel tax, producing a very insignificant sum in comparison with the large dollar expenditures of Government abroad will turn out to backfire as a psychological gimmick the same as Leon Henderson's edict to eliminate cuffs on men's trousers during the Second World War because of the necessity to save cuffs to make pants-30 cuffs for one pant-leg. If such tax bills could come after direct and substantial cuts in Government spending had been made, both State and National, then I believe they would come as a genuine morale builder to the American public and an antidote to the morale deterioration and disorder and. cynicism in public affairs which are America's real enemy. This is the' critical hour for courageous and straight-forward leadership from Washington `and the State capitals to Which the American people have never failed to make a sacrificial response I believe I speak for a vast number' of American citizens in the statements contained in this letter. Yours sincerely, FRED PIERCE Consox, Resident Bishop of Philadelphia and Past-President of the World Methodist Council. STATEMENT or AEROSPACE INDUSTRIES AssoCIATION OF AMERICA The Aerospace Industries Association of America, Inc., represents, inter alia, the major United States manufacturers of passenger transport and cargo aircraft light and executive aircraft and helicopters and related power plants components and accessory equipment. Perhaps most pertinent to the subject of these hearings is the fact that exports by this industry have made the single highest industrial contribution to the nation s trade surplus for the past sev eral years. The industry fully supports the Administration's objectives to reduce the balance of payments deficit. However we are concerned that unintended effects of the proposed Travel Tax Program may have an adverse impact not only on expected gains in the balance of payments but on other economic considerations as well substantially outweighing any benefit that may arise from its enaction into law. Insofar as this industry is concerned, these adverse effects would emanate from two sources: (1) direct curtailment of purchases of American. aircraft by both foreign and domestic airlines, and (2) indirect curtailment of such pur chases resulting from possible retaliatory measures by foreign governments. Our purpose in submitting this statement is to request respectfully this Corn mittee to take such facts into consideration as it weighs the net effects of the proposed program. Some pertinent facts are as follows: During calendar year 19437 income to the U S dollar account from all cate gories of aerospace export sales amounted to $2.2 billion. According to the latest Bureau of the Census figures the net aerospace contribution, after sub- PAGENO="0302" 1080 tracting $283 million in aerospace imports, was almost $2 billion, or 41% of the nation's 1967 total surplus. (See Table A). On the civil side alone, including spares and accessories, aerospace sales from 1958, the year in which American jet transports were first introduced, through 1967, produced total export sales of $8,865 billion. (See Table B.) Barring any impediments the aerospace industry expects to realize approxi- mately $1.5 billion annually from foreign orders for commercial aircraft in 1968 and each of the years immediately following to satisfy the rapidly expand- ing growth of worldwide air travel. Obviously, any serious curtailment of such orders would have an important adverse effect on the nation's export surplus, an effect which, incidentally might well prove irremediable. Since aircraft of U.S. manufacture constitute at least three-fourths of the equipment of the world s airlines to the extent to oo. hich these adverse efi ects were realized, the U.S. manufacturing industry would be hurt both ways. In short, we are concerned that a tax which has the effect of limiting foreign air travel by Americans will lead to a decrease in orders for aircraft of U.S. manufacture; and that foreign governments, particularly European govern- ments, by instituting comparable travel taxes on their citizens, would similarly adversely affect our domestic airline industry and, in turn, curtail the sales to it by the U.S. aerospace industry. En terms of the national economy the effect of the curtailment of foreign sales would be to vitiate the desired balance of payments objectives. Furthermore, the aerospace industry would face a reduction of thousands of highly trained and skilled employees because of the lost sales. If the rataliatory measures of foreign governments take the form of nontariff barriers to the purchase of U.S. aircraft, the results in terms of lost U.S. exports would be no different than if aircraft were not purchased for direct economic reasons. It is impossible to project accurately at this time the exact order of magnitude of these effects since the details of the program have not been finalized nor has there been enough time to evaluate completely their potential impact. How- ever, based on the proposed tax, the probable consequences are that during the period of constraint, a minimum of 60 domestic and foreign aircraft orders otherwise anticipated would be lost. This would amount to an airframe manu- facturer's total sales loss, including spares of approximately $500 million or, using a generally accepted economic multiplier a $15 billion loss throughout the U.S. economy. Because foreign airlines would bear the larger share of the de- crease in travel demands, the export sales reduction would amount to $300 million. Operating in the belief that international travel would continue to grow at the annual rate of 15%, the world's major airlines have committed hundreds of millions of dollars for U.S. aircraft, including supersonic and jumbo jets of United States' manufacture. Uncertainty as to the continued validity of that rate of international travel growth necessarily places these existing orders in jeopardy and also casts serious doubt as to future orders. We respectfully submit these facts as factors which should be weighed by this Committee in determining the utility of the proposed Travel Tax Program toward achieving its objectives. TABLE A-THE AEROSPACE INDUSTRY CONTRIBUTION TO THE US BALANCE OF TRADE I IDollar amounts in millionsi Total U.S. trade bal- Year ance 2 (U.S. experts and imports) Aerospace industry trade balance (Aero- space exports and im- ports) Aerospace industry trade balance as a proportion of the total U.S. trade balance (percent) 1967 $4,798 $1,965 41.0 1966 4,786 1,673 28.6 1965 6,112 1,618 23.9 1964 7,824 1,608 19 4 1963 6,209 1,627 24 7 1962 5,310 1,923 33 8 1961 6,286 1,653 23:9 1960 5,557 1,726 30.0 1 The trade balance is defined as the excess of exports over imports. 2 Series based an Bureau of the Census definition of exports and imports which includes reexports and military grant shipments. . 2 Series based on Bureau of the Census information on exports and imports of aerospace products. PAGENO="0303" ios:~. TABLE B-EXPORTS OF U.S. CIVILIAN AEROSPACE PRODUCTS' 1958 TO DATE [In millions o f dollarsj 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 ~CompIete aircraft: Transports, new 228. 9 143. 7 General aviation, new 12. 1 14. 4 Rotarywing, new 9.5 8.1 Other, including used 35. 9 22. 7 Total 286.4 188. 9 Engines: Jet and gas turbine 8. 0 18. 6 Internal combustion 40.3 25. 1 Total 48. 3 43. 7 Parts, accessories, and equipment for aircraft, including spares: Enginesparesandaccessories_ 70.5 69.3 Other spares and equipment...._ 280. 1 236. 6 Total 350. 6 305. 9 Total, civilian 2 685. 3 538. 5 480. 1 23. 6 7.7 25. 7 262. 5 27. 5 6.9 37. 9 259. 2 23. 1 8.8 36. 7 190. 9 26. 9 9.8 16. 5 211. 1 33. 3 14.6 28. 1 352. 8 68. 8 16.2 39. 4 420. 8 89. 1 11.6 30. 9 611. 4 91. 2 25.3 61. 4 537. 1 334.8 327. 8 244. 1 287. 1 477. 2 552. 4 789.3 47. 5 23.2 53. 6 21.7 44. 8 18.2 25. 7 19.4 25. 0 21.7 38. 8 17.4 49. 3 27.7 69. 6 31.6 70. 7 75.3 63. 0 45. 1 46. 7 56. 2 77. 0 101. 2 101.1 379. 8 104.2 363. 7 112.2 406. 8 101.3 341. 4 87.7 342. 3 92.6 228. 5 116.9 288. 8 132.1 357.9 480. 9 467.9 519. 0 442. 7 430. 0 321. 1 405. 7 490. 0 1, 088. 7 878. 0 909. 8 731. 9 763. 8 854. 5 1, 035. 1 1, 380. 5 ~Revised. 2 Total civilian aerospace exports, 1958-67: $8,900,000,000. NATIONAL Am CARRIER ASSOCIATION, INC., Washington, D.C., March 1, 1968. flon. WILBUR P. MILLS, Chairman, Honse Ways ai'rd Means Committee, Itov~se of' Representative, Washignton, D.C. DEAR MR. CHAIRMAN The National Air Carrier Association' appreciates this opportunity to submit this statement concerning the impact of travel restric- tions on international charter air transportation. While we appreciate the seriousness of the balance of payments deficit, we cannot agree that the best way to rectify the deficit is through travel restrictions. We believe an analysis of what the supplemental carriers are currently doing, and what additionally they can do to aid in relieving the balance of payments deficit, will provide a proper basis for consideration of whether the proposed taxes, as applied to charter air transportation and expenditures by charter passengers are in the public interest. Although 17 percent of the air passengers in the transatlantic market (which ts by far the largest international air travel market) are transported on charter flights2, the economic and operational characteristics of international air charter services are not widely known. The fact is that such services differ markedly ~from the scheduled services in their economies, mode of operation, rate struc- tures and conmpositon of traffic. We believe that these differences between charter and scheduled air serv- ices warrant independent consideration of charters and charter passengers in the formulation of legislation designed to restrict travel by U.S. citizens outside the Western Hemisphere. WHAT THE SUPPLEMENTALS ARE DOING The international charter services of U.S. supplemental carriers are already bringing a sizeable percentage of foreign visitors to the United States. However, these flights are tied economically and operationally to U.S. originating flights. Any reduction in the number of U.S. originating flights would thus adversely :affect the economics of the entire charter operation and necessarily bring about a cutback in foreign originating fights. 1 The members of the Association are: Capitol International Airways, Inc.; Modern Air Transport, Inc.; Overseas National Airways, Inc.; Purdue Aeronautics Corporation; Saturn Airways, Inc.; `Southern Air Transport, Inc.; Standard Airways, Inc.; Trans International Airlines Corporation; Universal Airlines, Inc.; and World Airways, Inc. CAB Press Release 08-9, February 12, 1908, Figure is for the April-September 1966 period. PAGENO="0304" 1082 A. Supplementals already have directional fares and have achieved a reasonable balance between U.S. and foreign originating groups From the time that supplemental carriers were certificated to engage in trans- atlantic charter service, they have endeavored to promote group travel originat- ing in Europe by means of low directional fares. At the present time, such rates are as much as 30 percent to 35 percent below the rates for similar serv- ices charged to groups beginning their journey in the United States. As a con- sequence of these promotional efforts (which, to our knowledge, represent the only air carrier plan to date to stimulate travel to the United States through the use of directional fares), the following results have been achieved or are expected: TABLE 1.-DISTRIBUTION OF U.S. SUPPLEMENTAL CARRIER TRAFFIC BETWEEN UNITED STATES AND FOREIGN ORIGINATIONS, 1967-68 Passengers Percent of total 1967 U.S. originating Foreign originating Total 1968 U.S. originating Foreign originating Total 149, 803 98, 005 60. 5 39. 5 247, 808 100. 0 257, 327 186,913 57. 9 42. 1 444, 240 100. 0 B. Much of the U.S. originating travel on supplemental carriers consists of stu- dents, teachers and ethnic groups Students, teachers, and ethnic groups-largely persons of moderate means whose travel is in the public interest-account for more than 80 percent of the supplementals' transatlantic charter traffic originating in the U.S., as shown below: TABLE 2.-RELATIONSHIP OF STUDENT/TEACHER/ETHN IC GROUPS TO U.S. ORIGINATING SUPPLEMENTAL CARRI ER TRAFFIC IN THE TRANSATLANTIC MARKET, 1967-68 Passengers Percent of U.S. originating 1967 Students Teachers Ethnic groups 49,761 14,004 67,302 33. 7 8.9 44. 9 Total 131,067 87.5 1968 Students Teachers Ethnic groups Total 86,152 22,821 106,577 33.5 8.9 41.4 215,550 83.8 Contrary to the misleading views expressed before your Committee by the Creative Tour Operators Association, the student, teacher, ethnic group and other charters performed by U.S. `supplemental carriers fully adhere to CAB regulations. Further, since these groups consist largely of persons' with moderate means, they are likely to spend substantially less' abroad th'an individually ticketed travelers. C. The success of the supplementals in the transatlantic market has largely been at the ecopense of the foreign flag carriers, which fact in itself has improved the balance of payments The following table proves the effectiveness of the U.S. supplementals in in- creasing the U.S. flag share of the transatlantic charter market. PAGENO="0305" U.S. Transatlanti Year carriers Number c route U.S. domestic carriers U.S. supplemental carriers Number Percent Percent Number Percent 1963 9 865 5 31 676 17 1964 1965 1966 1967 10,684 4 22,199 6 23,857 9 92,620 17 8,719 2 7,160 2 3,358 56,991 84,040 138,696 239,686 21 23 31 43 Year Foreign route carriers Foreign charter carriers Totals Number Percent Number Percent Number P ercent 1963 1964 1965 1966 1967 138,621 75 193,460 71 222,277 61 222 571 51 151 015 27 4,335 3 10,674 4 31,238 8 31111 7 70 135 13 184,497 271,809 368,473 438 395 556 814 100 100 100 100 100 i Passengers counted on a 1 way basis i e a round trip flight or passenger is counted twice Source CAB Press Release 68-9 Feb 12 1968 During the five-year period shown the U S flag share of the charter traffic increased from 22 percent to 60 percent correspondingly the share of the foreign carners declined from 78 percent to 40 percent This improvement in distribu tion resulted~ largely from the increased competitive effectiveness of the U.S. supplemental earners D Restrictions on U S originating charter travel may well jeopardize the trans atlantw charter programs of U S suppiementals which now transport a large percentage of foreign passengers to the U S The economic viability of the transatlantic charter programs conducted by U S supplemental carriers is predicated on (1) minimizing ferry flights and (2) achieving reasonable balance between relatively high priced U S originat mg and low-priced foreign originating charter programs. As shown by Table 1, about 40 percent of their transatlantic charters are foreign originated Ideafly the supplemental earners attempt to c~onstruct their charter programs by so intermesliing U.S. and foreign originating flights that no empty legs are required As a practical matter, between 15 percent and 20 percent of all flights flown across the Atlantic by supplemental carriers are ferry or non-revenue flights Any restrictions on the volume of business that could be developed In the U.S. would tend to increase the percentage of non-revenue flying and jeopardize the economics of the entire operation Also in view of the interlocking opera tional relationship between U S and foreign originated charter flights cancella tion of U.S. flights `w1l~ cause a corresponding reduction in the number of foreign originating flights. In sum the operation of international charter programs by U S supplemental carriers does not contribute to the balance of payments problem as the revenues derived from transporting foreign visito~s coupled with the currency expended by foreign v~s1tors in the U S approximate the amount expended overseas by U.S. travelers. In addition, the charter carriers have contributed greatly in (1) serving the travel needs of U S students teachers and ethnic groups and (2) stimulating by their competitive impact the scheduled carriers into reducing transportation costs. An across-the-board application of travel restrictions to U S charter passengers will tend to make uneconomical the international charter services of U.S. supplementals and also bring about a reduction in the number of foreign charter passengers visiting the U S Exceptional treatment for charters antct charter passengers is thus fully justified. WHAT THE SUPPLEMENTALS CAN DO Exemption of charter flights from the proposed travel tax can enable the supplementals to continue their historically successful penetration of the 89-749-68-pt. 3-20 1083 TABLE 3.-PRO RATA CHARTER PASSENGERS AND RELATIVE SHARE OF MARKET BY CLASS OF CARRIER (APRIL-SEPTEMBER PERIODS) i PAGENO="0306" European originating transatlantic charter market.. While only 25 percent of U.S. citizens h:ave traveled by air, only 2 percent of the world's population have nsed air transportation. The low-cost features characteristic of air charter travel are best able to attract this potential market to air travel. What is true in the U.S. is even more so in Europe. Apart from the negative impact of travel restrictions the supplementals with go~ ci nment cooperation can make a substantial and positive contribution to the halance of payments. We believe that with the cooperation of the Civil Aeronautics Board in granting necessary authorizations the U.S. supplementals would be able to mount large-scale programs of low-price inclusive tour charters3 which would have the potential of bringing as many as 50,000 additional foreign visitors to the U S in 1968 and [50 000 additional in 1969 Ihe e additional visitors ~ ould be diverted from ITO programs of foreign carriers already in effect serving points in Africa and Asia. See Tables 7 and 8. To summarize a rather complex regulatory situation U S supplementals are now authorized to perform affinity charters originating in foreign countries but they cannot charter aircraft to foreign tour operators for inclusive tour charters. The CAB has authorized several foreign supplemen'tals to charter, to foreign tour operators but has not as yet permitted U.S. supplementals to do so. A further obstacle to the successful promotion of foreign originating TIC programs by U S supplementals exists by virtue of the regulatory requirements (1) that the tour or "package" price must exceed 110 percent of the lowest available TATA scheduled fare, and (2) that the tour serve at least three separate points of ~destination. Each' of `these requirements ` serves to increase substantially the minimum price at which an inclusive tour to the U.S. can be offered. These barriers to large-scale foreign-originating IT'C programs by U.S. sup- plementals can be removed and the members of NACA have requested the CAB to do so With CAB assistance the U S supplementals can as shown below achieve a significant gain for the U S balance of payments position by reaching a vast and thus far largely untapped source of foreign visitors to this country A The European anairleet is accustomed to time inclusive tour For at least the past ten years inclusive tour charters for vacation travel purposes have been an increasingly substantial factor in the European travel marl et This is evident from the following table with respect to TTC traffic carried outbound from the United Kingdom for the period 1961-1966 TABLE 4.-INCLUSIVE TOUR CHARTER TRAFFIC (OUTWARD PASSENGERS CARRIED), SUMMER SEASONS, 1961-6 [Thousandsj Year All airlines United Kingdom Foreign airlines airlines 1961 295 225 70 1962 352 222 130 increase oi decrease (percent) +20 -1 +87 1963 441 261 180 Increase or decrease (percent) +25 +18 +38 1964 592 397 195 Increase or decrease (percent) +34 +52 +8 1965 744 555 188 Increase or decrease (percent) +26 +40 -3 1966 1,090 898 ` 192 Increase or decrease (percent) +47 +62 +2 Source: United Kingdom Board of Trade. Similar experience is reported for the inclusive tour operations outbound from Berlin as summarized in the following table `which included destinations `In the following areas: Bavaria, Austria, Italy, Spain, Portugal,' Yugoslavia, Denmark, The Netherlands, and areas along the Black Sea and North Africa. The inclusive tour chartei enables a supplemental carrier to charter an entire aircraft `to a tour operator who assembles in a single low price a package tour subject to certain CAB regulations. 1084 PAGENO="0307" 1085 TABLE 5.-ITC OPERATIONS OUT OF BERLIN 1958-66 Year . ~ Total capacity round trip seats Nationality and number of carriers United United Kingdom States 1958 1959 1960 1961 1962 1963 * 1964 1965 1966 - 8,991 14,560 17,763 116,238 23,462 24,552 48,584 62,588 117,516 3 4 2 2 1 1 1 1 1 2 2 1 2 1 As a result of the erection of the Berlin wall, there were appreciable cancellations in 1961 which accountforthe decrease Source: Exhibit S-20, p. 1, CAB docket 17205. ~B. Other travel arrangements wilt not develop this new market: Affinity charters are not as well related to the actualities of the Ev,ropean market and indi- vidually ticketed travel is too e~vpensive Expert testimony submitted to the Civil Aeronautics Board in the Sndflug case, Docket 17205 (Exhibit S-A, p. 5) demonstrates that in Europe affinity charters-that is, charters by clubs and organizations, which constitute the vast bulk of transatlantic charters-cannot attract the large number of passengers ~who utilize inclusive tour charter services. There are evidently fewer clubs and organizations in Europe, and Europeans are less accustomed to travel under the auspices of such organizations than they are in the United States. Those with experience in the European market have concluded that it is unrealistic to expect to develop in a short period `a substantially greater volume of affinity charter flights than now exists. Furthermore, it is clear that individually ticketed services now available are not likely to attract an appreciable number of the foreign travelers who would utilize inclusive tour charter services. So much is clear from Table 6 below. The ITO market will be found among those persons who cannot now afford the tariffs of the scheduled airlines. TABLE 6.-COMPARISON OF TRANSATLANTIC FARE STRUCTURE, NEW YORK TO PARIS Scheduled airlines, either direction round trip U.S. supplementals pro- Economy fare (May Economy fare (Aug. 4- 14 to 21-day excur- GIT fare (including posed foreign originating 22-Aug. 3) May 21) sion fare minimum grousd ITC round trip package) $559. 10 $473. 60 1 $331 I $37f~ i$275 1 Not available Friday, Saturday, or Sunday, nor during the following periods: Eastbound June 10-July 4, Aug. 5-Aug.22; westbound June 3-June 20, Aug. 19-Sept. 5. 2 Proposed average per-person price of a European originating ITC based on certain modifications to existing ITC regula- tions as discussed herein. C. The market for low-cost travel.to the U.S. has not been developed On the basis of a recent German survey, which is summarized below, it is obvious that the United States presently ranks well down the list as a vacation destination. Where did you spend your vacation? PAGENO="0308" .7 .4 .3, * 3' .2: .1 D. Foreign originating inclusive tour charters to the United States could bring large numbers of foreign passengers to the United States and produce large' sums in foreign ea~c1vange It should be noted that, because Of the required lead time in organizing an in- clusive program as well as possible delay, in obtaining relief from existing regu- lations, the supplemental carriers' ability to generate a large volume of inclusive tour traffic in 1968 is questionable. A more substantial impact of ITO programs on the balance of payments deficit could be obtained in 1969. The potential traffic that could be generated by inclusive tour charter programs in 1968 and 1969 is' shown below: . x~enmi ~eJAwarz~waLu, xugosiavia -~- 1086 TABLE 7.-Summary of questionnaire regarding destinations of German vacation travelers, March 1965 Percent DestInation: 0/ total Majorca/Ibiza -` 37. a Remaining Spain 11. G Roumania (Mamaia) ` 6.9 North Italy (Catolica/Lido di Jesolo) 6.1 Canary 5. ~ Remaining Europe 5. a Bulgaria 4. 6~ South Yugoslavia 4.2 Tunis 3.6 South rtakv -__- 3.0 Germany (_~~C~_~ -,` 1. 7 North ~` ` " , 1. ~ Corsica/France/Domaine de A 1. a Remaining "~ 1. ~ Portugal .8 Sardinia . 7' USA North Afrfr.~i Rhodes South Africa Near East Crete Canada/Mexico No statement 3.0 On the other hand, the same survey indicated that North America would be the prime destination if the price were right. Which destination would you choose, if air traveling costs would be lower or' if you would have more money to spend? TABLE 8.-Destination preference if air travel costs could be reduced QUESTIONNAIRE REGARDING DESTINATION OF GERMAN VACATION TRAvELERs, MARCh 1965 PercentS Destination: of total' North America 15. 7 Southwest Europe 14. 2 Africa 12. 7 Southeast Europe 9. 6 Canary 6.9 Asia 6. 6 `South America 5. 6 Japan 3.~ North Europe 3 & South Pacific 3. 7 India 2.9 Others 8. 1 No Statement - 7 6 PAGENO="0309" 1087 Tour pnce 1 stop 2 stops ~ 1968 1969 $275 X 50 000 100 000-150 000 $347 X 25,000 50,000- 75,000 ESTIMA ~ TED POSITIVE CO ~ NTRIBUTION TO BALANCE OF PAYMENTS ~ Potential Potential 1969 1968' ...,.. ...... ..,. .. ... .... .~ .... .. $275 $21,250,000 $42, 500, 000-$63, 750, 00 $347 12,425,000 24,850,000- 36, 875,00 ..... ..,.. .. ..... ... ........... ..... ....,. ...... ..,. .....,... ..,..... ,.. ... ...... ..,... ,.., ..... ..,. ... .. .. 1 Figures include $150 per person to cover costs of meals and incidental expenses. These projections assume that the supplementals will be granted relief from the present minimum price and three-stop requirements (as disetissed .ouprct). if, however, the carriers are required (as they presently are) to charge a miii- imum tour price equal to 110 percent of the lowest IATA scheduled fare, then the relatively high IATA fare level and the absence of IATA directional fares will operate to reduce substantially the potential volume of ITO traffic to the US by causing a higher tour price. The same is true of the present requirement that at least three points of destination be served. E. Large-scale "back-to-back" foreign originated ITO prograins would be eco- nomical without requiring additional U.S. originated travel Although supplemental carriers are able to offer low directional fares to ad hoc foreign affinity groups only by balancing such charters with higher paying U S originating flights it does not follow that performance by foreign originating ITO programs by U S supplementals will require additional flights involving U.S. citizens, By performing t~iese programs on a large-scale and "back-to-back" basis, we believe that they can be made to be self-sustaining. Based upon the foregoing it can readily be seen that the U S supplementals with additional authority from the CAB can develop an ITO. market which has a potential of contributing up to 60 additional million dollars per annum toward eliminating the balance of payments deficit Therefore it would appear appropriate to emphasize charter programs which will make a positive contri bution rather than to place travel restrictions upon charter transportation which will have an adverse impact on the existing balance of payments situation CONCLUSION As has been stated above the existing ability of supplemental carriers to at- tract foreign visitors to the United States is based on the low directional fares currently in effect which are only possible by reason of the higher outbound fares. Likewise, the restrictions, by reducing utilization of aircraft which is the key to lower fares, would place in jeopardy the supplementals' ability to mount large-scale ITO programs at the low rates necessary to attract foreign visitors. In summary, we submit that the proposal for a tax on transportation and expenditures is not justified and is opposed by this Association. We feel that the proposed tax could injure rather than help the balance of payments deficit. The long-term effect of such a tax will not only adversely affect travel but will jeopardize the growth of U S international carriers and will in all probability result in curtailment in employment and retard the sales of aircraft both to U.S. and foreign airlines. For these reasons we believe it more appropriate to adopt positive measures such as the ITO program we have suggested rather than to adopt negative or restrictive measures, the concomitant effect of which cannot be measured. The National Air Carrier Association will be pleased to elaborate on this pro posal or furnish any additional information the committee may desire. Sincerely, EDWARD J. DRISCOLL, President. PAGENO="0310" 1088 TRANS WORLD AIRLINES, INC., Washington, D.C., February 28, 1968. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: I am aware that the Committee has heard and re-~ ceived a great deal of testimony on the balance of payments problem. TWA does not wish to burden the Committee with repetitious statements, but we do feel it important to submit for the official record a copy `of a letter from our President, Charles C. Tillinghast, Jr., to President Lyndon B. Johnson sug- gesting a modest head tax be imposed. The proceeds of this tax could be used to mount an intelligent, concerted and long-range attack on the genuine balance of payments problem to which we believe a long-range `solution must be found. TWA also feels that the final recommendations that might be made should not discriminate between travel to the different hemispheres. The balance of payments problem should be dealt with on a total basis. Finally, we would hope that your Committee could give serious consideration to recommending that greater emphasis be placed on the use of American Flag Carriers by not only Government employees and Government contractors, but by all United States' citizens. Sincerely, J. Woomiow THOMAS, Vice President.... TRANS WORLD AIRLINES, New York, N.Y., February 2, 1968.. THE PRESIDENT OF THE UNITED STATES, The TVhste House Washington D C Mn. PRESIDENT: As you undoubtedly appreciate, we at Trans World Airlines' have been devoting considerable thought'and study to the balance of payments~~ problem, and particularly to the question of bow international transportation. Companies can contribute to `the solution of a difficult and important problem. Among other things, we have appraised the probable consequences of possible' restraints on travel abroad. We stait by recognizing that the countiy has a genuine balance of payments problem to which long-run solutions must be found. Thus we regard it as es- pecially important that steps designed to deal in the short run with current symptoms do not further complicate the underlying disease A constructive and positive program consistent with this country s principles of individual free dom and the liberili~ation of international trade should be adopted Suggestions for monetary penalties on travel abroad have raised a number of serious questions involving constitutional princi'ples, discrimination against: the less wealthy, interference with desirable study programs and cultural cx- changes, difficulty of administration and the spector of growing restrictionism' with respect to international travel, similar to the progressive erection of tariff~ barriers. T'here not only has been a mounting tide of public criticism of restric- tive proposals, but an expression of substantial doubt that any exit charge would obtain the endorsement of Congress. My purpose in writing is not to add another voice to those already opposing an exit fee (although I would regard a large fee as representing a Smoot-Hawl.ey approach to the problem) but, rather, affirmatively to urge imposition of a modest fee ($10-$15) the proceeds of which could be used `to mount an intel- ligent concerted and long range attack on the pioblem Such a fee would con stitute a `mild depressant on travel to the areas with respect to which it was applied but would not be so high as to bar important travel by even those of modest means. It could hardly be considered discriminatory against students, teachers and the retired or be construed as an infringement on the "historic' right of Americans freely to travel". Particularly since a number of other countries have modest exit fees (Colombia $10, France $5, Greece $1.35, Israel $2.50, Italy $1.65, Spain $0.84 and Switzerland $0.69), imposition of such a fee probably would not stimulate retaliatory action by other countries. If the funds are devoted as outlined below, the program should have genuine attraction for foreign airlines as a positive effort to achieve travel parity by increasing the volume of travel in which all carriers will participate, PAGENO="0311" 1089 The most important facet of a program of the type suggested would be crea~ tion of a fund which could be used to press an attack at the heart of the prob- lem. Knowledge that the funds were to be so used should assure wide public support for the program and facilitate its adoption by the Congress. Of crucial importance in my view, the start would be made on achieving a permanent cure of a situation with which no one can be happy. Under the direction of Ambassador McKinney, a task force of able and knowl- edgeable citizens has been devoting itself to an intensive study of means of inducing foreigners to increase their travels to the United States. Since I am not privy to their deliberations, I do not know just what recommendations will flow from this study, but I have talked with enough members of this group to know that a great many sensible suggestions have been made for dealing affirmatively with this problem. Many of these suggestions will take money to implement. The necessary funds should be available for these purposes. Some of the uses that could be made of the fund which would be produced ($30-$50 million) are obvious. For example, the fund would enable us to saturate the hard-currency countries of the world with Visit USA advertising and sales activities and to match in the aggregate the funds spent here by the tourist ministeries and bureaus of countries seeking to woo our tourists. The proceeds, or a part thereof, might also be dedicated to making America a more manageable and attractive destination through such avenues as improved entry facilities, including multi-lingual hostess staffing; establishment of foreign-visitors centers in key U.S. cities; etc. As another means of attacking this problem in a sensible manner, I would urge that your task force recommend a program of improving the statistics bearing on the nature and extent of the problem. While I can in no sense pose as an expert in this field, I have heard enough questions raised as to the precision of the figures on our travel and transportation accounts to have substantial doubt as to their accuracy. Therefore, I think that a program aimed at obtaining a better measure of (a) the nature and extent of expenditures abroad associated with travel and (b) of the relative use of U.S. and foreign carriers, would be most usefuL Perhaps our problem is more serious than we think; perhaps it is less. In either event, we should know. In my view, the program outlined above stands a chance of public acceptance, deals with the balance of payments problem in a constructive way with enduring benefits, and offers the opportunity to project the American image on a grand scale in a period in history when our country needs' it most. Sincerely, CHARLES C. TILLThTGTTAST, Jr., President PACIFIO SOUTHWEST Aiiu~iuus, Ban Diego, Calif., February 22, 196S~ Hon. WILBUR D. MILLS, Honse Office Building, Washington, D.C. `M~ DEAR `Mit. MILLS: We at PSA have followed with great interest the con- troversy over the proposed legislation concerning an airport head tax on board- ing airline passengers. In view of the possible legislation, I would like to take this opportunity to present certain facts concerning this possible tax as applicable to iPISA. As a businessman and president of a large corporation, I am very niuch aware of the increasing costs in running a complex national government coupled with military spending and aid to underprivileged and minority groups. These costs, I realize, are essential. `In this area, I recognize the need for increased revenues and possible new areas for taxation. In fairness to my company, my stockholders, and the commuter passenger of California and the East `Coast, however, I must present our stand on this possible tax `and our recommendation's for possible `changes. I must further admit that I cannot oppose the possible new boarding tax in its' entirety. I do believe that some consideration should be given to the commuter- type carrier such as P'SA and other simila~ airlines and, `more important, the commuter-type passenger who will be most seriously effected. As a point of explanation, `we at PSA are proud of the fact that we are con- sidered the pioneer in lowering air fares for the `California air traveler as well PAGENO="0312" 1090 ~ :~~tt1~g a trend for other airlines to follow. The CAB has frequently cited PSA as an airline that can offer fine service on the finest jet equipment possible BUT at low fares. For example, our air fare between Los Angeles' and `San Francisco is $13.50 or $11.43, depending on the type of equipment being utilized. The air fare be- tween Los Angeles and San Diego is $6.35. A fiat $1.00 tax on these flights woul'd represent a 7.4%, 8.7%, and 15.6% increase, respectively! I do not intend to bore you with countless figures and statistics pertaining to `the growth of passenger totals with our addition to certain air routes. However, it might be noted that the Los Angeles-to-San Francisco air route has become the heavist-traveled in the world-due, primarily, to the low fares inaugurated by this airline and followed by other carriers. And in Sacramento, total traffic for all carriers increased 67% in the second month of operation following our addition to the Los Angeles-Sacramento air route in February, 1967. While increases since `that time have, of course, not `been `so pronounced, `they have been substantial throughout the year we have been on this run. Thus, `we have enabled all types of commuters-businessmen, college students, military personnel, `etc.-to fly for little if any more `than it would by automobile over the same dista'nce. This commuter-type service is not unique to PSA and the W'est Coast. Eastern Airlines is well known, I am sure, to you and your constituents as a fine means of transportation between Washington, D.C. and New York City. I am als'o sure that such a boarding tax would affect th'eir service in the same degree that `it `would ours. For this reason I would lik'e to propose the possibility of a boarding tax for fares over $20.00 I sincerely believe a more equitable and suitable tax would be one `calling for a minimum tax of $50 for any fare over $20.00 or 1% of the total fare, whichever sum is greater. On a typical long-haul Los Angeles to New `York run, for example, this `would result in a $1.45 tax (based on 1% of the existing `coach `fare of $145.10) or $1.05 for the Los Angeles to Chicago run (based on 1% of existing coach fares of $105.45). I believe this proposal is a `sound one. An additional $1.05 tax or even the maximum tax of $1.45 will not be that greatly felt by a cross-country air traveler. In turn, the businessman, the student, or the military personnel on leave will not be effected on their commuter-type trips where their base fare is now only $6, ::$11, or $13. `Obviously, a $1.00 tax on thes'e existing low fares will greatly effect a passenger's decision to take such a flight. This fact was born out in our redu'ction t'o $11.43 from $13.50 when we inaugura:ted two-types of equipment service in Spring, 1965. `I must admit that even we were `surprised with th'e `great Increase in our lower fare passenger totals-due to the $2.07 difference in fare. There i~ no doubt in my mind that an a'cross-the.board $1.00 boarding tax ~ould greatly reverse the trend in increasing passenger tota'ls as a result of more and more Americans taking a'dvantage of lower air fares. While this airline would be effected, it is in truth the potential passenger who will be most seriously burt by a boarding-tax on commuter-type fares. Th'is tax would also `have `a reverse effect on airport revenues a's well as rental agencies an'd other s'ec'o'ndary airline businesses. Decreased pa'ssenger totals `must, in turn, have an adverse effect on :the airports themselves and all com- ~panies dependent on airline travel. As a means of further explanation, PSA would not be completely exempt from `the tax structure we propose `due to the fact tha't we do have existing fares over this $20.00 `minimum and we are also hopeful of inaugurating interstate service ~to `Seattle and Portland from existing `California stops in the near future. Pro- po'sed fares on this Northwest route would be substantially over the $20.00 minimum we propose. I would like to take this opportunity to express my appreciation for being able `to present the views of this airline to you. I am `hopeful that you and your con- stituents `will be cognizant of our unique `type of air service and resulting fare `structures. `Please feel free to contact me if I can be of further assistance in this `matter or if further information is required. Sincerely yours, J. FLOYD ANDREWS, President. STATEMENT OF EARL W. CLARK AND HOYT S. HADDOCK, CO-DIRECTORS, THE LABOR-MANAGEMENT MARITIME COMMITTEE Mr. Chairman and members of the Committee, we thank the Committee for `the opportunity of presenting this statement on the proposed administration plan for travel `taxes. PAGENO="0313" 1091 The Labor-Management Maritime Committee, submitting this statement, is an organization composed of major steamship lines and seagoing labor interested in the promotion of the American Merchant Marine, the expansion of the com- merce of the United States, and increased benefits to the economy of the nation through waterborne transportation. The Secretary of the Treasury, in testimony before your Committee on Febru- ary 5 and 6, 1968, proposed (1) a ticket tax of 5 percent on steamship passenger tickets for travel outside the Western Hemisphere (this tax to be imposed until October 1, 1969, (2) a graduated tax on a traveler's expenditures abroad, and (3) a reduction in the amount of duty-free purchases which could be returned by the traveler to the United States. We are opposed to these measures and believe that reductions in our balance of payments deficit can be more effectively achieved through other means. We note and support the statement of Mr. Albert J. Keenan, Vice President of Moore- McOormack Lines, Inc., in testifying before this Committee on February 28 of this year when he pointed out that: "The latest figures for 1966 show that the private sector of our economy ex- ported thirty billion dollars worth of goods and services and imported twenty- five point billion dollars. This resulted in a favorable trade balance of 4.~ billion dollars. The deficit in our balance of payments stems largely from our com- mitments in Vietnam and our military and aid expenditures elsewhere." Thus, it is clear that the current $3.5 to $4 billion in balance of payment deficits is not derived from the private sector of our economy. Yet the transportation tax would penalize the very industry or instrumentality that holds forth the greatest promise of reducing our balance of payments deficit-the U.S.-fiag merchant marine. In this connection it should be noted that the American Mer~hant Marine contributes approximately $900 million annually to the improvement of our balance of p~tymencts even though carrying only 7% of the combined import-export commerce of the United States. Had our national maritime policy of carrying: a "substantial portion" of our foreign commerce in U. S.-flag ships (interpreted by authoritative Congressional Committees as "at least 50i%") been carried out, the balance of payments deficit would have been substantially reduced if not practically eliminated. Thus, the private sector of our economy could have further offset the deficit through greater use of the American Merchant Marine even though `the deficit burden was created for the most part outside its province; namely, the war effort and the foreign aid program. Even in these latter operations, the tLS.-fiag fleet saved literally hundreds of millions of dollars otherwise lost to our balance of payments had the government been forced to utilize foreign shipping. Instead of approaching the problem in a positive way by building up our merchant marine and supporting its efforts to help solve our international monetary dilemma, the purely negati~ve approach of taxing and limiting our foreign travel is being offered. In this connection it is noted that concurrent Resolution S. 58 and HR. 640, introduced by the Chairmen of the Senate Committee on Commerce and the House Merchant Marine and Fisheries Committee respectively, and supported by the other members, spells out our own position quite clearly. These legislative' actions should be supported as positive instruments to guide our efforts in reducing the balance of payments deficit rather than the negative and self- defeating proposals set forth by the administration. They are self-defeating' not only because they are negative in substance but because their application may well bring reciprocal action on the part of other nations and thus, in the final analysis, further accentuate our deficit problems. We `thus support the basic principles offered in testimony on February 28' last by Mr. Albert J. Keenan on behalf of the Committee of American Steamship Lines and in cooperation with the American Merchant Marine Institute. The Labor-Management Maritime Committee respectfully requests that this document be made a part of the hearings on this subject and calls upon your Committee to reject the travel tax proposals. Respectfully submitted, EARL W. CLARK, Hoxr S. HADDOCK. Co-Directors.. PAGENO="0314" 1092 NATIONAL MARITIME HISTORICAL SOCIETY, Washington, D.C., February 13, 1968. Mr. JOHN M. MA~RTIN, Jr. Chief CounseZ, Committee on Ways and Means, Longworth HoHse Office Building, Washington, D.C. DEAR Mn. MARTIN: The National Maritime Historical Society, a non-profit educational organization as defined in Section 4294(b) of the Internal Revenue Code would like to file comments on the proposed travel tax program. The National Maritime Historical Society is currently undertaking the res- toration of the last American built square-rigged merchant vessel, the bark KAIULANI, which was given to the American people by the people of the Philip- pines in October 1964. The gift was presented to President Johnson by the then President of the Philippines. The KAIULANI restoration is not only important to maritime history, it is an international goodwill project The Congress of the United States recognized this last year when they enacted special legislation to asSist the long term financing of the KAIULANI restoration. This legislation was signed into law by President Johnson on December 14, 1967, as P.L. 90-194. The restoration of the KAIULANI is presently being undertaken in the Philippines and will be completed in Hong Kong. Consequently, the technical staff of the National Maritime Historical ~~oeiety will be involved in travel from the United States to the Far East In mos4 cases the technical staff will remain *in the Far East for 30 to 90 daylsL Under the proposed travel tax, all of their ~expenditures for lodging and food will be subject to the tax. I am sure there are many other non-profit educational organizations in- volved in international operations which would be adversely affected by the proposed travel tax program. While the proposed travel tax program exempts certain nonpi~ofit educational organizations as defined in Section 4294 (b) from the 5% transportation excise tax, it does not exempt them from the tax on expenditures In order to allow non profit educational organizations engaged in international operations to continue their overseas activities it is recom mended that Section 4294(b) Non-Profit Educational Organizations be exempt from the proposed tax on expenditures. It would be appreciated if this letter would be included as part of the Corn- mittee's record. T~ours truly, ALAN D. HUTCHISON, President. STATEMENT OF PACIFIC AMERICAN STEAMSHIP ASSOCIATION TRAVEL TAXES Our organziation, comprised exclusively of U.S.-fiag steamship lines whose ~vessels carry passengers outside the Western Hemisphere, is opposed `to the Administration s proposal to (1) levying of a 5% tax on tickets or (2) a ~graduated tax on travelers' expenditures abroad. Our comments focus on the particular effect these taxes will have on U.S.-fiag vessels. A transportation tax, when levied on passengers using U.S.-fiag aircraft or vessels, in no way redresses the imbalance in our international payments account. It is simply a special tax-and a very substantial one-~which uniquely falls upon one particular group-the consu:mers of transportation. And, we add, it fails with a heavy-perhaps destructive_hand on one segment of U.S. industry- the operator of ocean passenger vessels. The make-up of `a ship's passenger list, at least in the Pacific where our mem- ber vessels operate, is more and more comprised of senior citizens' who live on a limited income and travel on personal funds. Very few passengers are busi- ness traVelers at company expense. The tax of 5% on a typical first-class, round~trip fare to `the Orient and return approximates $100.00 per ticket or $200.00 per couple! This is a huge penalty to put on citizens who respond to the admonition to use American ships. Why must they contribute to our economy once in the purchase of a ticket on a U.S.-fiag vessel and again to the Treasury in the 5% tax'? Is it not discriminatory to levy upon the purchaser of one particular U.S. product a sales `tax on a single domestically produced product while other domestic products are exempted from such a Federal sales tax? We certainly do not advocate that all domestic purchases be equalized with a PAGENO="0315" 1093 5% sales tax. But we do advocate that purchasers of one U.S. product and, I might add, the suppliers of that product, not be treated discriminatorily vis-a-vis other U.S. products in this regard. The passenger tax when applied to U.S. ships is a tax not only on domestically produced transportation but also on domestically produced food and accommoda- tions. In a $2,000.00 round-trip ticket, about $1,200.00 can be considered trans- portation and the balance of $800.00 goes for de luxe hotel-type accommoda- tions comprising three or four sumptuous meals per day, entertainment, services of all kinds and lodging over the forty-two day trip which is involved-all of it comprised of goods and services supplied by U.S. economy. This tax on accom- modations presents a further aspect of the discrimination against passengers on U.S.-fiag ship operators compared with domestic accommodations on shore. The power to tax is the power to destroy. If the passenger tax alone does not frustrate a passenger's plans to travel, the graduated tax on per diem expend- itures will certainly finish the job. Most certainly these two taxes, when levied on the relatively higher costs of long haul travel such as passenger ships offer in the Pacific, will destroy the already marginal ability of U.S. passenger ships to stay in Pacific Ocean sea lanes. These ships are not a frivolous adjunct to the ~economy nor are they unimportant politically in the area they are serving. Far from it! They are a hard core element of commercial benefit and prestige in the Far East and, more importantly, of defense capability in time of need. To lose these vessels, whose annual contribution to the balance of payments is in the hundreds of millions of dollars, and whose defense potential is so critical, would be an act of folly unprecedented in the annals of this country. The crowning blow is the discrimination which the proposed passenger tax in- troduces competing between U.S. ocean carriers. Those serving foreign routes inside the Western Hemisphere are exempt; while those serving the other foreign destinations are not. It is no solution to suggest that U.S.-fiag overseas carriers whose livelihood is threatened can transfer operations to Western Hemisphere areas. There are dozens of reasons why this is not feasible-some based on econ- *omy of operations and perso'nnel problems, some on Government obligations to serve one particular route, etc. In brief, the passenger tax on ship travel and on travel expenditures is not one which hurts "just a little bit"; it hurts the U.S.-fiag ship operator in the Pacific a whole lot. Under current rate structures, passenger ships in the Pacific need at least 80% occupancy (some 85% to break even arid are barely holding this line now. A tax induced reduction to 65% or even 70% of occupancy could cause losses which could force the layup, or eventually, the disposal by sale of the vessel. Passenger ships do not have a large expense account clientele- (whose employers pay the tax) -to fall back on such as the airlines have. We wonder how the passenger ship is going to be alive' `to earn balance of payments revenue from foreign visitors, (which we are promoting both in our own industry as part of the national policy), if he's knocked off his sea lanes by curtailment of U.S. citizen travel through taxation. Apart from the crushing impact on operators of U.S. passenger ships and, apart from the regressive impact on our balance `of payments, there are a host of com- plexities inherent in these two taxes. There are complexities and legalities as to how the transportation tax will be collected when tickets are sold abroad; there are endless opportunities for evasion. There are complexities as to how a traveler's expenditures will be audited and the tax collected, etc. Others have fully developed these pitfalls in testimony before this Committee. The Administration's plan is so patently laden with economic destruction for operators of U.S-flag passenger ships, and with no benefits-indeed disecon- omies-for our balance of payments, that the Administration and the Congress should abandon these two taxes' and find other less destructive and discriminatory merchanisms to persuade American to keep their dollars at home. The operators of U.S.-fiag passenger vessels earn more than their share of the tourist dollar. We ask that special consideration be given to ways and means *to insure they can stay alive to continue earning these important dollars' in our international payments account. STATEMENT OF THE AMERICAN HOTEL & MOTEL ASSOCIATION SUMMARY 1. The proposed internation~al a4r travel ta~v has merit if in fact `the receipts therefrom are used to encourage foreign `travelers to the U.S. Such receipts PAGENO="0316" 1094 should be specifically "earmarked" for this purpose; the U.S. Travel Service is best equipped to receive and utilize said receipts. 2. If Congress approves the proposed foreign spending tar, it should be truly "temporary" in nature and scheduled for expiration on October 1, 1969. 3. If the currently existing duty-free provisions are creating a serious drain on our balance of payments-a fact which we doubt in view of the estimate that the proposed reductions will result in a return of only approximately $40 mU- lion-then why not reduce the dollar amounts to zero? 4. Before Congress considers restricting foreign travel by U. S. citizens, it should emulate private industry efforts-such as those of the American Hotel & Motel A'ssocia~ti'on-which stress the "positive" approach to balanced pay- ments. A good first step would be full funding of the U.S. T~avel Service. The American Hotel & Motel Association is a federation of hotel au motel associations located in th'e fifty states, the District of Columbia, Puerto Rico, and the Virgin Islands; similarly affiliated with AH&MA are twelve "regional" hotel and motel associations and in excess of 90 "city" hotel and motel asso- ciations. The Association's membership numbers in excess of 6,000 hotels and motels containing in excess of 700,000 rentable rooms'. The American Hotel & Motel Association maintains offices at 2Z11 Wes't 57th Street, New York, New York, and at 777-14th Street, N.W., Washington, D.C. While we do not deny `the gravity of the balance of payments deficit being experienced by the United States, we ques'tion the measures proposed `by the Administration to reduce this deficiency. `We refer here to the cutbacks in foreign lending of banks `by $500 million, the $1 `billion reduc'tion in' foreign investment by U.S. capi'tal, the reduction of the tourism deficit by $500 million and the $500 million reduction in government spending abroad. The government has received `plaudits for `th~se "courageous" steps to defend the dollar. Courageous, yes, but only in the sense that it has the temerity `to ask the private `sector to absorb $2 billion of the cut while the government `itself proposes to absorb only $500 million. Proposals to Close the "Travel Gap" Toward the end of reducing the travel `deficit, the Administration hais proposed. the following: (1) A permanent 5 per cent l~ax on international air travel from the U. S. and a similar but temporary tax on ship tickets; (2) A temporary 15 per `cent to 30 percent tax on the foreign `spending `by U.S. citizens in excess of $7.00 `a `day; and (3) A sharp, permanent reduction in the am~ount of duty-free gifts `a traveler can `bring or `send home. The `proposed restrictions do not apply to travel within the Western Hemisphere. Our initial reaction to `all this is-~why the sudden concern a~b~ont the travel gap? While the "U.S. travel `account" shows a net deficit as far back as 1950, in 1968 we `are `told for `t'he first time tha't we must take these `drastic `steps immediately, or else. International Air Travel Taos We are `told tha~t International air travel should be taxed at the same rate as is d'omestic air `travel. Thus, in terms of equity, we are asked to accept the 5 per cent tax. But what does all this have to do with reducing the payments deficit? The Secretary of the Treasury during the course of his recent appearance before this committee stated that a portion of the revenue expected from the proposed thx would `be used for certain long-term mea1stures to encourage travel to th'e United States by foreigners. Therefore, if we follow this roundabout "cure," the 5 per cent tax will be ex- tracted from U.S. citizens; a portion of the money derived will be spent- abroad ( ?) -to encourage an increasing number of foreigners to travel to the' U.'S.; and, `the money spent by these foreign visitors will decrease the travel gap. There are several obvious questions w'hich must be answered at this point. For example, what portion of the proposed 5 per cent tax on international air travel is to `be allocated for the above-outlined program? Allocated to whom? For use in what mann~'r? Under agency control? Which agency? A wise Administration would designate the U.S. Travel Service "coordinator" of these long-term meas- ures and "earmark" the funds accordingly. PAGENO="0317" 1095 Foreign~ ~penUn~g Tax We are concerned with the "temporary" label which the Administration has placed on the foreign spending tax. (At this very moment the Congress is con- sidering another extension of the "temporary" excises on automobiles and tele- phone service. ) We have been told that the foreign spending tax represents an effort for a short-term correction of the payments problem which is needed to take up the slack until the long-term measures take hold. (The latter refers to those pro- grams to be financed out of the proposed ~5 per cent international air travel tax.) The foreign spending tax is to expire on October 1 1069 Thus all this assumes that the long-term measures will be fully and successfully operative on or before September 30, 1969. We have seen nothing which indicates this to be a probability Aside from silence on the part of the Administration with regard to the above questions recent past history is not encouraging For years now we have bad many similar long range programs e g the In ternational Travel Act of 1961, the Cabinet Committee on Travel Planning and Promotion the See the U S A program etc And all the while the travel gap has increased~ What assurance do we have that the travel gap will be closed during the course of this temporary restraint on travel? And is it really to be temporary" in nature'? The Treasury report entitled "Maintaining the Strength of the United States Dollar in a Strong Free World Eiconomy"-Called the "blue book" during the Secretary's appearance-is of no help to us. In one breath the report states the foreign spending tax is to be a "temporary restraint . . . for two years." And with the next breath a statement that it is a firm policy to eliminate tins re straint on travel as quickly as possible as soon as our long term measures to increase our receipts frOm travel and from our trade surplus permit." No mention of a two year expiration date In fact now its tied to our trade surplus We submit that when Treasury speaks of the results of "long-term measures," we are going beyond October 1, 1969. We predict that should Congress aprove the temporary foreign spending tax Treasury will be back in the 91st Con gress asking for a temporary extension of this temporary tax And why does the Administration propose to delete travel to the Western Hemisphere from its proscriptions? The Secretary states that most of each U S dollar spent in the Western Hemisphere comes back to the U.S. in one form or another But he also admits that there does exist a travel deficit" to the Western Hemisphere of from $400 to $500 million As we see it a travel deficit is a travel deO~cit nothing more nothing less Thus there appears neither a logical nor an economical distinction. If this committee heeds no other of our cautions, let it not grant a carte blanche restriction on foreign travel If the Administration s proposals must be implemented at the very least they should certainly contain the expiration date of October 1 1969 as submitted by the Treasury Department If at that time conditions are so serious as to require a continuance of the measures then the Congress should start anew in accordance with "due legislative process." Duty Free 1~eductwns Regarding the Administration's proposal for a sharp permanent reduction in the amount of duty free gifts a traveler can bring or send home we apparently have missed the point To those who would say Every little bit helps we say it is time for the Administration to "fish or cut bait." If this item creates a serious drain on our balance of payments-a fact which we doubt in view of the estimate that these proposed curbs would result in a return of only approximately $40 million-then why not remove the duty free provisions entirely'? Before Congress considers restricting foreign travel by private citizens it would be wise to place far greater emphasis on programs designed to attract foreign visitors to the U S Initially studies show that here lies a virtually un tapped source of dollars But even more important such a positive approach is in keeping with a country operating under the democratic system AHc~MA Positive Approach to Ba'ance of Payments Members of the American Hotel & Motel Association are old hands at the positive approach of encouraging foreign travel to this country. Among the Associations' activities are PAGENO="0318" 1096 (1) the People-to-People program; (2) distribution of multi-lingual phrase booklets and guides; (3) familiarization tours for foreign travel agents; (4) foreign distribution of the hotel/motel Red Book-the lodging in~ dustry's travel handbook; (5) trade missions overseas; and, (6) advance hotel/motel registration arrangements for foreign travelers with three major U.S. international airlines. This is the stuff that a favorable travel account is made of! Po$itive Government Action Required What can the government do? Less talk and more action! For starters, the Administration and the Congress should study and act upon the recommenda- tions of the President's Industry-Government Special Task Force on Travel. Aside from the President s recent request for an easing of entry requirements we know of no other "positive" action being taken to ease the payments prob- lem. Again we say that before restrictions are placed on travel, every conceivable positive measure should be tried-Congress can take the first step by making certain that the U.S. Travel Service is properly funded. We began our statement by saying: "We do not deny the gravity of the bal- ance of payments deficit being experienced by the United States." Why then. do we find it so difficult to accept the Administration's proposals? Simply because we do not believe the solution offered will solve the problem-at very most, the proposals tend to be aimed at symptoms rather than causes. STATEMENT OF GEORGE F KACHLEIN JR EXECUTIvE VICE PRESIDENT AMERICAN AUTOMOBILE ASSOCIATIoN The American Automobile Association for many yiears has been working for freedom of travel across international boundaries while promoting tourism. This looks toward not only individual enjoyment but also an inteichange of peoples to bring about better undersianding which can contribute to peace among nations. Our assocation has had `a long~standing policy concermng Federal taxes on travel, which reads: "The AAA opposes (the imposition of any Federal tax on travel as bring not only a deterrent to travel but an unreasonable levy on the users of common carriers." Because of this, we are unalterably opposed (to the travel tax propo(sal~ under consideration. The American tourist should not be singled out as the scapegoat in a situation that i's far more complex than alleged overspending in one isolated segment of the economy. This tax proposal strikes hardest at the middle and lower income earners and could increase their travel costs an average of 30 per cent. It is also dis- criminatory in that it would penalize nations with which we have a faVorable balance of trade. It would strike at under-developed and developing nations into which we already are pouring millions of dollars in foreign aid by removing the additional `support of tourist dollars. It is a h,kw to the traditional freedom of Amerilcan,s to travel when `and where' they choose. The unrestricted right of Americans to travel abroald was just' recently reaffirmed by the Supreme `Court as a constitutional right. Ut would drive many Americans into illicit methods of travel such ac boot legging a trip overcea's `by embarking from a neighboring country. It c'ould affect other areas of currentl'y favorable balance of trade such as American aircraft and their spare parts which are used all over the world Cancellation of orders would cause unemployment in these areas as~ well as in' m'any fields of our own domestic travel indnstry. This baistily-conceived proposal to tax the American traveler has in it one indication for `good. It indicates the Federal Government has finally come to~ realize what a vast world wide industry travel has been for many year's and its increasing importance to the economy of this particular country. AnOther indication of that recognition lies in the Administration's, acceptance' as its own the Industry-Govermuent Special Task Force on' `Pr'avel'~ proposal for a 90-day visa ~ai'ver for tourists and businessmen visiting the' United' States from foreign countries. This, too, has long been urged `by the American, Antonio-.- bile Association. One of onr `long-standing resolution's in this respect reads: PAGENO="0319" 1097 "In order to assure the success of efforts to increase tourist traffic from other countries to the United States, we, as `a nation, must develop an atmosphere of hospitality `which begins the moment the prospective tourist arrives at the U. S~ Embassy or Consulate abroad for his visa. Every means must be souglht, consis- tent with our national security, to make it as simple and convenient `as' possible for foreign nationals to enter our country us temporary visitors. The AAA `recom- mends amendment to the Immigration and Nationality Act, establishing a new `tourist visa' category for `an alien or a resident in a foreign country who desires to enter the U.S.A. as a tourist for a period not to exceed ninety days.' The amendment s~aould provide for reciprocal privileges from other countries and for summary deportation in the event of violations." We urge a more positive, conStructive approach to this problem of the dollar gap. The logical solution to a growing deficit is an increase in the flow of dollars into this country. We appreciate the economics of tra1de with foreign countries. We are also aware that much of the trade with us by Europeans is financed with tourist dollars. It is in the national intereSt to maintain these economic relation- ships and to encourage new ones. We support efforts of the Government to `encourage travel in the United States, not only for economic but also for educational reasons'. One of our resolutions `reads: "Improved economic conditions in the United States and in many nations have created a potential for increasing the volume of tourist travel in this country. The American Automobile Association supports efforts of the U.S. Government and the travel industry to stimulate more tourist traffic in the U.S.A., and urges affiliated clubs to give enthusiastic and active support to this program." Until the details of the President~s ~rask Force propoSals have been `carefully studied, we do not believe that any restrictive travel legislation should `be passed.. Part of the dollar gap can be offs~t in `a more pos&tiv~ way by the Government's efforts to do everything within its power to bring more travelerS i~to the United States from other countries. It's more than money that's needed. It's a coordinated, imaginative effort by Government, industry, and organizations such as our own. SUMMARY I. The American Automobile Association has a long-standing policy opposing Federal taxes on travel. II. The American tourist should not be singled out as the scapegoat nor should we penalize countries with whom we have a favorable balance of trade. III. Freedom to travel is a Constitutional right, which was only recently affirmed by the Supreme Court orf the United States. IV. AAA has long supported a "tourist visa". V. We support efforts of the government to encourage travel in the U.S. VI. AAA urges a coordinated, imaginative effort by Government, industry and organizations such as our own. STATEMENT OF MURRAY VID0CKLER, C.T.C., EXECUTIVE DIRECTOR OF TRAVEL MARKETING INSTITUTE On behalf of the organizations and companies that I represent today, All State Bus Corp. and American Adventure Tours, New York City, I wish to completely object to any phase of the proposed travel restrictions and tax. I find it difficult tQ object as I am a positive person, but the proposals of the Treasury Department are objectionable and violently negative. The Treasury Department proposals are completely contrary to the principles of international trade, understanding of economic definitions, and the facts of the effects of tourism on the visited areas. They do not comprehend the facts of the recent tremendous increase in tourism to the United States. The proposals declare war on the growing number of tourists coming to the virgin *tourism territory of the U.S., the country with the best physical tourist plant in the world. They also do not understand that the rate of growth of tourism to the U.S is growing faster than the rate of tourism on a worldwide level. They do not understand the fact that you cannot have partial travel to foreign nations. There is no balance of trade difference between travel to Europe, Africa, and Asia, as compared to South America, Canada, Mexioo, and the PAGENO="0320" 1098 Caribbean. In fact, based only on the theoreticajly simple trade exchange in travel between any two nations, it would make more trade sense to declare eco- nomic warfare against Canada or Mexico, and possibly, both. Now, as to the mis- understanding of economic facts, travel is being listed as a part of the Balance of Payments, while we know travel between nations is interdependent and positive, and should not be listed as such. The Balance of Trade (positive) is part of the Balance of Payments (nega- tive), but not a part that is causing a negative Balance of Payments. We all know what the supposed negative items are. However, my colleagues have made, and will continue to present, more facts about the effect on economies of foreign nations and the threat to American industry of restrictions. These retaliation threats range from less Visit U.S.A. travel and the non-purchase of our big airplanes to thousands of other items with a lack of earned dollar exchange which will prevent overseas purchases of Ameri- can goods and, consequently, the loss of American jobs. America must never be beaten down by these potential threats, but neither should we give in to half-truths, information based on assumptions, incorrect sampling, inadequate research, political beliefs, or personal feelings, which is the information we have been reading about lately. Now to the restrictions agains't shopping for returning American tourists: It will be good for this year and next, if passed, but in future years, any such re- strictions will result only in increased travel expenditures. Shopping is an in- herent part of tourism. It is an exchange of cultures, customs, and concepts, as much as any art or studies. Tourists have a certain amount of disposable income to spend Monies spent on shopping are monies of tourism diverted from the joys of "wine, women, and song." It will be spent instead of, not in addition to, travel expenditures. The 5% tax, which will probably be a willing compromise Of many of us who would surrender at the first shot, and will not effect the Balance of Trade, but will be another method of raising taxes, should not be discussed as Balance of Trade. The history of the tax is not too far in the dim past not to be remembered as devastating to the travel agencies in the border cities with Canada an'd Mex- ico. Such travel agencies represented the American community, and yet our biggest corporations and major airlines conspired to lie, purchase tickets over the border, and evade taxes. The experience of many nations and tourism areas in taxing have demon- strated that if there is to `be a nuisance tax such as the `5% tax on international transport, that instead it should be an airport and/or pier tax. And most impor- tant that this tax be used only fOr tourism promotion. Even the use of `these monies for physical plant improvements is not to be recommended and certainly not for the United States. In my opinion, the Internal Revenue Service has a very poor record of interpre- tation and administration of the present `5% tax on air transport. When the old anti-travel tax expired, the 5% tax was created as an excise tax. It was not meant to discriminate against American travel agents in the sale of domestic travel to eligible `foreigners. But it did. This discriminated against the advent of American travel agents' slightest effort for Visit U.S.A. T'ourism. In addition if this law is passed every traveler will feel that he will be subject to an authentic audit by the IRS. Two years ago, I came home on Father's Day `from a business trip to England. We parked, or rather double parked, in front of my apartment while I took the bags in. This resulted in a ticket. When my wife went before the judge and said that it was given on Father's Day, and that I had just come back from Europe, `his reply was, "If you can go to Europe, you can pay the full fine." To tie travel taxes with income tax reports and internal revenue auditing is a threat to every American who honestly worries about his tax return. To repeat, and I am speaking for All State Bus Corporation, and American Ad- venture Tours (pioneers in tourism sales to the United States) the Travel Mar- keting Institute (a non-profit association of marketing professionals in the travel industry) and the Brooklyn Association of Authorized Travel Agents, as well as the Travel Times (a consumer quarterly of over 150,000 circulation per issue)-the proposed taxes are negative. They range from incorrect, wrong, unnecessary, to objectionable, bad economics, terrible export selling, and eco- nomic immorality. All this without even bringing into discussion the' oft-repeated and some- times forgotten beliefs of the United States and the United Nations that not PAGENO="0321" 1099 only is Tourism the passport for peace but that it is also an export industry with a built-in three for one economic multiplier (as originally proclaimed by Professor Samuelson in 1939). More importantly, the United Nations has put tremendous hope in Tourism as the catalyst for bringing undeveloped and de- veloping nations into the modern world through trade. Is the United Nations wrong in its hopes for Tourism as the economic seed for under-developed nations in the development of their infrastructure and of their dreams? How well-known is it that Prance-another nation with a negative travel trade balance-has the fastest growing rate of tourism to the l~Tnited States and that it may not be too long in the future before France will send us more tourists on a percentage of population basis than we will send to France? The Export Industry in Tourism and Transportation is not understood by most people, including experts. Transportation is a vital part of Travel and Tourism. We all know that almost everywhere that people who travel by air travel on A~nerican planes. Anytime anybody in the world travels on an American plane, he is making jobs in Washington or California or Michigan. This is foreign trade. This is also Tourism. But enough for negative defenses against a negative concept. We would much rather fight on the side of the angels. The angels to us are the principles of international trade sided and abetted by the American con- cepts of modern marketing. I offer the following program for a more vigorous campaign for Visit U.S.A. I say this as the head of a firm selling U.S.A. tourism since 1959 and which brought into the United States almost $10,000,000 of export sales of invisible tourism in 1907. The program: 1. The C.A.B. must be stopped from its quasi-legal economic enslavement of American travel agents to the detriment of domestic tourism. 2. Extend and loosen up all non-tariff export barriers to aid Tourism: e.g., We first stopped asking female tourists if they were prostitutes in 1960. 3. Permit American travel agencies and airline ticket offices to sell tax free tickets where correct to eligible foreigner visitors. 4. Permit the sale to eligible foreigners of all special tariff tickets by United States agents. 5. Extend the role of the FCIA in financing Visit U.S.A. operators in the industry of "invisible exportS." 6. Increase ten-fold the funds of the United States Travel Service. A. But let the U.S.P.S. find out what its proper duties should be. B. Possibly reshuffle its personnel. The U.S.T.S. is properly a central part of government legal infrastructure on tourism, but it is also an idea and a communications vehicle. Who else could and should bring on and explain such "new" ideas as banks encouraging their commercial depositors to accept all foreign currencies and to guarantee any retailers' losses or errors. Tourism is a major industry where all citizens may play a part in the manu- facture of the product. Personally, as a student and economist, I wish to commend the President and Treasurer of the U.S. for their crash program in lessons of international trade and the subject so dear to my heart-Tourism, the Invisible Export. I wish to commend the McKinney Task Force, even though they did not understand my proposals or act on them. They should be commended for the breadth of their efforts. They should be commended for the depth of their efforts. But mostly, they should be commended for their report on two levels: 1. An ability to communicate and to be a communications pipeline. 2. For their recognition of the economic, social, and moral values of congresses and conventions. 3. For their complete comprehension of the nature of non-tariff barriers in the export industry of Visit U.S.A. I suggest the Task Force be continued for the next ten years. We also support any activities of this committee and the other opponents of this tax in requesting a very thorough and proper study of this subject with all 89-749-68-Pt. 3-21 PAGENO="0322" ~1 100 of its economic and political ~ ramifications. Those that are just Balance of Trade, and those that afj~ect a nation s economy of our friends and allies such as Australia England Italy Israel and Ireland This must take time AUSTRIAN EMBASSY, Washington, D.C., February 29, 1968. Mr. JOHN M. MARTIN, Jr., Chief Connsel, Committee on Ways and Means, Longworth House Office Building, Washington, D.C. Dn~n Mu. MARTIN: With reference to our telephone conversation on February 28 I should like to confirm that Mr Mattesich Director of the Austrian State Tourist Department in' New York, is not a representative `of an Agency of the Austrian Government. He represents e Austrian Association for the Promo- tion of Touiism which is not a Government agency but an institution established as a "V'erein" (~as~ociat'ion) in accordance with the pertinent regulations of Austrian `civil law. The "Auotrian State Tourist Department" is incorporated as a private firm according to New York state law. Mr. Mattesich is an American citizen and pays taives. From all this it can be seen that Mr. Mattesich does not have any official status in the United $tates and is not a representative of an Austrian Govern- ~nent agncy. If any further iiiformation should be required please let `me kno'w. Yours sincerely, Dr. GERALD HINTE'REOGER, Counselor STATEMENT OF R. F. MATTE5IdH, U.S. REPRESENTATIVE, AUSTRIAN STATE Touuisr DEPARTMENT, NEW YORK, N.Y. SUMMARY Restriction's, if imposed on. American tourism outside the Western hemisphere, would have grave consequences not only for the Austrian tourist industry uhich Americans themselves largely contributed to deve1op~ hut also for both U.S. trade to Austria and Austrian trade' in general and consequently for the Austrian eConomy' as a whole. L'ess measurable !but not less important would be the nega- tive consequences in the human, cultural and `political fields, for both countries. A positive `approach to reduce the U S travel deficit by luring more Furopeans and Austrians to come to ,the U'nited States rather than restricting travel of U.S. citizens abrOad would be a much more satisfactory `solution for all parties concerned. The proposed travel restrictions could have grave consequences for American relations with Europe in general and Austua in p'irticular Tourist traffic not only is the major living link between Austria and the United States it is of great importance Cor Austria s economy (1) Economic considerations for both countries The Austrian balance of `tra'de traditionally shows a structural `deficit. In 1966 this decific was more than 640 Million Dollars. Net receipts from tourism, which amounted to more than 420 Million Dollars in 1966 traditionally cover most `of this deficit. Since tourist traffic is `the largest single Austrian "export item", a curtailment of Austria's net receipts from tourism could have effects' `detri- mental `to the Austrian economy: It wou:ld endanger Austria's ability to pay for its imports, including impo'r,ts, from the U.S.A., which are not balanced by corresponding export earnings an'd it would seriously affect the Austrian tou'ri'st industry `which is a key industry for the country. (a) Impact on U.S,.-Aus'trian trade Figures `compiled by the U.S. Department `of Commerce show that in 1966 303,000 American's visited Austria, spending 86 Million Dollars there. Expendi- ture of Austrian tourists in the U.S.A. was and is mo'des't~. In general it `can be said that the net earnings from U.S. tourism have compensated for Austria's unfavorable trade balance with the U.S.A. which in 1966 amounted to 24 Million Dollars; in other words, Austria, in the long run, cannoit buy more from the United States than `she earns from exports and tourism. (b) U.S. involvement in developing the Austrian tourist industry The American portion of the total Austrian tourist traffic may be relatively small in terms of numbers of tourists but it is a "quality traffic" for which special PAGENO="0323" 1101 facilites have been provided. These facilities were built for the greater part during the postwar reconstruction years under the Marshall Plan with ERP Funds. They represent in a certain sense an American public investment in Austria and, because of Austria's sensitive position dttring the period after World War II, contributed to Austria's economic and political stability. In the Austrian mind this investment of the American taxpayer stands for American good will. It would be regrettable Indeed if the very country, the U.S.A., which did so much in the immediate postwar period to help reconstruct and improve Austrian tourist facilities, would now adopt measures which would result in a serious set- back in this particular field. (c) Secondary consequences for Austrian tourist industry The travel tax, if enacted, would be a serious setback to the entire Austrian tourist traffic. Whatever compensatory measures may be taken, fewer Americans will come; those who come will not stay as long. They will not be able to use the facilities designed primarily for their use. The econonlic result will be espo- daily serious because there is no substitute for the American traffic. Internal conditions in Italy and Germany have caused a decline in the flow of tourists of those countries. Ourrency devaluations in certain European countries will un- doubtedly also have negative consequences for Austria's tourism. Even though the decline in American tourist traffic to Austria might be tem- porary, it will not be possible to speedily restore it afterwards. Tourist promotion is not only cumulative in its effect, so that interruption is very costly, but its success rests upon longtime reservoirs of good faith and good will. Bitter experi- ence has shown that any break not only means intangible, permanent loss but entails a hard, new start. As the one who undertook to promote American traffic to Austria in 1927, and to r~build it in 1947, the undersigned is only too familiar with the problems involved. Aside from technical advances, conditions today are not as favorable to reconstruction as they were in either 1927 or 1947. (d) Possible negative consequences for U.S. eaport trade to Austria U.S. export promotion, especially in Austria, a market requiring increased efforts by U.S. businessmen according to a recent U.S. Department of Commerce publication, also requires more U. S. businessmen to visit importers of U.S. products in Austria personally. As far as Austria is concerned, it is hard to see how she could justify to her people an unfavorable balance of payments, which the United States has herself deliberately created by curtailing American tourist traffic to Austria. As experience shows, a balance of payments deficit cannot be tolerated for a long time, Austria migl~it be faced with the problem of reestablish- in~ an equilibrium by appropriate measures. (2) Human, cultural and political consequences for both the U.S.A. and Austria (a) Characteristics of the U.S. tourist in Austria, hi~ interest for the arts The American visiting Austria is not usually an escapist vacationer bent on pleasure alone. He does not usually belong to the highest but rather to the mid- dle or modest income brackets and to the professional classes. He goes to three major cultural centers of the country: Innsbruck, Salzburg, Vienna and their environs. A third of all American visitors go to the capital, Vienna, in the east- ern and most distant part of the country. Seriously interested in music, art, history, folklore and/or sports, the American visitor attends the opera and the great summer music festivals. Most of these are government sponsored. As Amer- icans represent 80% of the audience at many major performances, they benefit substantially from these cultural events of a particularly high level. The Amer- ican tourist in Austria is highly selective, devoting himself to those Austrian at- tractions which are not only not available to him at home but are unavailable elsewhere, for Austrian "resources" include living evidences of world-cultural heritage that are unique. (b) American students Americans make up a substantial percentage of students at Austrian music schools, at art classes and summer schools in all subjects. American physicians attend special clinical seminars arranged for them by the American Medical Association in Vienna. Since many of the studies are intensely concentrated such courses as a rule are short. Should a travel tax exemption for students be granted only on the basis of a longer period of study, participants in such con- centrated courses would be exehided. In addition the American visitor to Austria has a telling effect on Austria and her neighbors and brings back valuable benefits to the U.S.A. PAGENO="0324" 1102 (c) American sportsmen and Austrian contribution to U.S. ski sports Americans constitute the largest group at the Austrian mountaineering schools, at~ many Austrian international winter sport resorts, Austrian ski train- ing centers, etc. For 40 years, the promotion and development of the ski sport in the U.S.A., and of all that caters to it, has been carried on mainly by and through Americans who went to Austria and there experienced a way of enjoy- ing winter that was formerly unknown in, but well adapted to the United States. Today skiing represents a very large American investment, but, far more im- portant it has brought millions of urban Americans into relation with the winter magnificence of their own country. This process was and today remains in its most creative aspects an American-Austrian contribution carried on by Americans who visit or are concerned with Austria and by Austrians concerned with America. This instance which is, of course, only one of many, is chosen because the undersigned1 has been active in American ski sport promotion (d) The American as the representative of the world s greatest democracy Austrian enthusiasm for America and things American is largely traceable to the sympathetic nature of the American tourist, his friendliness and prone- ~ness to make friends. The American tourist has truly exported to Austria the happiest features of the American way of life. To Austria, he epitomizes the ~citizen of the free world, the representative of a great democratic nation who ~works hard, makes a good living, is free to come and go as be pleases, to dis- rose freely of the product of his labor. No doubt, limitations on the freedom of travel, the most visible aspect of the general idea of freedom, would do damage to the "American image" in Central Europe. (3) Positive approach to U.S. travel deficit In closing it should be noted that Austria has practically no restrictions on the amount of money her nationals may spend abroad, that many of them vacation abroad, that many are interested in visiting the United States. The Austrian tourist trade does not lack in interest to provide and sell travel to the United States. Many practical measures to set traffic flowing from Austria to the United States are ready at hand; yet no serious effort has so far been made to attract Austria'ii travelers to the United States. Such a positive approach, rather than restricting travel of U.S. citizens abroad would be a much more satisfactory solution for all parties concerned. DEPARTMENT or STATE, ASSISTANT SECRETARY, March 21, 1968. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives. The attached communication was received in the State Department via the Irish Embassy, with the request that it be delivered to the Committee. H. G. TORBERT, Jr., Deputy. Attachment: Letter and memorandum to Hon. Wilbur D. Mills from Dr. Timothy J. O'Driscoll and Mr. Onno Leebaert dated February 27,1068 (European Travel Commission). EUROPEAN TRAVEL CoMMISSIoN, New York, N.Y., February 27,1968. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, Longworth House Office Building, Washington, D.C. DEAR MR. CHAIRMAN: The European Travel Commission is comprised of the national tourist organizationS of all 21 Western European countries: Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Iceland, Ireland Italy Luxembourg Monaco Netherlands Norway Portugal Spain Sweden, Switzerland, Turkey and Yugoslavia. The Commission, meeting at The Hague on February 2, 1968, decided to put in writing a declaration of principles or credo of tourism. In the hope that this declaration will be of interest and value to the Honorable Members of the House Ways and Means Committee we are foiwarding it herewith and respectfully 1 ~ Maltescb president Ski Touring Council chairman Ski Mountaineering Corn mittee, U.S. Ski Association. PAGENO="0325" 1103 requesting that it be made part of the official record of the current hearings on tourism. The Commission has assured the Government-Industry Task Force under Ambassador McKinney of its full desire and ability to cooperate in promoting a higher two-way level of travel between Europe and the United States. Respectfully, TIMOTHY J. O'DnxscoLL, President, European Trwvel Commission, (Director General, Irish Tourist Board). ONNO LERBAERT, Chairman, European ~ravel Commission (United states), (Director for North America, Netherlands National Tourist Office). EDROPEAN TRAVEL COMMISSION FREEDOM TO TRAVEL 1. The freedom of travel is recognized as a basic freedom of man in the Universal Declaration of Human Rights approved by the United Nations. Heads of states have reiterated their belief in the value of exchange of people through tourism. The United Nations Conference on International Travel and Tourism, held in Rome in 1963. re-affirmed the ideal of freedom of movement without re- striction or discrimination. The traditional right to travel freely has a particular importance for citizens of the United States. 2. Tourism builds friendly relations between peoples and such exchanges should not be inhibited because world peace depends so much on international under- standing. Reducing these exchanges would feed distrust among peoples. In recent years, happily, much progress has been made in making travel easier and cheaper. To reverse this trend would be a retrograde step. 3. Tourism is a vital medium of communication, more important than broad- casting or the press because it involves direct human contact. Its importance is underlined by the fact that people who travel play an active role in forming public opinon in their own countries. 4. International tourism, valued at about $15 billion a year, is the largest single item in world trade, providing employment for nearly ten million people in OECD member countries alone. Of this number, a substantial proportion repre- sents relatively unskilled labor, which underlines the socio-economic values of the industry. 5. Tourism helps to generate a higher level of world trade, contributing to rising standards of living. Its special importance as a stimulus to the economies of developing countries is widely recognized. 6. The jobs created by tourism help to generate incomes which would not other- wise be earned. These incomes in themselves haVe a high multiplier effect through national economies since tourist revenue has an exceptionally high rate of circulation through the economy. One factor illustrating this is that the people deriving their incomes through tourism are at the lower end of the wage scale and therefore tend to spend a large proportionof their wages. 7. National economies benefit from investment in accommodation, resort areas, transportation and other tourist facilities and services. Such investment depends to a large extent on the anticipated demand for increased services aris- ing from growth in tourism. As an example, current annual investment by Euro- pean airlines for aircraft manufactured in the U.S.A. is equal to approximately the total annual income from American tourist spending in Europe. World trade can only be increased significantly if goods and services are allowed to flow as freely as possible between the countries of the world. This will cause certain countries at certain times to run into balance of payments difficulties, but the imbalance should be corrected by encouraging exports, which in the case of tourism means encouraging visitors from abroad. 8. A small number of the most prosperous countries in the world for some years have had an adverse balance of payments with respect to travel. Some of these countries run permanent deficits in travel payments, as they do with other indi- vidual items of trade, depending on their natural resources. Some countries, for instance, import ~ll the oil and coffeethey consume. hs the United Nations Con- ference on Tourism confirmed, travel spending by the residepts of the more prosperous countries has provided considerable support fo~* ~. high ievel of world trade, helping to correct inequalities in balance of payments which the movement of goods alone could not achieve. As an example, European countries in total have for years run a deficit in the balance of payments arising from trade in PAGENO="0326" 1104 goods with the U.S.A. far exceeding the surplus arising from tourist payments. It is important for nations to earn large surpluses on a few items of trade, of which tourism is one, to enable them to import the capital and consumer goods from more developed nations. Restrictions on tourism lead to unemployment and falling incomes, which in turn result in a lower demand for the exports of de- ~veloped nations. 9. Tourism, as the biggest single item of world trade visible and invisible, should be recognized as an integral part of international trade and should not be singled out for restrictive treatment. In recent years world trade, except for the exchange of services, has been encouraged by governments by the removal of restrictions, tariffs and other discriminatory practices through international agreements. Under these agreements governments cannot arbitrarily limit the import of merchandise, including such items as detergents, liquor and tobacco. Travel by nationals of any country to foreign destinations is, in economic terms, classified as an import. Each year greater progress is made in the removal of re- strictions on the exchange of goods. In contrast, the exchange of people through tourism remains one of the few major items of world trade wihch can be singled out for restriction without any infringement of binding international agreements. 10. Of the countries which account for a substantial part of world travel spending one has imposed and the other is considering travel restrictions. Since travel is one important item of trade which governments. may restrict at will, should the United States as the leader in world tourism institute restrictions, this example might well he followed by other countries with travel deficits, not on any basis of retaliation against the United States because such measures would be of general application. But the effect would be that such action by a small number of countries would have a significantly contracting and depress- ing effect on the economy of the world. A major part of international tourism con- sists of travel within Europe, within North America, or between the two areas. Furthermore, a substantial proportion of tourism movement originates from relatively wealthy northern industrial areas in Europe and North America, re- sulting in heavy visitor spending in relatively under-populated and poorer regions.. 11. Therefore, the European Travel Commission reiterates the recommenda- tions of the United Nations Conference in 1963 that- (a) governments should not consider tourism from its balance of pay- ments aspect alone but should take into . account the contribution which tourism makes to international trade by developing the national economy and enhancing social values; (b) in any attempt to improve an adverse balance of payments, restric- tions on tourism should not be singled out as the effective corrective measure. 12. The Commission further recommends- (a) that tourism should be considered by governments as an important and integral part of world trade and that measures taken to develop the exchange of merchandise and commodities by increasing the freedom to trade should be applied to tourism; (b) that countries should seek improvement in their balance of payments situation by encouraging and promoting incoming foreign tourist traffic, thus contributing to an expanding level of trade. Such action applies partic- ularly to Western European and North American countries owing to their dominant share of world tourism, the potential which exists in both areas for travel expansion and the proved effectiveness of travel promotional ac- tivity when carried out on the appropriate scale. Negative measures could well have to be re-applied later while positive measures would represent. a cumulative gain from their inception. 13. Members of the European Travel Commission offer full support and the benefit of their own experience in developing two-way travel across the Atlantic on the basis of free movement of travelers. They echo the words of President Johnson that travel "is worthy of our highest efforts and the unqualified coopera- tion of all nations." STATEMENT OF Enic FRIEDITEIM, EDITOR AND PUBLISHER, TRAVEL AGENT MAGAZINE, INTERLINE REPORTER As a travel journalist and publisher of several travel industry magazines, I wish to commend Chairman Mills and members of the Rouse Ways and Means Committee for giving all persons and organizations interested in the pending travel tax legislation full opportunity to state their position. PAGENO="0327" 1105 Having attended some of the hearings and having read nearly all the presenta- tions, I would like to offer only a brief comment in opposition to the restrictions proposed by the Administration. I believe the testimony and briefs by those speaking for the travel business and that offered by many other witnesses have built a solid case against imposition of any tax that will virtually halt tourism to the nations of the Eastern Hemisphere. The Committee hearing record, in my opinion, now contains sufficient documenta- tion by competent authorities proving the fallacy of severe restraints proposed by the Treasury Department. Ehven before your Committee has completed action on the pending legislation, substantial losses have been reported throughout the travel Industry. A survey of tour operators, retail agents and international airlines shows widespread cancellation of individual bookings' and diversion of many groups to Western Hemisphere destinations. Those groups unable to obtain accommodations within this region have abandoned their travel plans for this year. There has been a large decline in forward bookings to Europe, Israel, Middle East, Asia and the Pacific ever since New Year's Day when President Johnson called for a reduc- tion in American overseas tourist spending. This drop in passenger traffic comes in the face of widespread criticism of the proposals. Newspaper editorial opinion across the nation has been almost unanimous in opposition. Letters to the editor as well as public stateme~its by many members of the House and Senate decry any curbs on freedom to travel. Despite these expressions of distaste for what the public obvliously considers an obnoxious interference in their rights as citizens, some people are afraid to travel because their patriotism may be held up to question. While neither the President nor the Treasury has actually suggested anyone would be corn- m'itting a disloyal act by making a pleasure trip outside our Hemisphere, a substantial number of Americans apparently fear the risk of being stigmatized. There are, of course, many others who agree that tourist expenditures in the Eastern Hemisphere are a major cause of our balance of payments problems and sincerely believe the administration is following a sound policy in limiting such spending to the IJuited States, the West Indies, Bermuda, Bahamas and Latin America. Various Industrial companies and other organizations closely associated with government also are either cancelling employee tours and incen- tive group travel or seeking alternate destinations. Also contributing to the adverse situation is the fact that a number of potential travelers are of the impression that a trip abroad already is taxable or even against the law. We are receiving reports from Western Hemisphere areas that this misconception is having an affect on their tourist trade. While it is too early to obtain conclusive figures forward bookings are off as much as 60 per cent in the case of some travel agencies. Possibly some of this loss will be recaptured once Congress has completed action on the travel legisla- tion but from past experience a considerable portion must be written off for this year even if no restraints are imposed. Interrogation of witnesses and private comments by members of your Com- mittee, has given the impression that a compromise measure may be reported, i join my travel Industry colleagues in the hope that this will be the very least we may expect. But even if Congress rejects any form of travel tax, American tourist expendi'tuers are certain to decline this year simply because of the psycho- logical influence of the President's statements. Paradoxically, the Administration is said to favor unrestricted American travel provided everyone spends a little less. If this is true, `both the President and the House Ways and Means C~mmittee may see fit to redress some of the psycho- logical injury. For his part, Mr. Johnson should dispel the notion that a trip beyond the Western Hemisphere is unpatriotic. At the same time the Committee, in any report it makes, may wish to stress to Congress and the nation that re- gardless of whatever tax is recommended, travel remains an inalienable privilege of every free American s nd that there can be no reflection on his loyalty should he exercise `this inherent right. STATEMENT OF NATIONAL ASsoCIATIoN or MANUFACTURERS As part of its balance-of-payments program the Administration has pro- posed taxes on foreign travel and transportation and a tightening of customs exemptions. This package is purported to reduce the balance-of-payments deficit by about $400 million annually. PAGENO="0328" 1106 In this statement, the NAM will concentrate its comments on the tax aspects of the proposals requiring new legislation These are (1) a temporary tax on per diem living expenses of 15 S travelers going outside the Western Hemisphere amounting to 15% on outlays between $7 and $15 and 30% on outlays above $15 and (2) a permanent extension of the 5% excise tax on domestic air travel to all international air travel and a temporary extension to sea travel outside the Western Hemisphere. As presented by the Administration, the only travel tax exemptions would apply to business and educational travel of over 120 days, individual's who estab- lish foreign residence and U S Government travel The NAM is opposed to such tax ineasurts on the grounds that they Represent another step in the drift toward foreign exchange controls and restrictions on the market economy Are inconsistent with the government s own policy principles regarding international trade could invite retaliatory measures abroad and in many cases involve illusory balance of payments savings Risk a marring of a good record of voluntary compliance with the tax laws Do not relate to the basic cause ot the balance of payments problem In his testimony before this Committee on February 5th, the Secretary of the Treasury said that ". . . the long-term ,s~o1utiou to the travel deficit should not be found through restrictive measures but must be sought thiough the expan mon in the number of foreign visitors to the United States We heartily concur with this sentunent The difficulty is that reliance on the long term approach is apt to be put off indefinitely once restrictive measures have been accepted a~s short term expedients The whole history of economic controls and tax restrictions strongly indicates that such exjpedaents translate into more rigid more w'id'espreiaid and long lasting inipethments to the market economy This has applied particularly with respect to international transactions witness the steady tightening and spread in coverage of the interest equalization tax and controls over foreign investment Even in the case of limited controls that appear to be accomplishing their objectives there is always the tendency to make them more stringent to force more complete compliance with their objectivity Despite general agreement that industry was responding to the former voluntary restrictions on foreign invest ment, manthtory controls `are now a fact. There are ample p'r'ecedenta ~or fear that a temporary and moderate tax on tourist and business travel abroad could escalate easily to a much more burdensome tax restriction absolute limits on dollars taken out of the country or some combination of prohibitions Admittedly in the narrow balance of payments accounting there is some logic in levying a tax on the travel sector For many years Americans have gone abioad in greater numbers and spent more money than their foreign coun terparts have done in the U S In short there is an identifiable travel deficit estimated at around $2 billion last year of which approximately two thirds can he attributed to non-Western Hemisphere areas. However there are serious defects in applying too narrow a statistical frame work-in fragmentation of the balance of payments problem-for purposes of corrective action In `the case of direct investment abroad restrictions have been placed on an observable outflow of funds, even though, in fact, these funds finance a substantial part of our merchandise exports and are responsible for a much larger return flow of repatriated income The excess of direct invest meat income over capital outflow for the period 1946-1967 has amounted to over $16 billion Furthermore this excess has been steadily widening With respect to travel expenditures a large share of business spending is aSsociated with efforts to strengthen our export and mvesitment position It is estimated that over 50% of American travel spending in European and Mediter ranean countries is for business educational scientific and other non pleasure purposes Restrictions on such travel could have a quite unintended adverse effect on the balance of payments One of the most immediate repercussions of a travel tax would be a likely reduction in the export of aircraft and aircraft parts. Foreign purchases of U.S. commercial aircraft have been running ait an annual rate of $1 billion. To tax the moist important segment. of the internation,al passenger market and there- fore to depress international air travel in general invites a marked slowdown in `an improtanit area of commercial exports. The Administration does no.j~ appear too concerned over the possibility of retaliatory measures by foreign countries It is inconsistent however to re PAGENO="0329" 1107 emphasize a program to attract more foreign visitors to the U.S. and at the same time impose a tax on U.S. travel abroad. Certainly, such a tax would complicate and endanger negotiations seeking to minimize the discriminatory aspects of tax systems in the EEC countries with respect to U.S. goods. Even if there is no overt retaliation, the travel tax, if it does cut down on dollar spending abroad, would restrict foreign countries' ability to obtain U.S. exports. For some less developed areas, travel income is virtually the only means of earning dollars to buy U.S. goods. Tourist spending abroad is equivalent to the importation of vacations by American consumers. A tax designed to penalize and curtail such activity is, hence, equivalent to a protective tariff on the importation ~f vacations. It is a protective tariff with some peculiar and complicating features. As far as we know, the domestic vacation industry has not asked the govern- ment for such tariff protection. But what is even stranger is the fact that the Administration itself consistently has denounced the idea that we should seek to correct the balance-of-payments deficit by protective tariffs or quotas. If the government is to violate its own principle, it seems strangest of all that it do so in respect to the vacation industry. Is the domestic vacation industry more essential to national security than the steel, glass or textile industries-on which tariff or quota protection has been refused? The NAM is also concerned about the mechanics of the proposed travel tax and their implications for tax compliance in general. The recommended system of deposits, declarations, and graduation of rates would inevitably involve a burdensome bureaucratic procedure and inconvenience for essential as well as pleasure travel. The administrative expense would be high. The arbitrary dis- crimination in tax liability between the Washington Hemisphere and other countries would be an invitation to evasion. Also, the exemption from tax liability of business travel of over 120 days is entirely arbitrary. If a travel tax is imposed, it would make far better sense to n~ake a blanket exemption for all business expenses. At least in this way the tax would be c'oncetitrated `on the pleasure travel sector. As indicated earlier, busi- ness travel, in particular, does not necessarily mean a net drain on the balance-of- payments. If government travel in "official capacity" would receive an exemption, businessmen should obtain the same exemption when traveling in their "official capacity." B~oth the travel tax proposal and `the foreign investment controls have been criticized rightly for not dealing with the fundamentals of the problem. The fundamental balance-of-payments problem is, of course, a continuing large deficit in the government account-through government expenditures abroad-which more than offsets the net contribution of exports and investment income in the private account. Over the long-run, some means must be found to limit the public sector outflows, at least to the amount of inflows earned by the private sector. Short of a quick settlement in Vietnam, our present global commitments would appear to rule out any great improvement in the government's account at this time. If we are to maintain those commitments, there are three principal alter- natives for attacking the basic balance-of-payments problem: 1. Proliferation of direct controls and restrictive measures. 2. Devaluation or suspension of gold convertibility. 3. Fiscal and monetary restraint at home. The first is the course we are now traveling and which, for reasons cited before, is an undesirable course. The second is what quite a few suspect will eventually occur. However, it would take an event of proportions not imaginable in the immediate future for this country to accept devaluation or scrapping of the fixed exchange rate system. The third alternative is referred to as the "classic" response whereby the nation suffering a serious balance~of-payments deficit adopts a hard line to control domestic inflation, keep interest rates high, and improve its export-import posi- tion relative to other countries. In the early 1060's, when the balance-of-payments became an issue of concern in this country, the U.S. refused to follow this line on the grounds that it would mean more stagnation of the U.S. economy. Under the present circumstances of full employment and accelerating inflation, however, fiscal and monetary restraint are particuIcI/r~y appropriate br boti~ bai. ~noe-of-pa4fment,~ and domestic polilcy considerations. And this has been ad- mitted by the Administration in its arguments for the income tax surcharge. But with the projected substantial growth of government spending for fiscal 1969 the ~urchase in itself can hardly be considered a sufficient signal of our determina- tion to meet the balance-of-payments problem. PAGENO="0330" 1108 `To move as quickly as possible to a position of budget balance through much more rigorous control of domestic spending policies and a reduction in the rate of growth of the money supply through a less expansionary monetary policy would have a salutory effect on our international accounts. Any dampening of domestic inflation would help us improve our competitive position in world markets. It is particularly important now because inflationary excesses of fiscal and monetary policy in the recent past have boosted imports and led to a serious shrinkage in our trade surplus. Fiscal and monetary discipline would not, in all probability, completely stop the dollar drain overseae-as long as the Vietnam War continues as a major factor. However, it would serve as the best evidence that the U.S. is determined to maintain a sound currency and give foreign holders of dollars the all-im- portant confidence to hold on to them instead of converting to gold. Such a policy would be far preferable to a jerry-built structure of controls and tax restrictions, which eventually cannot help but clog the channels of interna- tional trade and seriously damage market economies both here and abroad. STATEMENT OF JAY H. CEEF, MANAGER, INTERNATIONAL, Gaoup, CHAMBER OF COMMERCE OF THE UNITED SPATES The ihamber of Commerce of the United States opposes the administration's proposal before the House Committee on Ways and Means to impose tax re- straints on U.S. travelers. `The National Chamber is a federation `of chambers of commerce and trade and professional associations, with an underlying member- ship of some 4,500,000 individuals and firms. Opposition with respect to certain aspects of the administration's balance of payments program was re-emphasized at the February 27 meeting of the Na- tional Chamber's Board of Directors. The Board called for avoidance of new de- vices which would interfere with the normal healthy flow of international trade, Investment and travel. Long-standing Chamber policies include support of meas- ures assuring maximum freedom of international travel consistent with na- tional security. Opposition to the restraints is further directed at specific aspects o'f the pro- posed measures. First, n'ot only would imposition of travel restraints interfere wi'th individual rights but any system set up to administer and enforce such regulations would necessarily be exceedingly cumbersome and complicated. Com- pliance would be burdensome to government administrators and travelers alike. Second, `the elements of the private sector of the balance of payments: ledger (in- vestment, trade, and `travel) are interrelated. Surgery cannot `be administered to one element without affecting others. Any immediate "improvement" in the United `States travel account apparently resulting from the res'traint program could not be regarded as a net gain `for several reasons: a. The U.'S. export promotion effort would not be helped by taxing overseas business trips. h. `The `portion of the travel deficit caused by non~business pleasure spending in areas outside the Western Hemisphere was just in excoss of $500 million in 1967. However, most of the countries concerned are `running a deficit in their total trade with the U.S., i.e., the U.S. has been earning more in sales to them than we h'ave been ~pen!ding on imports from them. This increases the likelihood that any diminution of their `dollar inflow will `be `counterbalanced by reduced purchases from this country, not to speak of the danger of sparking `trade restric- tion retaliation. `This is particularly true of eountries which rely heavily upon their American touri'st trade to help reduce their `balance of trade `deficits `with the United States. c. The portion `of the $1,895 million 1967 travel deficit accounted for by expendi- tures on foreign transportation must be balanced against such U.S. export earn- ings as foreign purchases of U.S. aircraft and parts `by overseas airlines, In addition to the administrative and advertising expenditures within the U.S. by foreign travel an'd transportation interests. Third, according to Department `of (Jomtme'rce officials, about one `half of the $720 million deterioration in the fourth quarter 1967 U.S. trade balance, which provoked the restraint program, was due to rising demand in the U.s. economy. This growing inflationary pressure in the economy can only increase by `diver- sion of significant amounts of overseas tourist `spending hack into the United PAGENO="0331" 1109 States, thereby eroding this nation's terms of trade still further-foreigners will have less dollars with which to buy more expensive American goods. The National Chamber is well aware of the gravity of the current balance of payments situation. The organization's members believe that the long term `solu- tions will not be found by applying policies in restraint of trade or travel to either `side of the international payments ledger. Insofar as private sector dehits or credits on the international accounts are concerned, the National Ohainber urges that priority be given to attempts to Increase foreign travel to the United States. The National Chamber also submits that insofar a's the administration wishes to reduce overseas travel, there are already ample indications that a significant portion of the tourist public would respond to a program of voluntary restraint. While this would not contrIbute to a long term solution of the balance of payments problem, a voluntary program would be less likely to trigger retalia- tory policies against the United States by foreign governments. STATEMENT OF CHICAGO AsSoCIATIoN OF COMMERCE AND INDUSTRY The Chicago Association of Commerce and Industry i's opposed to President Johnson's January 1, 1968 statement outlining `a program of action o'n the balance of payments problem. The Association feels that the President's program does not come to grips with the major causes of t'he balance of `payments problem. The `balance of pay- m'ents problem Is the result of inflationary policies, including excesnive govern- ment spending at home, w'hich increases the price o'f our produdts. This in turn makes it more difficult for American companies to export and easier for foreign companies to sell in the United States and thus increases the outflow of dollar's and contributes to our balance of payments deficit. Our government's over- extension and over-commitment abroa'd, and the spending entailed thereby, is the second cause of the crisis. The United States has ha'd a balance of payments `deficit in every year `since 1950, `except in 1957 when the Suez crisis resulte'd in increased purc~ase of petroleum from the United States. The Association recognizes that the sharp deterioration of our balance of payments in the final quarter of 1967 requires prompt action. However, the President's proposed program of controls on private foreign investments, border taxes and taxation of foreign travel do not offer a `long-range solution to our balance of payments problem. In fact, the President's proposals could injure American industries' competitive position abroad and, as a result, `our `balance of payments problem could increase. The Association's comments with respect `to the President's specific proposals are `sOt forth below. TRAVEL TAX The Chicago Association of Commerce and Industry is strongly opposed to the proposed tax on foreign travel, and the reduction of the duty-free exemptions. These foreign travel restriction will cause economic barriers between United States citizens and infringe on their right of freedom to travel and they also will discourage the exchange of ideas between peoples of the world, The administration and enforcement of the proposed travel tax will be ex- tremely difficult, if not impossible, and will have many loopholes. The restrictions of foreign travel by United States citizens may result in retaliatory action by other countires, such as aircraft order cancellations and restrictions on travel to the United States by foreign citizens, which could cause substantial damage to the United States economy. The United States economy also would be damaged by the loss of sales in travel-related fields. American businessmen will be taxed on foreign travel necessary to obtain for- eign markets for American goods and services. Accordingly, United States ex- ports will be affected by the travel tax. At best, the foreign travel restrictions may result in minor, temporary relief of the symptom, but they will not attack the basic causes of the balance of pay- ments problem. The Association recommends that the United States Government take a positive rather than a negative approach to the "travel gap" problem. This may be accomplished by an improved Federal program designed to encourage foreign travel to the United States. PAGENO="0332" 1110 BORDER TAXES The Chicago Association of Commerce and Industry is opposed to the enact- ment of border taxes on the import and export of goods and services, which are supposed to act as a simultaneous deterrent to imports and encouragement of exports. The enactment of border taxes by the United States might cause retaliatory action by other countries, particularly those relying heavily on exports. The retaliatory border taxes which could result might decrease the export of United States goods and services, hamper world-wide economic growth and trade, and nullify the Kennedy Round of tariff reductions. Attempts should continue to be made to decrease the obstructions to foreign trade rather than to increase them. The nature of the iJinted States tax system makes it difficult to derive a suitable border tax system that will meet the requirements of the General Agree- ment on Tariffs and Tra'des~ FOREIGN DIRECT INVESTMENT PROGRAM The Chicago Association of Commerce and Industry is opposed to Presidential Executive Order 11386 governing, foreign investments. A reduction in foreign investments by American industry will have an ad- verse effect on our balance of payments in both the short and long run. In the immediate future American exports will be reduced and in the long run foreign investments will have made substantial positive contributions to United States reserves. American industry will be unable to modernize its foreign operations and keep pace with the expansion of foreign competitors. Accordingly, Ameri- can products which are being further processed and/or sold abroad by foreign affiliates will not be able to compete in the foreign market place. The Foreign Direct Investment Program forces repatriation of earnings by. foreign affiliates of United States investors. Repatriation of earnings will weaken the capital structure of many foreign affiliates. Accordingly, the foreign affil- iate will be put at a serious competitive disadvantage, and vital dollar-earning markets may be lost. The repatriation formula and limitations on foreign investment penalizes modst severely those United States investors who cooperated voluntarily with the administration by holding down foreign investments and repatriating earn- ings during the past four years. In addition, the forced repatriation of earnings can have severe Federal income tax consequences. Restrictions on foreign investments by United States investors will dis- courage economic growth abroad and may cause foreign governments to limit repatriation of foreign earnings to the United States to avoid a serious capital outflow. The Chicago Association of Commerce and Industry recommends that the United States Government return to a voluntary program of restraining direct foreign investments and instead of the proposed program, offer tax incen- tives to United States investors who voluntarily repatriate foreign earnings. SUMMARY The favorable effects, if any, of the President's program on our balance of payments will be temporary only and after the restrictions are lifted on foreign investments and foreign travel. American industry will have to make large foreign capital investments to modernize plants, expand, etc., and tourists will renew their plans for foreign travel. Accordingly, the President's program will merely temporarily hold back, or dam up, the outflow of dollars. If the restric- tions are not removed, the earnings from foreign investments will be lost and the balance of payments will deteriorate further. The United Kingdom has used various restrictions in the past, but they have not solved the problem over a long period of time. The Association reaffirms its earlier position that what we need is a balanced budget together with reduced foreign and domestic spending by the government in order to curtail inflation and reduce our balance of payments problem. PAGENO="0333" ill' CHICAGO, ILL., February 19, 1968. Hon. WILBUR D. MILLS, House Office Building, Washington, D.C.: The International Trade Club of Chicago, with 800 members representing 700 firms and organized to expand the international commerce of the United States, strongly opposes inclusion of legitimate business travel in any pro- posed tax or other restriction on foreign travel. The imposition of tax on sales trips outside the Western Hemisphere would blunt the administration's export expansion drive, by penalizing U.S. business- men for going abroad to seek new markets for increased exports to improve our balance of payments position. It is doubtful whether the proposed travel restrictions in their entirety would substantially alleviate the international payments problem. ROBERT G. BIESEL, President, International Trade Club of Chicago. COMMERCE AND INDUSTRY ASSOCIATION OF NEW YORK, New York, N.Y., February 16, 1968. Hon. WILBUR D. MILLS, Chairman, House Committee on Ways and Means, house Office Building, Washington, D.C. DEAR Mn. CHAIRMAN: The Commerce and Industry Association opposes the proposal on which your Committee is scheduled to hold hearings next week call- ing for the imposition of taxes on American citizens traveling outside the West- ern Hemisipilere. Adopting this measure would indicate that our country has turned to a negative philosophy of economic isolation. This Association represents the general business community in metropolitan New York, and our membership of 3,500 firms includes this country's largest group of business organizations involved in world trade. A great many of our members and a number of our staff executives, including myself, are active in the President's Regional Export Expansion Council. As such, we are well aware of the economic problems facing this nation. We are equally convinced, however, that the solution to these problems will be found through a more conistructive approach. While there is a balance-of-payments deficit, net exports from the United States last year totaled more than $30 billion-well over $4 billion in excess of merchandise imports. Clearly, the deficit is not created by a dollar trade im- balance. As a matter of fact, one of the few bright spots in the balance-of- payments picture i's the large export trade surpli~s the U.S. has maintained. Business representatives frequently must travel abroad to expand the market for their products, yet the proposed travel taxes would `also' affect businessmen on overseas trips of leisis than 120 consecutive days. This is an obviousi `deterrent to stimulating our own international trade. Adding an excise tax to' the cost of airline and steamship tickets and radically reducing the duty-free allowance for r~turning residents are equally questionable measures'. The travel tax and allied proposals ultimately might depress the economy, especially in New York and other gateway cities in the United States which depend heavily o'n trade and travel activities. Also, a drastic cutback in the numb'er of `American tourist's visiting Western European countries in particular would seriously affect their economies, with a consequent loss of good will to the United State~ and provocation to' retalia- tory action. This Association firmly believes that it would be a serious mistake to' restrict mobility of Americans by limiting or taxing the amount of money they spend abroad. The proposal is totally inconsistent with long standing U.S. po'licy of free movement of people and goods. Because it will discourage economic growth it should be promptly rejected. Instead of penalizing American tourists and particularly business traveler's, we urge a positive program to ease the balance-of-payments problem. This woitid include aggressively exploring every conceivable avenue by which more goods and services could be delivered abroad, along `with a broad campaign to stimulate tourism to th'is country so as to generate the ne~ded exchange. Since~rely, RALPH C. Gnoss, President. PAGENO="0334" 1112 KENTUCKIANA WORLD COMMERCE CouNdn~, INC., Louisivlle, Ky., February 16, 1968. Congressman WILBIJE D. MILLS, Chairman, Ways and Means Committee, RoomY 1136 Longworth Building, Washington, D.C. DEAR CONGRESSMAN MILLS: The Kentuckiana World Commerce Council is an organization incorporated under the laws of Kentucky, whose voting member- ship is composed of forty-four individuals and corporations actively engaged in some phase of international commerce. By a majority vote of nineteen to one of the voting membership assembled and present at its February 6 meeting, the Council wishes to go on record in opposition to the proposals advanced by the President which call for taxation on spending by Americans travel~ng outside the western hemisphere in all amount exceeding $7 per day. Coupled with this, but somewhat less onerous, is a tax on air and ship fares and reduction on duty-free allowances. Enactment of these proposals would abrogate the right of the individual to travel without interference from government and would further bring about the following ills: 1. The challenge to circumvent these regulation would be similar to public reaction to prohibition and thus defeat the purpose of the provision. 2. The accounting requirements for departing travelers (and their subsequent return) would necessitate more customs personnel at International gateways, with more forms to fill out, which would lead to a massive and costly admini- strative expense. (This expense may absorb a substantial part of the results gained by the provisions if enacted). 3. The United States may lose far more in its international receipts due to foreign reprisals. United States' international payments also include overseas military ex- penditures and U.S. Government foreign aid. No effort seems to have been made to reduce these segments on the payment side of the ledger, but rather the pro- posed discriminatory measures seemingly disregard these other elements in the balance-of-payment problem. As an alternative, the following measures should be given more priority than the restrictive measures proposed: 1. The private and government sectors should vigorously promote greater travel to the U.S. 2. Reduce air fares to the U.S. 3. Make counterpart funds available to American travelers. The Kentuckiana World Commerce Council urges complete rejection of the restrictive measures proposed and adoption of the alternative ideas suggested. Very truly yours, WILLIAM E. BENNETT, President. STATEMENT OF AMERICAN Tounisr CAR DELIVERY TAX COMMITTEE This statement is submitted by the American Tourist Car Delivery Tax Corn- m.ittee, whose membership is composed of a number of U.S. companies in the business of ordering foreign automobiles for delivery to American tourists while traveling abroad. This service is an important activity of hundreds of com- panies in the United States, and constitutes the primary activity of the Com- mittee's members. The technical explanation of the travel tax program prepared by the Treasury Department states that the proposed travel tax would be imposed upon the en- tire amount spent by a tourist to purchase an automobile abroad. All, or at least the greatest part, of that amount would be taxed at 30% rate. The purpose of this statement is to show that- I. The entire travel tax program would be self-defeating and otherwise harm- ful to the national interest, discriminatory and impracticable. II. Application of the tax to the entire amount of the tourist car purchase price would not deter travel, would be likely to result in an increased dollar outflow, and would have a discriminatory and unjustifiably harsh impact both on the companies engaged in tourist car delivery services and the tourist. III. Even if the Ways and Means Committee decides to impose a travel tax on cars delivered abroad, it should apply the tax only to the rental value rea- sonably attributable to use of the car as a means of travel abro~acI and not to the entire purchase price. PAGENO="0335" 1113 I. THE TRAVEL TAX WOtTLD BE SELF-DEFEATING AND HARMFUL TO OT~!EE IMPORTAN~f NATIONAL GOALS So much justifiable criticism has been levelled at the proposed travel tax program from so many corners that we feel it will suffice merely to review briefly why the program is ill-advised. A. The program would be self-defeating The sole justification for the travel tax program is to achieve a reduction of our nation's balance of payments deficit. The administration, however, has been unable to make a convincing case that the program would have this effect. Indeed, much of the evidence points the other way: 1. The program, by reducing the tourist dollars which many foreign countries use to pay for United States goods and services, would lead to at least some reduction in our exports. 2. The program would be likely to bring injurious retaliation by foreign gov- ernments, thus decreasing the flow of foreign exchange to this country. 3. The program would so clearly deter travel abroad, including air travel, that it would be likely to result in cancellation of a large portion of the almost 2.5 billion dollars in aircraft orders placed with U.S. manufacturers by for- eign carriers. In short, it is doubtful that the travel program would have a significant positive impact on our balance of payments problem-certainly not significant enough to overcome its serious drawbacks. B. The travel taco would be contrary to our goal of encouraging international understanding and cultural ea~change through travei This country, as a member of the world community, has .a continuing inter- est in fostering the cross-fertilization of ideas among citizens of different coun- tries as an aid to international understanding. The travel tax would interfere with this important goal. It would curb travel by students and teachers. It would reduce cultural exchanges, so often heralded by recent administrations. It is difficult to measure this loss in international understanding and enlightenment, but it obviously carries a heavy price. C. The travel ta~ would discriminate unfairly against one segment of our economy-the travel industry The balance of payments problem is a problem faced by the country as a whole. It is unfair to seek to place a major portion of the burden of meeting this problem on the travel industry, which represents but a small segment of our economy. The result of using such a narrow approach would be to cause unusual hardship, dislocation, and financial difficulty for a small group of companies, some of whom would be forced out of business. In the interest of equity, the proposals for meeting our balance of payments problem should have a broad- based and diffuse Impact throughout our economy so that the burden does not fall unfairly on any one group. D. The traDel taw would bear most heavily on our citizens with low and moderate incomes Although the proposed travel tax is a graduated tax, its deterrent effect would, as a practical matter, be felt by people with low and moderate incomes. It would not deter the wealthy from travel; rather, it would be the factor which prevents trips by those to whom foreign travel is an unusual once-in~a-lifet1me e~peri- ence, and whose ability to make a trip at all involves a borderline financial de- cision. E. The travel taw would create an onerous adininistrtive burden The travel tax program would be extremely burdensome in operation, both for taxpayers and the government. The complexity of the scheme and the paper- work required of taxpayers, backed by threats of penalties, is inconsistent with our traditional notions of freedom to travel. Moreover, if reasonable com- pliance is to be achieved, the audit and enforcement burdens falling on the government will be severe. In view of all the considerations discussed above, we urge the Committee on Ways and Means to reject the proposed travel tax in toto. PAGENO="0336" 1114 II. APPLICATION OF THE TRAVEL TAX TO FOREIGN AUTOMOBILES PURCHASED BY AMERI- CAN TOURISTS WOULD NOT DETER TRAVEL, WOULD INCREASE THE DOLLAR OUTFLOW~ AND WOULD HAVE A DISCRIMINATORY AND UNJUSTIFIABLY HARSH IMPACT Even if the Ways and Means Committee should decide that a travel tax pro- gram is necessary, It should review separately the question of whether the pur- chase price of foreign automobiles delivered abroad should be made subject to the tax. Since the only goal of a travel tax program is reduction of our balance of pay- ments deficit, the travel tax should not be imposed on the purchase of auto- mobiles for delivery abroad unless such imposition would deter foreign travel or otherwise serve to reduce the dollar outflow. The imposition of a travel tax on the purchase of automobiles delivered abroad would serve neither of these purposes. In addition, it would. discriminate unfairly against foreign, as op- posed to domestic, delivery of foreign cars, and would have an unjustifiably severe impact upon the tourist car and allied industries. 4. Impositiosl of a travel taco on the purchase price of tourist cars would not deter * travel At the present time, the cost of a car purchased here to be delivered abroad and later imported into the United States is equal to or more than the cost of the same car purchased and delivered in the United States. Since no real saving can be achieved by taking delivery abroad, there is no incentive to go abroad in order to purchase a car. The elimination of the feasibility of taking delivery abroad would merely cause the individual to purchase the foreign car in the United States and utilize other forms of transportation while abroad. B. Imposition of a travel taco on tourist cars would be likely to increase the dollar ov~tflow from tourism. Since the travel tax as proposed would make it economically disadvantageous to purchase a car for delivery abroad, the tourist would either rent a car or pay for public transportation while abroad and then purchase his foreign car domestically. If this occurred, the combined dollar outflow from purchasing the foreign car and purchasing separate transportation abroad would be greater than the present outflow from the purchase of the car alone. As a consequence, there would be no reduction in the dollar outflow unless a substantial number of tourists, who would have purchased foreign cars abroad, chose not to purchase foreign cars at all. 0. The imposition of the travel taco on tourist oars would have a discriminatory; and unjustifiably harsh impact on the tourist car industry Even if none of the automobiles which failed to be delivered abroad aa a result of the travel tax were purchased domestically, the magnitude of the balance of payments benefits which might be realized should be weighed against the harsh and discriminatory impact that the tax would have on companies in the tourist car business. At the 1967 rate of deliveries, application of the travel tax would at most reduce foreign car sales abroad by approximately 12,000-15,000 vehicles, truly Insignificant in relation to the total number of foreign cars imported annually of approximately 850,000. To be weighed against this maximum reduction in foreign car sales resulting from application of the travel tax is its inevitable destructive impact on the companies in the tourist car industry. The tax as presently structured would have the following effects: 1. It would put out of business all of the companies which specialize in tourist car deliveries. 2. It would have a detrimental effect on a substantial number of forwarding~ firms which specialize in handling tourist cars. 3. It would adversely affect numerous travel agents in the United States who derive part of their income from commissions on overseas car sales. To place this burden on such a tiny segment of the foreign car import industry would constitute discrimination of the rankest sort. Even assuming, therefore, that the reduction in tourist car deliveries abroaft would not result in a matching increase in domestic purchases of foreign cars, the minor benefits to be derived cannot counterbalance the severe and discrimi- natory hardship that the tax would place upon the tourist car specialists and allied industries. PAGENO="0337" 1115 III. IF A TRAVEL TAX IS APPLIED TO TOURIST CAR DELIVERIES AT ALL, IT SHOULD BR APPLIED ONLY TO THE FAIR RENTAL VALUE OF THE USE OF THE CAB ABROAD Since a foreign car purchased domestically and one purchased abroad and imported into the United States have approximately the same cost, the benefit of taking delivery abroad is at most the elimination of the cost of renting a car or paying for public transportation while abroad. The bulk of the purchase price of the car cannot be said to be an expense of the foreign trip, but is a cost of using the car after it is brought back to the United States. The Treasury Department itself has recognized that the purchase price of a car delivered abroad and later imported into the United States is not primarily an expenditure related to foreign travel. In determining whether a foreign car orig- inally delivered abroad was "incidentally imported for personal use" and thus exempt from excise tax, the Treasury held in Technical Information Release 955, issued on January 5, 1968, that the importation was not exempt because "the ultimate use of the vehicle in the United States is an essential ingredient of, and a motivating force behind, the transaction. . . ." Thus, for excise tax pur- poses, the Treasury views the transaction as it would if the purchaser had not even left the United States. In contrast, the Treasury's travel tax proposal would treat the entire purchase price as a taxable "foreign travel expenditure'~ made solely in connection with the trip. The inconsistency between the two ap- proaches is obvious. Moreover, a travel tax imposed on the entire purchase price of the car would create an unjustified distinction between the tourist car delivery with subsequent importation on the one hand, and either mere rental abroad or purchase and resale abroad on the other. In the latter cases, the Treasury's technical explana- tion specifically states that the tax would be imposed on the rental payments or the loss on sale, that is, the costs directly related to use of a car while abroad. The individuals choosing these courses of action would then be free to purchase a foreign automobile upon returning to the United States without incurring the travel tax. The results, in terms of use of a car abroad, would be the same as in the tourist car importation situation, and the dollar drain even greater. Yet, under the program as presently formulated, the tourist car delivery would be subjected to a heavy tax upon the entire purchase price. Nothing could more clearly show that at most only the rental value of the foreign car for the number of days it is actually used abroad can be reasonably considered a foreign travel expenditure. CONCLUSION In our view, the proposed travel tax program should not be adopted. We believe that any effect it will have in curbing the outflow of dollars will be more than offset by its detrimental effects in provoking retaliatory measures from other countries, interfering with other important national aims, damaging~ travel-related businesses, and imposing heavy administrative burdens on our citizens. Even if the Committee on Ways and Means concludes, however, that a travel tax should be adopted, we urge that it not be applied to cars delivered abroad and imported into the United States for the reasons detailed herein. Respectfully submitted. Kenneth Weilner, President, The Kemwel Automotive Group; Alex Cecil, President, Auto Europe, Inc.; Henry Roy, President, Europe by Car, Inc.; Victor Elmaleh, President, Cars Overseas, Inc. Joel Gordon, Vice President, Car-Tours in Europe, Inc.; Thomas Nemet, President, Nemet International, Inc.; Hanna Borne, Ship- side Car Deliveries, Inc.; Lloyd do Mausse, President, The Atlantic Plan, Inc.; Herbert Abbe, Vice President, The Hermann Ludwig Organization; Robert Simon, Vice President, Martin's Motor Sales,. Inc.; John Weil, Vice President, Panocean Ship-A-Car System,. Inc.; George Subr, Vice President, The Kemwel Group, Inc. MERCEDES-BENZ OF NORTH AMERICA, INC., Fort Lee, N.J., February 29, 1968. Hon. WILBUR P. MILLs, Cha4rman, Committee on Ways a,'nd Means, U.E~1. House of Representatives, Washington, D.C. DEAR CHAIRMAN MILLS: In the belief that an important legal point is raised by the Administration proposal for the inclusion of tourist purchases of auto- 89-749-67-pt. 3-22 PAGENO="0338" 1116 mobiles under the suggested tourist tax plan, we have asked our customs counsel to prepared the enclosed brief. We are convinced that a serious question exists regarding the compatibility of the Administration's proposed tourist tax with the General Agreement on Tariffs and Trade. GATT specifically provides that products imported from another GATT country shall not be subject to charges of any kind in excess of those applied to like domestic products. No authority is granted under GATT to impose a special tax on imported merchandise by reason of the status of the importer, and an individual importer has equal protection with a corporate importer. We believe the Committee should give most careful consideration to such a proposal, since inclusion of this clause in the proposed legislation would put the United States, for the first time, in the position of attempting to circumvent the provisions of GATT by imposing a nontariff barrier in the guise of a tourist tax. I would appreciate your making this letter and the attached brief a part of the printed record of your hearings. Sincerely yours, H. 0. HOPPE, Ewecutive Vice President. End. STATEMENT ON BEHALF OF MERCEDES-BENZ OF NORTH AMERICA, INC. Re Proposed tax on automobiles purchased in the United States for European delivery and subsequent importation. SUMMARY OF COMMENTS AND RECOMMENDATIONS 1. A travel expenditure tax imposed on the purchase price of automobiles bought in the U.S., delivered in Germany, and subsequently imported, would violate U.S. *GATT commitments. It is not a tax on expenditures incurred in using the vehicle on a taxable trip. It discriminates against imports of this product on the basis of the status of the importer and the geographical location of the exporting country. 2. Automobiles purchased in the United States and delivered in Europe for subsequent importation should miot be treated as expenditures in connection with foreign travel. Most of such automobiles so purchased are of German manu- facture, amounting to $50,000,000 annually. A 30% travel expenditure tax on the purchase price of such cars in addition to regular duties and excise tax would eliminate a substantial portion of German automobile exports without reducing foreign travel expenditures. 3. The German Government has cooperated with the United States in measures designed to reduce the U.S. balance of payments deficits by substantial purchases of U.S. military equipment, U.S. Treasury securities, and by making significant contributions to foreign aid. The proposed travel expenditure tax, if applied to automobiles, would injure German automobile exports. 4. It is suggested that any legislation enacted imposing a travel expenditure tax specifically exempt from its provisions a tax on the purchase price of auto- mobiles bought in the U.S. for European delivery and subsequent importation into the United States. STATEMENT This statement is submitted on behalf of Mercedes-Benz of North America, Inc., pursuant to the announcement of February 6, 1968 by the Chairman, Com- mittee on W.ays and Means, U.S. House of Representatives, that statements re- lating to the Administration balance of payments proposals would be considered by the Committee. Mercedes-Benz of North America, Inc. is a Delaware corporation with its principal place of business at 158 Linwood Plaza, Fort Lee, New Jersey, and is engaged in the sale and distribution of Mercedes-Benz motor vehicles that are manufactured in Germany. The representations made herein are confined entirely to that aspect~ of the Administration's proposals concerning a temporary graduated tax on expenditures in connection with travel outside the Western Hemisphere. More specifically, this statement is concerned with the Adminis- tration's suggestion that a European automobile, purchased in the United States but delivered to an individual on a taxable trip would be subject to a tax on the purchase price as a taxable foreign travel expenditure upon importation into the United States. (Administration's Balance-of-Payments Proposals, Hearings Before the Committee on Ways and Means, House of Representatives, February ~ and 6, 1968, p. 31). PAGENO="0339" 1117 THE ADMINISTRATION PROPOSALS TO IMPOSE A TRAVEL EXPENDITURE TAX ON AUTO- MOBILES PURCHASED IN THE UNITED STATES FOR DELIVERY IN EUROPE WOULD BE IN VIOLATION OF GATT COMMITMENTS The Administration proposal to include as a travel expenditure subject to tax the cost of automobiles purchased in the United States for delivery in Europe and which are thereafter imported is inconsistent with United States obligations under GATT and contrary to the United States consistent policy of faithful ob- servance of international commitments. Certainly, the need to rectify the United States balance of payments deficits does not require a deviation from this policy by the adoption of legislation which would violate provisions of GATT. The United States was one of the prime movers in establishing GATT and to a large degree has been the main force in utilizing it in the promotion of increased international trade. Quite clearly, any failure to observe the obligations which have been undertaken by reason of our association with GATT would be ill- advised. It seems clear, however, that insofar as the proposed travel expenditure tax relates to automobiles that are imported by individuals who have purchased the vehicles in the United States for delivery in Europe, there would be a coiifl~ with the requirements of Articles I, II and III of GATT. The Technical Explanation of the Travel Tax Program, as prepared by the Department of the Treasury, specifies that expenditures for renting an auto- mobile on a taxable trip would be taxable travel expenditures. It is also provided that if an automobile is both acquired and sold during the same taxable trip, the loss, if any, would be treated as an expenditure for the use of property and, therefore, taxable. However, where an automobile is purchased in the United States for delivery in Europe, and is thereafter imported into the United States, the importer becomes liable for a tax on the full purchase price of the automobile rather than on the actual expenditures incurred in using the vehicle while on a taxable trip. Moreover, the tax on the purchase price would apply whether or not the individual used the automobile during the trip. In addition, the importer would be required to pay the regular customs duties and excise tax which are applicable. Thus, the imposition of the tax on the purchase price is associated with the importation of the automobile even though the payment of the assess- ment may not be concurrent therewith. Whether the tax, as applied to automobiles so acquired, is called a travel expenditure tax or otherwise designated, the fact remains that it is a tax or charge imposed on or in connection with importation. Additionally, it is not a tax that was in effect on the effective date of the General Agreements on Tariffs and Trades and is not a tax that is imposed on like domestic products. Further- more, the application of this tax is inconsistent with the most favored nation pro- vision of GATT and discriminates against such imports from GATT member countries that are not within the Western Hemisphere. The provisions of GATT, in pertinent part, are as follows: Article I 1. With respect to customs duties and charges of any kind imposed on or in connection with importation * * * and with respect to the method of levying such duties and charges, * * ~`, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting `parties. Article II 1. (a) Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement. (b) The products described in Part I of the Schedule relating to any contract- ing party, which are the products of territories of other contracting parties, shall, * * `~, be exempt from ordinary customs duties in excess of those set forth and provided for therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with importa- tion in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date. PAGENO="0340" 1118 Article III 2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or mdi- rectly, to internal taxes or other internal charges of any kind in excess of those applied directly or indirectly to like domestic products * * A German manufactured automobile continues to be a product of Germany whether or not delivered to the importer while abroad and whether or not im ported by an individual rather than a business entity. It is entitled to receive the same customs and tax treatment as the like product from any other GATT member country, without regard to the status of the importer or the geograph- ical location of the exporting country. The proposed travel expenditure tax, as applied to automobiles would violate the foregoing provisions of GATT FOREIGN AUTOMOBILES PURCHASED IN THE UNITED STATES AND DELIVERED IN EUROPE: FOR SUBSEQUENT IMPORTATION SHOULD NOT BE TREATED AS EXPENDITURES IN CONNECTION WITH TRAVEL OUTSIDE THE WESTERN HEMISPHERE Most automobiles purchased in the United States for delivery in Europe are of German manufacture. Of the 21,144 Mercedes-Benz passenger cars sold in the United States in 1967, 5,314 units! or approximately 25% constituted orders of American citizens, placed with and paid to indepen.dent franchised Mercedes- Benz dealers in the United States for delivery in Europe and subsequent im- portation. The total volume of such sales for that year amounted to $24,000,000 which represents about 1 2% of all German exports to the lJmted States If the sales of other German manufactured cars obtained in this manner are in- cluded, it is believed to represent 2.5% of all German exports to the United States or a total of $50,000,000. The aggregate value for all European automobiles, so. sold, is estimated to be $70,000,000. Such sales made in the United States! should: not properly be considered as expenditures in connection with travel since the purchase of the automobile for delivery in Europe does not induce oi encourage the businessman or tourist to travel to Europe if he would not do so otherwise. Since the federal excise tax on automobiles became effective in respect to this type of import after January 15, 1968 by reason of Revenue Ruling 68-30, there is only a moderate saving involved to the individual who purchases the vehicle~ in the United States and takes delivery in Europe when the cost of freight, customs duty and federal excise tax, which are incurred by the traveler in importing the automobile, are taken into consideration. The individual who takes delivery in Europe h~ts the convenience of having his own car while abroad but this eliminates at least in part the need to rely on public transportation or to rent a car while traveling. Thus, the only effect such purchases would have on travel expenditures would be to reduce them to the extent that they permit the individual to save on transportation costs; while in Europe. Upon his return to the United States, the traveler must engage the services~ of a customs broker to import his automobile at which time he must pay the regular customs duty and federal excise tax in the same manner as with an ordinary commercial importation There is no valid distinction between sales made in the United States for domestic delivery of German automobiles and sales made in the United States for European delivery and subsequent importa- tion of such vehicles by an individual, insofar as they affect travel expenditures. If as is proposed a 30% travel expenditure tax is imposed upon the privately imported automobile, in addition to the customs duty and federal excise tax,. the cost would be prohibitive. It is believed that a substantial portion of this. $50,000,000 in German automobile exports would be lost if the proposed tax is adopted. The travel expenditure proposals are not intended to di~courage the free flow of trade but rather to encourage the reduction of tourist expenditures.. This objective would not be assisted if the suggested legislation relating to automobiles purchased in the United States were to be adopted. To a limited extent, at least, the converse would be true and the primary effect would be~ damaging to U.S. trade relations in one of the few major commodities' where the value of imports from Western Europe exceed the value of exports from the United States. Most of the other major commodities in the trade between the United States and Western Europe show a sizable surplus of U.S. exports' over imports. (See `Exhibit 1). It should be noted, however, that the value o~ all U.S. exports of automobiles~ and parts exceeds' the value of U.S. imports of such merchandise. PAGENO="0341" 1119 THE GERMAN GOVERNMENT HAS COOPERATED WITH THE UNITED STATES IN MEASURES DESIGNED TO REDUCE THE U.S. BALANCE OF PAYMENTS DE~ICITS. PROPOSALS THAT WOULD PRIMARILY IMPAIR GERMAN AUTOMOBILE EXPORTS TO THE UNITED STATES SHOULD NOT BE ADOPTED The German Government has undertaken various measures designed to assist in the solution of the United States balance of payments deficits. In this con- nection, Germany has for a six-year period participated in the military offset agreements under which that Government agreed to procure U.S. military equipment and services. The major part of U.S. defense expenditures in Germany have been offset by these means. German expenditures for defense materials in the United States have been at a rate of about $600 million annually or more. In 1966 Germany transferred $750 million for such purposes. At present, approximately $500 million is still uncommitted because basically Germany does not require additional defense materials at this time. Although the military offset agreements terminated in the latter half of 1967, the German Government has indicated that it intends to continue major pur- chases of military equipment in the United States. Additionaly, the German Federal Bank has agreed to invest $500 million in non-marketable U.S. Treasury securities which represents a long-term capital inflow thereby reducing U.S. payments deficits. Of this amount $250 million worth of Treasury securities were purchased in 1967 and an additional purchase of $250 million is to be made in June 1968. The German Government has also cooperated with the United States by providing material assistance in the area of foreign aid. In this connection, Germany contributed $3.36 billion in foreign aid during the period 1960-1965 which represented 7% of the total foreign aid given by Western nations. Ger- many's favorable balance of payments has not been large because large amounts have been returned to the world economies through investments, foreign aid and transfers such as the procurement of U.S. defense materials and U.S. Treasury securities. Furthermore, that Govertiment has assisted the United States, rather than hindered it, in attempting to stem the outward flow of U.S. gold reserves. The recent enactment of the German added-value tax should tLot be construed as evidence of German non-cooperation in reducing the balance of payments deficits. The German `added-value tax imposes on all transactions a 10% sales tax with full credit for the sales taxes paid by all suppliers, sub-suppliers and importers in the chain of trade. Thus all prices, both for domestic and imported goods, include a uniform 10% sales tax when `sold to the end user with no different treatment `applied with respect to imported goods. Quite clearly, the impact of the Administrations' proposals in regard to the U.S. purchase of automobiles for delivery in Europe has not been fully under- stood. The objective sought, i.e. the reduction in travel expenditures, would not be accomplished. The unintended result would be the impairment of a substantial portion of German export trade to the United States. This would be particularly undesirable in view of the cooperation that has been demonstrated by the German Government in the solution of U.S. balance of payments deficits. CONCLUSION For all of the foregoing reasons, it is requested that the Administration pro- posals relating to an import tax upon automobiles purchased in the United States for delivery in Europe and subsequent importation, not be adopted and that this category of imports be specifically exempted from the provisions of any tax that may be enacted on expenditures in connection with travel outside the Western Hemisphere. Respectfully submitted. BARNES, RICHARDSON & COLBURN, Attorneys for Meroedes-Beaz of North, America, Inc. PAGENO="0342" 9 9 a- 9 1120 +~ ~r~N-oor-~ ~ a- 0 2: 9 ~ Cl) ~ LU ~- 0 0 - 0 + + + :~ ~ ~ PAGENO="0343" 1121 ~ STATEMENT OF C WILLIAM VEErrY ;rE PRESIDENT ARMCO STEJ~J CORPORATION My name is William Verity I am president of Armco Steel Corporation I welcome this opportunity to make my statement a part of the record of your hearings on the President s proposals to deal with the current balance of pay month problem ~Armco is a basic steel producer with headquarters in Middletown Ohio Our company employs approximately 40 000 people in iti~ steelmaking fabricating and manufacturing operations in 25 states Of special relevance to these hear ings ~s the fact that Armco has been active in international commerce since 1912-probably the most active of ai~y domestic steel producer in foreign trade. We now carry on extensive business activities through 25 foreign ~ubsidiaries in 18 counties in the free world with 7 000 more employees on foreign soil Because of these overseas business activities ~ e have `i very direct interest in these hearings and in any legislation that might result But we have an as en more basic reason for expressing our opinion to the distinguished members of the House Ways and Means Comm~ttee We believe our entire economy is seriously threatened by the fiscal policies that have led to our current balance of payments crisis . . . we also believe a great many Americans are now looking to this committee and its courageous chairman for fiscal leadership and national economic common sense. As much as we share the Pres~dent s dreams for abolishing poverty putting an American on the moon rebuilding cities controlling crime we don t believe we can do all of the things he wants to do at home at a time when we are engaged in a major costly war We beliei e the time has come when our nation must face up to this fact and establish some realistic and prudent priorities We believe the medicine which the President has prescribed for our imbalance of paymentS offers only a temporary, stopgap treatment of the symp- toms and does not attack the basic cause of our economic disease. We have noted and have been greatly encouraged by the reservations expressed by members of this committee regarding proposals which are of such grave importance to all of us. We too have grave misgivings regarding the wisdom of the program, and ~i e appreciate the opportunity to outline a few of our serious objections to what we feel is a short-term approach which will beget more serious long-term problems. We feel that our experience as a company whose interests abroad span a period of some fifty-five years throws important light on the inherent serious dangers of the proposed program. We started overseas business with the export of ceitain of our products to other countries We later launched a marketing program that added the products of a number of other American manufactuiers whom w e represented in countries around the world. F!or example, since the mid-1930's we have served as agents for and sold the welding products of Lincoln Diectric Co. of Cleveland, Ohio' in markets around the world. As time went by and market conditions changed we be~an to also f~briutte and manuf'icture certain of our products in plants that wc established o~ erseas In some cases we granted licenses to foreign companies and peimitted them to make and market certain of our products in foreign markets ku of these business activities have been helpful to Armco and to the overall American economy. Historically, our philosophy has been one of responsiveness to the markeits we Serve Again this policy has proven beneficial to our business ~nd has added dollars to the American trade surplus We have ala ays tried to make the minimum possible investment in American dollars abroad ~ hue bringing bak to our shareholders the maximum return on their investment ~e found this to be sound business practice It ~as in this respect also entiiely consistent uith the objectives of President Johnson's earlier voluntary balance of payments program. Since the voluntary program in 1965 Armco has coopei qted wholeheartedly During the ~ oluntary and temporary measures ue curtailed our dolhr capital investments abroad and maximized the return on existing investment to a degree which exceeded the guidelines set forth by that program. As an example, during PAGENO="0344" 1122 19~35 and 1&66 our doiiarinvestment abroad was held to a level which repi~esented two-tenths of one per cent of our existing overseas inv'est~ent During this same period we repatriated 89% of our overseas earnings While w. have not objected to the need for restraint in foreign investments we do object strenuously to the mandatory controls which the President has now imposed through his January 1 executive order. There are competitive pressures in certain markets and in certain product lines which require capital investment if we are to prevent total collapse of our business there Failure to modernize or to install equipment needed to produce new or improved products will result in what we believe could be a permanent loss of markets to our company and an overall loss to our economy. It is ironic and patently unfair that those American companies that have done the best job of complying with the government s voluntary program are to be penalized the most under the mandatory controls Companies like Armco that co operated with the voluntary program now find they are forced to live with stand- ards that use 165-66 as `a base period. Under this new mandatory program, companies that repatriated unrealistically high levels of earnings in 1965 and 1966 in cooperation with the voluntary program must now use these high levels as the standard or yardstick for current repatriation requirements In some in stances these requirements are literally impossible to achieve For example in Schedule B countries we would be required tie repatriate 20% more than our forecasts indicate we can reasonably expect to earn In Schedule A countries it looks as if we will be required to bring back 25% more than it would be practical for us to repatriate It is obvious that we will be forced to seek exceptions to the President's order in a number of instances.. Those of you who serve on this important committee are certainly well aware, and do not have to be told, that control of foreign investment is not the ans'we'r to our balance of payments `problemis. We have seen the importance of such in- vestments to the growth of our business. You may h~ave seen the figures in the February 5th issue of U.s. News ~ World Report and read the `statment that "Earnings on foreign ventures by American companies, together with income from foreign stocks and bonds, have more than doubled in 10 years-the fastest grow- *ing source of dollar inflow for the U.S." Such investments are essential to the nation s growth and to our economic health in a time of increasing one-world marketing. Our imbalance of payments can be traced to: A long period of government fiscal policies that have led to inflation `and thus hindered American business efforts to compete in world markets. The heavy and growing burden of our military commitment in Vietnam. An unreasona~ble growth in governmental iion~defeiise spending. We respectfully suggest that there are several fiscally responsible alternatives to the President's b'alanceof payments proposals: 1. An immediate and significant reduction in the level of non-defense govern- ment expen'dituros. . . at lea~t until we can reduce our defense spending. 2. A corresponding slow-down in the creation of money by the federal reserve -system. 3. The immediate consideration of Mr. Mills' bill proposing a b-i-partisan Gov- ernment Program Evaluation Commission to study and evaluate `all government `spending. This nation can't do everything and we need to set reasonable prio'ritie~ that will permit us to do the most necessary programs. . . within the limits of anticipated tax income. 4. Start the machinery necessary for a comprehensive review of fOderal tax provisions with the objective of overhauling our basic tax lawS to provide incen- tive to individuals an'd to `businesses that would encourage economic growth. We believe that one of the most serious spin-off problems from the balance of payments `difficulty is the uncertainty created by our governmenit's tax stance. This uncertainty is `mm unnecessary psychological drag `on our nation's economy and a dissci~vice to all of o'ur people. We have noted with conSiderable interest, Mr. Chairman, your accurate appraisals of economic conditions in this country and w'e appreciate the steadfast efforts of this committee to cut government spending. We `believe this ha's to he a significant part of any balance of -payments solution. We `~omm'end you for yo'ur efforts and `will stand ready to support you and your committee in -this `direction. PAGENO="0345" 1123 STATEMENT OF HAImY B. HENSHEL, PRESIDENT, BTJLOVA WATCH COMPANY, INC. REASONS WHY BUSINESS TRAVEL SHOULD BE EXEMPT FROM PROPOSED TRAVEL TAX In omitting any exemption for bonda fide `businesfs travel, the Administration's proposal for a travel tax submitted to the House Ways and Means Committee on February 5, 1968, seems tio be based on policies diametrically oppoised to those announced by the Prelsident in his Balance of Payments Message of January 1, 1968. In particular, they conflict with longstanding policies designed to promote and encourage the development `of foreign markets and competitive operations overseas by American ~ompanies. Some specific points are set forth below. (1) In his Message the President said: "I am asking the American people to defer for the next two years all nonessential travel outside the Western Hemi- s~phere." (Emphasis supplied.) It would appear, therefore, that the Administra- tion's travel tax proposal deems all business travel to E'ui~ope to be either deferrable as "nonessential", or else taxable on the same basis as tourist travel regardless of essentiality. Most U.S. compaines, however, including Bulova, are cost-conscious. They do not per~nit "business' travel tha't is not for business purpoSes. Those purposes certainly include the promotion of a company's foreign sales and its efforts to compete abroad through its foreign branches and subsidiaries. Such overseas efforts~-which we had always understood to be in the national inteirest--~clearly require constant travel by the company's exectuives and other personnel. Is this "nonessential" travel that should be `deferred for two years? (2) In his Message the President called for "an intensified domestic effort to encourage companies to focus more of their efforts on foreign markets." Obviously,. a company cannot be expect to make this sort of effort without sending its execu- tives and salesmen abroad. Similarly, the Treasury's own White Paper, Main- taining the Strength 01 the United States Dollar in A Strong Free World EconomV (January 1968), advocates the `expenditure of federal funds to help small and medium-sized companies in overseas trade promotional visits and other activities calling for foreign travel of business personnel. And Assistant Secretary of Commerce Lawrence McQuade has recently urged "a doubling of our commercial exhibitions in trade fairs and our trade centers overseas," with a "three-fold increase" in the number of participating U.S. firms. Secretary Fowler failed to mention to what extent the proposed travel tax might inhibit response to these objectives. (3) The travel tax proposal purpor'ts to be designed not to "unduly" penalize certain specified types of travelers, including "business people." This may be laudatory, but it is hardly the same as promoting business travel-which seems to be the Administration's objective in other programs. (4) The proposed burden on business travel is at odds with the Administra- tion's over-all policy in yet another respect. The Foreign Direct Investment Regu- lations are designed to encourage foreign borrowing and to reduce direct trans- fers of capital. But while a businessman can transfer his funds abroad sitting in his own office in `the United States, h'e rarely can obtain foreign credit without calling on foreign bankers in their home offices. (5) Secretary Fowler testified against any specific exemptions on the ground that they "produce complexity and administrative burdens." But `the sensible exemption of all business travel would be far less complex and burdensome than the arbitrary dividing lines and mountains of paper work which his proposal contemplates for all travelers, including businessmen. (6) The very limited exemptions that are proposed-long trips of 120 days or more and establishment of residence abroad-bear no relation to the broad objec- tive of promoting exports and foreign markets by American businessmen, who typically make frequent short trips from the U.S. and back for these purposes. Indeed, the exemptions proposed seem to run counter to the over-all objective of the Administration's emergency balance of payments program, namely, to achieve maximum foreign exchange savings in the short run. The many local expenditures required to set up a permanent establishment abroad for a given business opera- tion there will have a far greater immediate negative impact on the balance of payments, than will travel for the same purpose. (7) In essence, the proposed tax makes no sense as applied to business travel. While designed to be a deterrent to foreign travel, it will not deter most business- men from making trips outside the Western Hemisphere essential to their busi- ness. At most, it will produce red-tape and a very modest amount of additional tax revenue (which is fully deductible by the business traveler). PAGENO="0346" 1124 And in many cases where the new tax will act as a deterrent, it will be counter- productive. For example, where, as often happens, there is a close choice to be made between frequent trips abroad and setting up a permanent foreign establish- inent, the new travel tax may well dictate choosing the latter-with the adverse balance of payments impact noted above. Similarly, this new tax could dis- courage a fledging or prospective export program if the company felt that the overseas travel required was not worth the new headaches involved. * * * * * * * Examining the position of Bulova, for example, in the light of all the above stated obvious and Alice-in-Wonderlandish contradictions, we find a medium- ~sized American company which has manufacturing facilities in France, Germany, Switzerland, and Italy. All of these, from time to time, utilize American-made components. Bulova has sales offices in North America, Central American, the Caribbean, South America, Europe, the Middle East, Africa, the Far East and Pacific, and `Oceania, with markets in over one hundred foreign countries-selling both our American-made and foreign-made products. While we pay American taxes on all of our business, both foreign and domestic, we must compete with strong, foreign-based companies which have lower taxes imposed upon their operations and profits, and no travel taxes or restrictions facing them such as will face us if the Administration's balance of payments pro- posals are given effect. These will simply add one more burden to an already over- `burdened competitive situation. We strongly urge that, apart from carefully scrutinizing other troublesome aspects of the travel tax proposals, you and your Committee will recommend the exemption of bona fide business travel from any travel tax that it may ~recommend. There are few geese laying golden eggs left us in our balance of payments basket for 1968. Let us fatten them, not starve them. OVERMYER Coap., Winchester, lad., February 12, 1968. Mr. JOHN M. MARTIN, Jr., Chief Counsel, Committee on Ways and Means, 1102 Longworth House Office Building, Washington, D.C. DEAR Sin: The Administration's proposal to tax spending by U.S. residents traveling outside the Western Hemisphere is inequitable, unrealistic and unen- forceable. If enacted, it runs the risk of retaliatory legislation to discourage foreign visitors to the United States. It further threatens the economic vitality of the Travel Industry as well as International Air Carriers. Finally, it is extremely doubtful that such a tax would, in fact, measurably stem the flow of gold abroad. In any event, business travel must be exempted from the proposed tax because of the hardship it would place on business protecting investments which have `already been made and upon the export of U.S. goods abroad. Our company has invested nearly $1,000,000 in Belguim to service more than `seventy glass container manufacturers from East Pakistan and Ceylon to East Africa and Peru. We cannot service `these customers from elomestic facilities because of high labor costs and restrictive union work practices. To protect this investment and to make profits which can be repatriated, I am required to travel `to Belgium six or seven times a year. The purpose of this travel is in sharp con'trast to those traveling for personal pleasure. To place this additional tax burden on my small company at the same rate as on the "Jet Set" is not only inequitable bu't contrary to Public Policy. The tax is patently unenforceable because of credit cards and sources of foreign funds. The tax will undoubtedly fall on the middle to lower income once-in-a-life- time traveler as the "professional" will find the `obvious loopholes. An expensive civil service agency will be required to administer, enforce and regulate the tax. I strongly believe that business travel must be exempted particularly in cases where it relates to the management of American Capital abroad and, even of more direct importance, where it relates to expanding foreign markets for American products. Without having statistics, I would suspect a very high percentage of dollars spent for travel abroad are done by persons falling into these categories. Very truly yours, LOWELL L. ROE5NER, President. PAGENO="0347" 1125 NATIONAL MILK PRODUCERS FEDERATION, Washington, D.C., March 1, 1968. Han. WILBUR D. MILLS, Chairman, Ways and Means Committee, Ho~se of Representatives, Washington, D.C. DEAR MR. MILLS: We shall greatly appreciate it if you will place in the record of the hearings on legislation relating to balance of payments the following state- ment of the National Milk Producers Federation. We do not profess to be informed on the major issues of the balance of payments problem, and we Shall not burden the record on matters outside our field, al- though, along with many other Americans citizens, we are deeply concerned about the situation in which the United States now finds itself. We would like to call to the attention of the Committee one hole in the total sieve through which American dollars are steadily draining away. This may be a relatively small hole in terms of total dollar balances; but it is at least one hole which could be plugged easily, and one which, if not plugged, will be a continuing nnnecessary drain. We have in mind imports of dairy products which are not needed and which serve only to add to our own surplus supplies. These imparts not only drain ~dollars out of this country needlessly, but they also burden the price support program with added and unnecessary costs. This affects the budget deficit ad- versely and adds to the total burden of the American taxpayer. It is estimated that the dollar drain for these imports for the year 1966 was $70,466,863, and for 1967 $73,702,697. The dollar drain for 1968 and subsequent years, based on current import con- trols as revised July 1, 1967, is estimated at $36,796,255 per year. These amounts are significant when compared with estimated reductions of the dollar drain to be achieved through other means under consideration by the Committee. For example, reducing the tourist exemption to $10 is estimated in the Committee print of February 5, 1968, to cut back foreign acquisitions by $50 million. Foreign expenditure under the proposal to eliminate the gift exemption would be curtailed by $28 million. Controlling imports of unneeded dairy products, which not only are not bene- ficial but actually are harmful to our agricultural economy and our domestic agricultural programs, would produce results which are substantial compared to the above proposals. Dairy Imports were particularly heavy in 1966 and were increasing rapidly in the first half of 1967. Partial controls were applied July 1, 1967, but only after much damage bad already been done. The controls were too little and too late, and they still leave an unnecessary drain on our dollar balances and an unnecessary lrnrden on our price support program. Other countries for many years controlled their imports to conserve their bal- ance of payments position. They should not object to our doing the same under the conditions in which we now find ourselves. The figures given in the first part of the attached Table A are taken from `statistics of the Department of Commerce and are foreign value, excluding ocean transportation and U.S. duties. The figures are conservative and actually repre- sent a dollar drain greater than the amount shown because shipping charges would result in a substantial additional outflow of U.S. Dollars. All of the products listed are items which are and can be produced in the United States. In practically all cases, they displace an outlet for domestically produced milk and butterfat, thus forcing domestic production into `the support program at added and unnecessary cost to the Government. Imports of Roquefort cheese, and other sheeps milk cheeses, are not included in these figures, because we do not make sheeps milk cheeses in this country. To the figures obtained from the Department of Commerce are added imports of 105,626,000 pounds of butterfat-sugar mixtures imported in 1966, and 100,548,000 pounds imported in 1967. We do not have the dollar value of these imports, but we believe a reasonable estimate of the average foreign value would be 23 to26 cents per pound. This would Indicate a dollar drain for this item of approximately $26,405,500 for 1966 and $25,137,000 for 1967. Imports of butteroil of about 1,200,000 pounds are estimated to have caused a dollar drain on this country of $600,000, assuming a foreign value estimated at 50 cents per pound. Imports of chocolate crumb rose from 54,000 pounds in 1960 to 10,400,000 pounds in 1967. This is a mixture containing about 15 percent chocolate liquor, PAGENO="0348" 55 percent sugar, and 30 percent whole milk powder. While we need the imports of chocolate, we do not need the imports of sugar or whole milk powder. The volume of some of the imports listed are controlled by quotas. Some of these quotas were enlarged and some new ones were imposed last July 1 The major actions taken last July would hold frozen fresh cream imports to 1.5 million gal- lons, up slightly from the volume of 1966 and 1967 imports. The cheddar cheese quota was increase from 2,780,100 pounds to 10,037,500 pounds. Imports of Colby cheese were cut back sharply from 55,312,000 pounds imported in 1967 to a quota of 6,096,600 pounds per year. Butterfat-sugar mixtures also were sharply cut back from 100,548,000 pounds imported in 1967 to a quota of 2,580,000 pounds per year. However, even under the current quotas, the dollar drain for unneeded dairy imports is estimated at $36,796,255 per year as shown in the attached Table B. In addition to draining dollars out of this country, these unneeded imports further added to our surplus problem and put heavy additional and unnecessary cost on our domestic.price support program. It is estimated that the added cost to the support program from these unneeded imports was $29,244,400 in 1966 and $131,177,198 in 1967. The level of imports permitted under the present quotas is expected to put an unnecessary burden on the support program for 1968 estimated at $48,400,000. This will be a continuing and annually recurring burden as long as our own supplies are adequate and tI~e imports are not needed. Exports of dairy products from foreign countries to the United States have been heavily subsidized by the foreign countries. It is not at all an unusual cir- cumstance for the amount of the subsidy to be more than twice as great as the selling price. Although this condition has existed for several years, neither the Department of Agriculture nor the Treasury Department has taken effective action to Control it. Sincerely, E M NonToN Recretary TABLE A.-OUTWARD FLOW OF U.S. DOLLARS FOR UNNEEDED DAIRY IMPORTS, 1966 AND 1967 1966 1967 Milk and cream in all categories $4, 092, 799 $4, 010, 135 Butter 365,150 377,305 Blue-mold cheese 2,620,439 2, 544, 794 Cheddar cheese 1 530 423 1 877 383 Edam and Gouda cheese 4,990,450 5, 599, 181 Italian type cheese, cows milk 5, 194, 563 5, 236, 991 Swiss cheese 7,988, 107 7,928, 715 Gruyere cheese 4, 108,394 4, 145, 728 Colby cheese 12, 570, 038 16, 245, 465 Total 1 43 460 363 1 47 965 697 Butterfat-sugar mixtures (estimated) 26, 406, 500 25, 137, 000 Butteroil (estimated) 600,000 600, 000 Total 70 466 863 73 702 697 1 Source Bureau of the Census Department of Commerce TABLE B-OUTWARD FLOW OF US DOLLARS FOR UNNEEDED DAIRY IMPORTS ESTIMAIED FOR 1968 Product 1968 Product 1968 Milk and cream in all categories 1 $4, 010, 135 Gruyere cheese 1 $4, 145, 728 Butter 2377, 287 Colby 2 1, 793, 010 Blue-mold cheese 22,666, 033 Butterfat-sugar mixtures. 4 645, 000 Cheddar cheese 2 3 794 175 Butteroil 600 000 Edam and Gouda cheeses `5599 181 Italian type cheese, cows milk 3.. 1 5,236, 991 Total..* 36, 796, 255 Swiss cheese `7,928,715 1 Same value as in 1967 2 Estimated by applying average 1967 value to present quotas 8 Edam and Gouda and Italian imports in 1967 exceed quota and apparently include proôessed cheese. 4 Estimated on basis of quota times estimated foreign value used in computing 1967 values as shown in table A 1126 PAGENO="0349" 1127 BROADCAST MUSIC INC., Neii, York, N.Y., February 23, 1968. Hon. WILBUR D. MILLS, Chairman, House Committee on Ways and Means, 1102 Longworth House Office Building, Washington, D.C. DEAR SIR: It is requested that this statement be included in the printed record of the foregoing hearings. Broadcast Music, Inc. (BMI) licenses for public performance in the United States and abroad, pursuant to the Copyright Act (USC 17, Par. 1(e)), the musical compositions of more than 14,000 composers and 8,000 publishers, all resident in the United States. BMI achieves its collections from abroad by means of reciprocal agreements with performing rights organizations in 26 countries. All of the monies that BMI collects, except for actual expenses and a reasonable reserve, are distributed to the writers and publishers affiliated with it. BMI is entirely sympathetic with the Presidential purpose of deferring "non- essential travel outside the Western Hemisphere for two years." (Statement of Secretary of State before Ways and Means Committee, House of Representatives, February 5, 1968, p. 23.) It addresses itself solely to the penalizing of travel which is essential in the interests of the United States. BMI's activity abroad has the following beneficial results for our country: 1. As the result of the performance and exploitation of American musical com- positions abroad, musical compositions written by United States citizens, have, as never before, achieved positions of primary popularity in foreign countries. The foreign performances are of popular music, music from Broadway shows, serious symphonic compositions, music from operas, the indigenous music of the South and West and, indeed, all of the music that the composers of our country produce. 2. BMI collects from abroad on behalf of its affiliated writers and publishers for foreign performances of their works, about $1 million per annum in excess of payments transmitted abroad by BMI for performances of foreign works in the United States. This helpful contribution to our favorable balance of trade is net to the United States. No physical goods are exported nor, indeed, do our writers even engage in additional efforts for the European market. With one minor exception, all payments from abroad are made in United States dollars. Obviously, these monies do not flow into the United States automatically. A certain amount of travel is essential to maintain contacts, solve the problems involved in the proper attribution of and payment for the thousands of works involved and stimulate the performance of works of American origin in foreign countries. For instance, every two years the International Confederation of Societies of Authors and Composers (OISAO) holds a meeting of all of the performing rights organizations of the world, the forthcoming meeting being scheduled for next June in Austria. This meeting involves not only the economic problems of col- lection and distribution, but also the cultural and legal problems involved in international copyright relations. Actually, such a meeting, with its opportunities for meeting at one place and time all of the persons with whom BMI has problems, obviates other travel from country to country, which would involve greater expense. It seems to us that this is travel essential in the interests of the United States and we do not believe that it should be penalized. Without such travel, the im- portant prestige and good will which the United States gains through public acceptance of works of American authorship In other countries and the substan- tial monies which flow into our country for the benefit of United States citizens and in support of a favorable balance of trade would both be diminished. We respectfully request, therefore, that any business organization which can demonstrate both that it serves the useful dissemination of United States culture. abroad and produces a favorable balance of trade for the United States should be exempted from the tax on expenditures incurred in essential trips outside of the Western Hemisphere. Respectfully, ROBERT B. Soua, President. PAGENO="0350" 1128 COLUMBIA ARTISTS MANAGEMENT, INC., New York, N.Y., February 29, 1968.. lion. WILBUR D. MILLS, Chairman, House Committee on Ways and Means, 1102 Longworth House Office Building, Washington, D.C. DEAR SIR: As the attorneys for Columbia Artists Management, Inc. ("OAMI"),, we have been asked to set forth its views with respect to the proposed travel tax now being considered by your Committee. It is requested that this statement be included in the printed record of the hearings. CAMI is entirely sympathetic with the Presidential purpose of deferring "non- essential travel outside the Western Hemisphere for two years" (statement of the Secretary of State before the Committee, February 5, 1968, at p. 23). It does. however, consider as ill advised the penalizing of normal business travel which is essential or important to the interests of the United States and its business enterprises. The situation which obtains with respect to CAMI is, we believe, a good illus- tration of the unwise reach of the proposed travel tax. CAMI's principal activity is the management of concert artists and attractions. and the procuring of concert, recital, ballet and other engagements for such artists and attractions. One part of this activity requires that officers and employees of CAMI travel out of the Western Hemisphere for the purpose of arranging concert tours and the like for American concert artists. This type of activity not only has the im- portant effect of propagating this country's cultural attainments throughout the world, but also results in a net flow of funds into the United States. A different and somewhat more extensive type of activity involves traveling abroad for the purpose of arranging for foreign attractions to come to the United States on concert tours, thus providing the American people with the full measure of musical culture which the world's artists can provide. This cultural inter- change is obviously very important. In addition, virtually no outflow of funds is generated because most of the attractions which CAMI brings to the United States are not profit making enterprises. More often than not, these groups, such as the Berli.n Philharmonic, Concertgebouw Orchestra of Amsterdam and the Royal Danish Ballet, are subsidized by foreign governments and foreign founda- tions and expend more money in connection with their tours within the United States than they derive from such tours. In any event, it is clear that the principle business activity of CAMI requires. extensive travel by its officers and employees *out of the Western Hemisphere. None of it is "nonessential" for CAMI and none of it ought to be considered "non- essential" for the United States. CAMI has no subsidiary, affiliate or branch office outside *of the Western Hemisphere and does not wish now to establish one. In such a case the proposed travel tax would ha~ e the harsh ~tnd probo)bly un~ntënded impact of producing a sharp increase in the cost of carrying on its normal and we belle\e useful business functions This result is in glarnw contrast to the generally understood thrust of the proposed travel tax which is simply to en:courage the average American tourist to defer his pleasure trip~ to Europe. SUMMARY AND RECOMMENDATIONS For these reasons, we respectfully urge that the Committeeconsider a modifica- tion of the proposed travel tax so as to eliminate from its coverage bona fide business travel. It would be in order, of course, to place the burden of proof on this issue on a potential taxpayer; however, since workable principles and standards in this area have already been established for purposes of the federal income tax laws, this should not be too difficult a problem either for the taxpayers or for the administrators of the program. Respectifully submitted, ROSENMAN, COLIN, KAYE, PETSCHEK, FREUND & EMIL. SERVICE TooLs INSTITUTE, New York, N.Y., February 28, 1968. Hon. THOMAS B. CURTIS, U.S. House of Representatives, Longworth Building, Washington, D.C. DEAR CONGRESSMAN CuRris: Since the present crisis In our balance of pay~ ments situation calls for immediate action to limit the outflow of Arnericam PAGENO="0351" 1129 dollars to foreign countries, we would like to bring to your attention a condition which is causing substantial amounts of U.S. Government funds to flow to foreign countries. We refer to the present tool buying policy which the Bureau of the Budget requires our Government's tool buying agency, the General Services Administra- tion, to follow. Under this policy, only a six percent differential in favor of domestic producers is allowed in contrast to a 50 percent differential in favor of U.S. manufacturers allowed by the Department of Defense. As a result of this inconsistent and unwarranted policy, many foreign producers are, because of' their low labor costs, able to obtain numerous large Government tool contracts, which otherwise would be awarded to domestic manufacturers. Due to heavy and increasing demands for tools for the Viet Nam War and the new Korean Emergency, Government procurement of hand tools is increasing substantially. Listed below are examples of recent large hand tool awards `being made by the GSA to foreign countries: GSA invi- Value of tation Product Date of award award in Awarded to- No. U.S. dollars 56385 Wrenches, adjustable November 1967_ $843,750 Japanese manufacturer. 56296 Round nose and lineman's pliers January 1968 41, 640 West German manufacturer. 56191 Engineers wrenches October 1967 80, 912 Do 56346 Pliers and nippers September 1967,._ 262, 000 Italian manufacturer. 56342 Shears and scissors November 196L - - 334, 576 Do 56343 do do 252,590 Do. 56534 Axes and hatchets February 1968 - - - 1 298, 000 West German manufacturer. 1 Approximate. Under the circumstances outlined above, we respectfully request and urge that an immediate effort `be made to have the tool buying policy of the General Services Administration changed from the present G% `buying differential in favor of domestic tool manufacturers to the 50% `buying differential in fav'or of U.S. producers allowed by the Department `of Defense. `We shall appreciate it if you will have this letter entered in the record of Hearings on the President's Balance of Payments Proposals now being conducted by the House Ways and Mean `Committee. `This urgent request is respectfully submitted in behalf of our member manu- facturers whose names and addresses appear on the attached list. Yours sincerely, GEORGE P. BYRNE, Jr., ~S~ecretary. LIsT OF SERVICE TooLs MANUFACTURERS A & E Manufacturing `Co., Ra'cine, Wise. Advertising Metal Display Co., Rein Line Division, Chicago, Ill. Apco Mossberg Company, Attle'boro, Mass. Apex Machine & Tool Company, Dayton, `Ohio. Armstrong Bros. Tool Co., Chicago, Ill. Baltimore Tool Works, Baltimore, Mci. Bergman Pool Manufacturing Co., Inc., Buffalo, N.Y. Boker Manufacturing Company, Sub- sidiary of New Britain Machine `Co., Maplewood, N.J. The Bridgeport Hardware M'fg. Div., Crescent Niagara Corporation, Bridgeport, Conn. C & G Wheel Puller Co., Inc., Scio, N.Y. Cameron Manufacturing Corp., Em- porium, Pa. Channello'ck, Inc., `Meadville, Pa. Cleco Division, Reed International. Inc.,, Houston, Pex. Cornwell Quality Tools Co., Magadore, `Ohio. Cres'cen't Niagara Corporation, Buffalo,, N.Y. Crescent Tool Division, `Crescent Niag- `ara Corporation, Jamestown, N.Y. Diamond `Tool & Horseshoe `Co., Duluth, `Minn. Dowley Manufacturing, luc., Spring Harbor, Mich. C. Drew & Co., Inc., Kingston, Mass. Duplex Manufacturing Corp., Fort Smith, Ark. Duro Metal Pr'oducts Co., Chicago, Ill. Fa'irmount Tool & Forging, Div. of Houdaille Industries, Inc., Cleveland, Ohio. Fleet Pool Corporation, Schiller Park, I'll. PAGENO="0352" 1130 LIST OF SERVICE TOOLS MANuFAoTu1~R5-Continued The Forsberg Manufacturing Co., Snap-On Tools Corp., Bridgeport, C'onn. Kenosha, Wis. Jo-Line `Tools, Inc., South Gate, Calif. Stanley Tools, Ken Tool Manufacturing Co., Akron, Div. of The Stanley Works, Ohio. New Britain, Conn. Kennedy Manufacturing `Company, Van Stevens Walden, Inc., Wert, `Ohio. Worcester, Mass. Mathias Klein & Sons', Chicago, Ill. Stream Line Tools, Inc., McKaig-Hatch, Division of Tasa Coal Conover, N.C. Company, Buffalo, N.Y. P. A. Sturtevant Co., Metal Box and Cabinet Corp., Addison, Ill. Chicago, Ill. Superior Tool Company, Midwest Tool & Cutlery Co., Inc., Cleveland, Ohio. Sturgis, Mich. Thorsen Manufacturing Co., Milbar Corporation, Oakland, Calif. Cleveland, Ohio. Torque Controls, Inc., Millers Falls' Co., So. Eli Monte, Calif. Greenfield, Mass. Union Steel Chest Corp., Moore Drop Forging Co., LeRoy, N.Y. Springfield, Mass. Upson Bros., Inc., New Britain Machine Co., Rochester, N.Y. New Britain, Conn. Utica Tool Company, Inc., Nupla Mfg. Company, Orangeburg, S.C. Los Angeles', Calif. Vaco Products Company, C. S. Osborne C'ompany, Chicago, Ill. Harrison, N.J. Vaughan & Bushnell Manufacturing Co., Owatonna Tool Co., Hebron, Ill. Owatonna, Conn. Vichek Tool Company, P & C. Tool Company, Cleveland, Ohio. Portland, Oreg. Waterloo Industries, Inc., Park Manufacturing Co., Waterloo, Iowa. Grant Park, Ill. Wilde Tool Company, Inc., Parker Manufacturing Co., Hiawatha, Kansas. Worcester, Mass. J. H. Williams & Co., Petersen Manufacturing Company, Inc. Buffalo, N.Y. DeWitt, Nebr. J~ Wiss & Sons Co., H. K. Porter, Inc., Newark, N.J. Somerville, Mass. Wright Tool & Forge Co., Proto Tool Company, Barberton, Ohio. Los Angeles, Calif. Xcelite, Inc., The Quality Tools Corporation, Orchard Park, N.Y. New Wilmington, Pa. Rosenberg Bros. & Co., Reed & Prince Manufacturing Co., Smithtown, L.I., N.Y. Worcester, Mass. S-K Wayne Tool Co., Sub. of Symington-Wayne Corp., Chicago, Ill. ABRAHAM & Co., lVew York, N.Y., February 7, 1968. Hon. WrI1Bui~ D. MILLS, Chairman, Covsm%ttee on Ways aiul Means, House of Representatives, WasM~ngton, D.C. DEAR MR. MILLS: My continued concern for this country's Balance of Payment problem is well known to you. You will recall my repeated testimonies before your esteemed committee in which I gave wholehearted support to steps to be taken to increase participation by foreigners in the United States securities markets, especially on the basis previously proposed by Secretary Fowler in the "Fowler Report". You will, therefore, understand my desire to assist with proposals in restricting American tourist expenditure. Allow me, however, to call to your attention that the methods of restraint through taxation of spending at graduated rates is cumbersome. It will be difficult to administer and must invite wholesale evasion. I warned `at `the time of the original Interest Equalization Tax that loopholes PAGENO="0353" 1131 exist and will provoke evasion. I refer to my appearances before your Com- mittee In 1963, 1965, February 17, 1967 and July 17, 1967. The subsequent changes in the Interest Equalization Tax have proved that my warnings, based on many years of experience both here and abroad, were justified. I believe we should he aware of the expenditure involved in policing, collecting and enforcing snch ill prepared deterrent. As you' have previously asked me If I could suggest something better, I give you an alternative which I consider constructive: A fl~ved ta,a~, say 30% on tickets for all foreign travel outside tihis hemisphere should be levied. Payees should have the right to reclaim part or the total of the 30% for exempt travellers such as students, businessmen travelling for the purpose of producing foreign exchange, sick people on doctor's certificates, etc. I feel confident that such procedure will be most effective in. providing the desired restraint and will act at the same time as a deterrent for unnecessary travel. The present proposal is too tempting for too many people to make use of loopholes. In fact, the present proposal will create a black market in dollars abroad wMch would undermine further the financial prestige of the Tjivited states. It appears to me that there is a certain similarity between the Interest Equalization Tax and the present proposed ti~ivel tax, and we thus have an opportunity to avoid past mistakes. I would appreciate your including this letter in the record of the hearings on the travel tax. Yours respectfully, HENRI L. Fnor, Partner. AMERICAN SocIETY OF TRAVEL AGENTS, INC., HAWAII CHAPTER, February 29, 1.968. Hon. WILBUR P. MILLS, Ckair~~nan, Ways and Means Committee, House of Representatives, Washington, D.C. DEAR MR. CONGRESSMAN: `The enclosed Resolution is forwarded to you with the urgent request that you oppose the Treasury Department's plan to have a travel tax imposed upon Americans traveling outside the Western Hemisphere. This Resolution was adopted unanimously at the February 27th meeting of the Hawaii Chapter of ASTA and allied persons in the travel and transportation industry. The travel and transportation industries have pledged their fullest support to the `proposals of the Special Presidential Task Force for the encouragement of travel in the `United States by tourists from abroad as a means of easing the balance of `payments problem. We respectfully solicit your support of these proposals `as an alternative to the restrictive program proposed `by the Treasury. Anything you can `do will be greatly appreciated. Very truly yours, (Mrs.) MARY K. ROBINSON, President. RESOLUTIONS PROTESTING THE TREASURY DEPARTMENT'S PROPOSALS To RESTRICT TRAVEL OF AMERICAN CITIZENS OUTSIDE THE WESTERN HEMISPHERE Whereas, on February 5, 1968, the Secretary of the Treasury submitted to the House Ways and Means Committee of the United States Congress proposals for legislation which would restrict travel outside the Western Hemisphere of residents of the United States, and Whereas, one of such proposals would tax such travelers spending from $7-$15 per day at 15%, and above $15 per day at 30%, and Whereas, this proposal, if enacted into law, would strike hardest at the middle and lower income earners, effectively checking the movement and spend- ing abroad of United States residents; it would not deter higher income travelers, but would curtail travel by students, teachers, clergy, retired persons and the average citizen unable to afford the increased costs, and Whereas, the mandatory declaration of how much money is being taken out of the country and the need to account for it on return would subject travelers to a burdensome and Intimidating mass of paper work and the threat of penalties and fines for failing to accurately assess or report expenditures, thus making It 89-749-68-pt. 3--23 PAGENO="0354" 1132 obvious that the intent of these proposals is to ban travel outside the Western Hemiephere and not just to deter travel, thereby curbing the free movement of a free people, and Whereas, the proposed travel tax represents an abridgment of the historic liberty of Americans to travel freely to the destinations of their choice and would effectively isolate Americans from the cultural traditions which are a treasured element in the nation's heritage; and Whereas, the proposed new tourist tax would make a mockery of the estab- lished principal of voluntary compliance of taxpayers, because if Americans are to be asked to estimate their travel expenses and are made subject to spot checks to determine just how much money they are taking with them, they will inevitably fall into the kind of evasive practices that has become almost normal in some other countries, and such a result could thoroughly undermine taxpayer morale and morality, and Whereas, the administration proposal would be expensive and ineffective as well; it would inevitably create the need for a `arge government bureaucracy maintained at additional costs to the taxpayer and would almost surely result in retaliation through similar restrictions by foreign governments, even to the extent of outright prohibition of t~ieir citizens to travel to the United States, and Whereas, the Special Presidential Task Force under the chairmanship of Robert M. McKinney has proposed some far better ideas than the travel tax to ease the balance of payments problem, which proposals would increase tourism to the United States as the soundest means of resolving our present balance of payments deficit, and Whereas, such proposals would have behind them the full resources of the travel industry and would embody the positive principal of encouragement to travel instead of the negative approach by the Treasury Department. Therefore, be it resolved: 1. That the undersigned do protest the proposed travel tax and urge the Congress of the United States to decline to enact legislation putting it into effect. 2. That the administration abandon its proposals for the restriction of travel, and instead adopt the recommendations of the Special Presidential Task Force to attract foreign visitors to the United States and otherwise promote a posi- tive encouragement of travel. 3. That copies of this resolution be forwarded to Senators Fong and Inouye, Congresswoman Mink and Congressman Matsunaga urging them to assist in pre- venting the restrictive tax, and to aid in the positive encouragement of foreign visitors to this country. [The Resolution was signed by 02 individuals representing numerous travel and related businesses.] Am, LAND, SEA, ThAVEL AGENOY, Little Rock, Ark., February 14, 1968. Mr. Wmr~mn~n D. MILI~S, Committee On Ways and Means, TVaskington, D.C. Dn~n Mx. MILLS: Never having the opportunity to meet you personally, I feel that I know you from the numerous times that I have voted for you and we have many mutual personal friends-namely Dr. Bob Robins for one, whom I have heard speak of you on numerous occasions, HOWEVER, this is the first time that I have had occasion to send an official letter to you regarding a problem close to my heart since it affects so many of us small business people directly to the extent that we could be put out of operation should the Fowler Proposed Tax on Travel go into effect. As a Travel Agent, we have such a small number of members as a whole, that I realize we carry no weight as a group, but when you take into consideration the other business associated with Travel who would be involved not to mention the people who book our services, it seems highly unfair and certainly not our usual Democratic Way of Life to be told WHERE, WHEN, and HOW MUCH we can spend on the Vacations which some of us work for years to enjoy that TRIP OF A LIFETIMB-namely EUROPE. Should the tax go thru, it will make people who want to avoid the tax simply purchase their tickets thru Canada or Mexico Offices, whom we have been informed are already set up to handle tickets for U.S. Travelers to avoid the Tax. PAGENO="0355" 1133 Right at a time when it seenis that our Public Relations with all foreign coun- tries is at a low ebb, we should be doing something to build up our Image instead of further making more complicated situations World wise as Mr. Fowler's plan recommends. Thanking you for all the help you can give us in this trying matter, we are, Sincerely,. FAYE FREEMAN, Owner. ARDUNN TRAVEL, INC., Pasadena, Calif., February 14, 1968. Mr. WILBUR P. MILLs, Chairman, Committee on Ways and Means, 1102 Longworth House Office Building, Washington, D.C.: We are opposed to Mr. Fowler's Travel Tax proposals, because `this legislation: 1. is restrictive, punitive, unjust, self-defeating and may well be unconstitu- tional. What is needed are constructive ideas, not restrictive measures, 2, is unenforceable, unworkable, requiring a large apparatus to cope with the complex paper work and an immeasurably larger bureaucracy to administer. In the end it will cost more taxpayer's money than will be gained. 3. is discriminatory, based upon misleading statistics and is against the Amer- ican principles of free movement. 4. is a shortsighted expedient which will not solve the payments imbalance but will create serious problems by curtailing the purchasing power of Foreign Countries and Carriers for American products, such as aircraft (2.5 billion worth on order at the present time!) components, electronic equipment, etc., 5. will provoke retaliation from other Governments by blocking purchase of U.S. Products and impeding their Nationals from travelling to' the U.S.A. (Foreign Travelers spent almost 1.9 billion for U.S.A. Travel in 1967 the highest ever recorded), 6. in the end, with its far reaching consequences, might produce an even greater imbalance of payments, 7. threatens the livelihood of hundreds of thousands of U.S. Citizens and Taxpayers presently employed in the Travel, Transportation, and Aircraft Industries, etc. RICHARD DUNN, President. AnT's TRAvEL BUREAU, Richard, Calif., February 26, 1968. Mr. WILBUR P. MILLs, Chairman, Committee on Ways and Means, 1102 Longworth House Office Building, Washington, D.C. HONORABLE Sm: We wish to protest Mr. Fowler's travel tax proposed legisla- tion, which we understand will impose: (1) A permanent tax on international air transportation and certain inter- national water transportation (2) A temporary graduated tax on expenditures in connection with travel out- side the Western Hemisphere. We oppose this because the proposed legislature is discriminatory and unjust and may well be unconstitutional because it is unenforceable, unworkable and leaves too many restricted movement because it is against the American principle of free and unrestricted movement because it is a short-sighted expedient which will Rot solve any problems but rather create more serious problems in the future The livelihood of our 200,000 citizens is in danger, the rights of millions of Americans are in jeopardy. Mr. Fowler's proposals are a confession of failure, the failure of the Treasury Department to cope with the imbalance problem in a constructive manner. We submit the above as a formal protest because as Chairman of the Ways and Means Committee we know that you want to know the feelings of people directly concerned with this legislation. Sincerely, ARTHUR BARKOFF, J~MILIE V. BAJSKOFF, IIILDA JORY, M~&r~xA CARDOSA. PAGENO="0356" 1134 ATJEEBAOU TRAVEL SF~RVIOE Easton, Pa~., February 20, 1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, 1102 Longworth, House Office Bu'i~1d~g Wash'tngton D U DEAR MR. MILLS : We would like to register with you our adverse criticism on Secretary Fowler's proposed travel tax program. ( 1 ) The program is restrictive punitive and self defeating (2) Because of the incredible complexity and amount of paperwork required of the traveler and the always present threat of possible penalties and fines it is apparent that the proposals have been designed to produce a ban on travel outside the Western Hemisphere-not just a travel deterrent (3) The proposal is discriminatory legislation based upon misleading statis- tics and strikes hardest at the middle and lower income earners by increasing their totil travel costs approximately 30 per cent It will also limit the vitally needed student and teacher educational travel by the excessive costs it imposes It will not deter the wealthy. (4) It will burden travelers and government with an interminable volume of paperwork that will be impossible to administer equitably and create a larger bureaucracy at additional cost to the. taxpayer. (5) Inevitably it will bring injurious retaliation through similar restrictions by foreign governments~-even to the extent of outright prohibition of then citizens to travel to this country (~) It would drastically reduce many countries' vitally needed tourist dollars they use to pay for U S goods and services thus affecting adversely our favorable overall trade balance (7) If enacted it would undoubtedly cause the cancellation of much of the almost 2 5 billion dollars in air craft orders placed with U S manufacturers by foreign carriers and cause substantial unemployment in the aircraft, components and electronics industry. (8) A further drain on the U.S. dollar position will be generally by the need tO replace tourist dollar earnings with greater foreign aid appropriations. (9) To the travel agent these proposals represent a threat to their existance. We have small and large groups to Europe whose cancellations would rock oui foundatons as we have expended money plus labor (equated with money?) for at least eight months developing the programs which our clients had requested from us. We are just small businessmen, supporting families on our commissions. Once we get cancellations on group programs, that we've spent hundreds of hours developing we can never get those hours back for productive work It will be a hopeless situation here~ (10) We have pledged enthusiastic support of: feasible programs to promote increased two-way tourism to the United States as an effective method to reduce this imbalance. We are participating in a cooperative campaign to bring more tourism to the U.S. A realistic 15 per cent increase in tourism to the U.S. is possible by this means and would provide positive assistance in i~educing the gold imbalance problem. Please have our sentiments made known to the proper places, Very truly yours, (Mrs.) L. Jo~cu GIBBONS, C.T.C., President BAT MAR TRAVEL SERVICE Corona del Mar, Calif., March 1, 1968. Mr. WILBUR D. MILLS, Chairman, Coni.nvittee on Wa'ys and Means, 1102 Longwortlv House Office Building, Washington, D.C. DEAR MR. MiiLs: In reference to Secretary of the Treasury Eo'wler's series of proposals intended to limit travel by Americans outside the Western Hemis- phere, I am opposed to any "Quickie" solution or any specified time limit for any taxes or restrictions. The situation did not arise `overnight and should not be expected to be corrected overnight And `as the entire deficit was not created by Americans traveling overseas neither should the correction of this deficit be expected by curtailing travel overseas by Americans It is wrong to compare the expenditures of American tourists abroad to the expenditures of foreign tourists visiting the United States True there are more PAGENO="0357" 1135 Americans traveling abroad than there are foreigners visiting the United States, but this is natural thing. After all, this is the United States of America, the bul- wark of freedom, and Americans all through history have been able to move about freely, while there were other nations who kept their people in. To merely subtract the income derived from foreign tourists from the outgoing expenditures of American tourists abroad does not give the true picture. Consid- eration should be given to the enormous amounts of money spent by foreign gov- ernments and foreign airlines in the United States to generate and promote travel. Most airlines buy their planes in the United States, and millions of dollars are spent in advertising and promotion in the United States. Thus, many industries would be adversely effected if overseas travel were curtailed. And, as many retail travel agents would be forced to do, we would be forced out of business which would mean five people other than myself would be seeking employment in another field or be unemployed. However, much more ini~portant is the ideological aspect. Freedom of move- ment . . . Travel . . . is an inalienable right of the free man. Travel is no more the rich man's pleasure. It is now in the realm of the common man. It may be recreation . . . but, recreation of spirit and mind, broadening and enriching one's mind. It comes in the same area as reading, listening to music, etc., and one cannot imagine curtailment of these things . . . in other words, curtailment of education. Thousands of students and teachers travel, and who would think of curtailing education in the broader sense? Another aspect is that the United States Government spends money on the United States Information Service, the Peace Corps, etc., all necessary to tell the true American story abroad. In the past American tourists may have run up against criticism here and there, which is normal among human beings, hut do not underestimate the knowledge they have spread abroad about life in the U.S.A., if it was only because `of personal contact. In dealing with our clients we have always promoted the idea, "Travel is the Passport to Peace". In this shrink- ing world of ours, where we. are already reaching out into space, it is inconceiva- ble to stop free men from meeting each other. In endeavoring to combat the so-called travel deficit, the only healthy manner is to step-up the good wo'rk of `the U.S. Travel Service by giving them a much larger appropriation in order to promote tourism towards the United States on a much larger scale. And here, too, it is not just economics. It is extremely impor- tant for the United States to have more foreigners visit the country to see for themselves what American life is all about, instead of only deriving their infor- mation about the U.S. `through often misinformation and nlanted news reports. There should be more services established to provide ease of travel for our foreign visitors, which would employ many foreign speaking people not presently employed, or not employed where they are using this knowledge and ability. Again, I urge extreme caution in the approach to this matter. After al1~ hitting the travel industry is hitting human beings. Tourists cann'ot be thrown in the same baskets `as commodities. Respectfully submitted, Miss GENE TAYLOR, Manager-Partner. BLAOKSPONR VALLEY TRAVEL SERVICE, WhitinsviiZe, Mass., Febri~ary 17, 1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, 1102 Longwortlv Ho~use Office BwUding, Washington, DC. DEAR Sin: This letter is a formal statement of protest against the proposed legislation to restrict travel. It is my feeling that any retention of dollars due to these restrictions will be m'ore than offset by losses in exports and losses in dollars spent In this country by foreign travelers. I would respectfully like to submit the following proposal to correct the balance of payments deficit: 1. Encourage foreign travel in this country by increasing the advertising budget to promote this travel. 2. Stop giving away dollars in our aid program as it seems to me it is better to let countries earn dollars than giving them to them for nothing. PAGENO="0358" 1136 In conclusion, I feel that the mood of the country indicates `that Congress will be repudiated in November for any restrictions which it may see lit to make at this time. Very truly yours, Gzonaz M. KTJRZON. STATEMENT OF JIM HERMAN, COSTA MESA TRAVEL AGEr~CY INFORMATION AND SUGGESTIONS REGARDING SECRETARY OF TREASURY FOWLER'S PROPOSAL FOE TRAVEL RESTRICTIONS I. The administration's progra~n for reducing the $2 billion drain generated by American tourists, was pro'bably devised with the best of intentions. Despite some good features, this proposal has some very serious defects. The lowering of duty-free allowances may be considered as reasonable. The 5% travel tax is negative, but this item is open to question. But the proposed tax on expenditures while out of the country is, in our considered opinion, definitely not right, for reasons listed below: II. Repudiation of owr ltistorie right to travel freely, as repeated many times in administration statements: ie :-~President Johnson, in commending the desig- nation of 1957 as International Tourism Year, said: "The principle of two way travel and of unhindered access by the citizens of all countries to all other coun- tries was reaffirmed and strengthened". Vice President Humphrey, in an address last May said; regarding the "Dis- cover America" movement, "despite the pressures which continue on our balance of payments, we shall continue to resist any restrictions on the right of our people to travel where they choose". Other similar statements have been made by various spokesmen of the administration. The administration should be consistent, period. We cannot encourage travel to America by those living overseas by restricting our citizens from travel to other countries. III. Misleading statistics.-The claimed travel deficit-$2 billion. Travel to Canada and Mexico account for almost half of the amount. (One may visit these countries with the administration's blessings). Certain essential business travel further reduces the gap of "tourist sipending". The travel of dependants of military personnel needlessly stationed overseas, could be eliminated by sta- tioning the military in the U.S. (Modern aircraft make Europe only a few hours away in the event of crisis, and the relocation of military payroll would practi- cally eliminate the dificit). IV. During the period 1946-1966, seventeen European airlines reported net passenger sales in the U.S. of 2.079 billion. In this same period, these same air- lines spent 2.572 billion in the U.S. for aircraft, engines and spare parts, which gave the U.S. a favorable trade balance of $479 million on these three items alone. Last year, 1967, all foreign airlines spent almost $1 billion on U.S. aircraft, components and navigational devices. The amount paid by U.S. citizens to foreign carriers, over the amount paid to U.S. Flag carriers for foreign travel was only $580 million. Thits, the actual balance of trade on these items mentioned above was $341 million in our favor. Possible retaliatory meam~ures could include: Undoubted effect on $2.5 billion in aircraft orders from the U.S., which con- servatively will cost in the area of $400 million. The obvious result would mean a con%siderable amount of unemployment, effecting all parts of our country. V. Purchase of tickets in other countries.-(Mexico and Canada)-In order to avoid taxes on air and steamer travel, and the possible tax for expenditures overseas, some passengers may cross our border and buy their trickets. Although some form of control might be attempted, there is some question as to how enforcible it might be. Quite a number attempt to cheat on income tax declara- tions. Why not do the same with travel declarations? VI. Cost of Administration-An enlarged bureaucracy would be necessary, piling an additional burden on the taxpayers. VII. Difficulty for traveler-The proposed form that the traveler would have to fill out (in spite of Mr. Fowler's statement that it is simple), is unbelievably complicated. One would practically need an accountant to accompany him on his trip in order to conform with the requirements as stated. Again, more bureau- cratic personnel to administer, would be necessary. VIII. The proposal probably would.-Create more problems in the future. By retaliation as mentioned before (Public Library statistics, as of February 8, PAGENO="0359" 1137 1968, show that as of March 1967, approximately `4,168,000 U.S. citizens were directly connected With the travel industry). There are many other thousands connected indirectly. If the propO'sal is passed, more than half of these people could conceivably be'~o'me unemployed. Also,' might mean necessity of increasing foreign aid, and aforementioned possible illegal purchase of tickets outside of the country. XI. Government aid in development of super-sonic aircraft-How can we rec- oncile the government's pledge of $1.2 billion for the development of a super-sonic air transport, which can only be justified in terms of a huge expansion of Ameri- can tourist travel abroad? X. Military spending in Europe.-At least 3 to 1 more than tourist spending. Why leave troops and dependants in Europe, a tactic which dates back to World War II, and is now unnecessary? In line with this, most of our embassies are overstaffed. We have been told that our Embassy, Consulate and information service in Rome has over 1000 employees. (A point that we cannot verify). XI. Positive suggestions.-(1) See statements attached, in which both foreign airlines and steamship companies verify their positions on balance of payments. Lufthansa German AirlinesL~_"every cent of every dollar in revenue, earned by Lufthansa in the U.S. is being retained in the U.S." (2) Swedish American Line- "During 1967, Sweden spent $135,000,000 more in the U.S. than the U.S. spent in Sweden-58.74% of revenues spent in U.S." The Swedish American Line has quite a successful "Visit America" program. And (3) to quote Scandinavian Airlines pledge to Mr. Fo'wler (boiled down version), S.A.S. has already invested more dollars in the U.S. than it has earned during the last two decades. Also, we have orders pending for about $200 million in new American aircraft". They too have a "Visit America" program, and point out than Scandinavia brings in more dollars to the U.S. than it takes out. 60,000 Scandinavians' visited America in 1966. Without our tourist dollars, they claim that they could r~ot continue to buy so much from America. They support the U.S., and do not participate In the "drain gold" philosophy. S.A.S., Trans~World Airlines and other trans- Atlantic carriers have proposed a low directional fare from Europe to the U.S., to further encourage travel in our direction. XII. Use of foreign currencies.-We understand that $1.4 billion in foreign currencies is now in the U.S. treasury, and we have U.S. funds in countries overseas that might be made available to U.S. tourists. The red tape involved in purchasing our `counterpart funds' from our embassies abroad is too time con- `suming and difficult to make this worth while. XIII. Visit America Program-We believe that a substantially expanded pro- gram of reduced directional fares would do much to increase travel to the U.S. Also, the Congress and Ways and Means committee might do well to consider the proposal by Congressman Ruess to establish a joint industry/government incen- tive travel stamp program, providing for reduced rate travel and accommodations in the U.S. for foreign visitors. The domestic air carriers as well as the overseas airlines have indicated a desire to go along with this idea. XIV. The special government/industry report-Called for by President John- son in early 1967, Task Force appointed in November of 1967, and told to have interim report ready by February 15, 1968. As Senator Javits said, "instead of waiting for the report so that it could be considered concurrently with that of the treasury department, the department presented its testimony on February 5 on restrictive measures on travel just ten days before the Task Force's first report was due. This makes no sense to me", the Senator said. "Before restric- tions are called for, he added, every conceivable positive measure should be tried. Restrictions on travel are self defeating", etc. XV. Conclusion.-Our barriers will bring retaliatory barriers-our restrictions will bring retaliatory restrictions and not only will our tourism earnings fall, but our favorable trade balance will be in jeopardy, and possibly eradicated. The discriminatory, self-destructive proposals must be overwhelmingly re- jected by an aroused public and Congress, arid productive alternatives adopted. Crioww TRAVEL COORDINAVOR5 INC., South Pasadena, Calif., February 13, 1968. Mr. WILBER D. MILLs, Chairman, The House Ways and Means Committee, Washington, D.C. DEAR MR. MILLS: This is by way of a formal protest statement with reference to the Travel Tax proposals `subject to a public hearing by your committee next PAGENO="0360" 1138 month. We are opposed to the legislation for a number of reasons but primarily the following 1 The livelihood of at least one quarter million citizens engaged in the trans portation industry will be in danger 2 The rights of millions of Americans are in jeopardy 3 These same Americans should not be made to pay for the failtue of the Treasury Department and the U S government to cope with the inbalance prob lem in a constructive manner 4 It is against the American principal of free and unrestiicted movement 5 It is an unworkable solution 6. It is a discriminatory legislation and is in all probability unconstitutional. May we go strongly on record as objecting most vehemently to any affirma- tive votes on this legislation. Sincerely yours, ESTELLE MARTENS, President. DAUGHERTY TRAVEL AGENCY, Allentown Pa February 12 1968 Mr. WILBUR D. MILLS, Cha4rnian Committee on Ways and Means 1102 Longwortlb House Office Building Washington 1) C DEAR ChAIRMAN Mn~Ls The restricting of travel by American by way of a travel tax is a most discriminatory and unjust restriction, not only from my viewpoint as a travel agent, but from the viewpoint of the general traveling public. The well-to-do will find means of éircumventing the tax; the average American will be the one to suffer. There are alternative means of dealing with the balance of payments deficit without seeking out one segment of American business Please accept this letter of protest from this travel agency and its many many clients and include it in the official records of the hearing Very truly yours, F. W. DAUGHERTY, Jr. EMCOR TRAVEL, INC. New York, N.Y., February 29, 1968. Hon. WILBUR D'. MILLS, Chaitrman, Committee on Ways and Means, House Office Building, Washington, D.C. DEAR MR. CHAIRMAN: As President and Owner of a typical Retail Travel Agency, I would like `to direct to the attention of your Committee a brief sum- mary of wh~t seems to be the reactions of our clients to a. travel tax, as well as. our own thoughts. I have read so much that has been accurately reported and already filed with your Committee that I hesitate to add to the volume How ever if I may be permitted to summarize a few points I would be most grateful 1. 5% &iles tao, on all tra'vel tickets.-Everyone will go along with this tax, happily so feeling they are helping out provided this tax is applied without excep~- tions save Federal Employees traveling on Government assignments Yes this means no more tax free foundations moving large charter groups without a `travel tax, churches, educational people et al. ALL or NONE. 2. Total opposition to a head tao, or restrictive money measures.-No one is convinced this type of taxation or restrictions is necessary and that the govern- ment should look to far more expensive, wasteful programs `to cut than this. 3. Equality of tao,ation as to income.-Not possible. Travel' is not compulsory and no money is spent on private travel that has not already been saved in ad- vance and comes out of their disposeable income After people have paid their annual tax bill and have managed (often by absolute personal sacrifice) to have a few dollars left over, they are not going to be cooperative in declaring this money to government agents. The resentment on this item is amazing and vicious. 4. Conclusion.-Compiling all the statements regarding the pros and cons, coupled with the actual need versus the whipping boy attitude on the Travel Industry and all its multi parts my humble recommendation to your Committee would be to report out a fair (no exemptions) tax on travel tickets and leave the rest alone. Thanking you for your kind attention I remain Respectfully yours HARRIETT EMERSON (Miss). PAGENO="0361" 1139 Evmx~ Sc~IEYin~ TRAVEL Snavicn, INC., New York, N.Y., February 19, 1968. Mn. WILBUR D. MILLS, Chairman, Committee on Ways and Means, 1102 Longworth House Office Building, Washington, D.C. DEiUI Mn. MILLs: It is our urgent concern that the new legislation proposed by the President to tax travel, and the amount of money one spends outside of the country, be completely eliminated for several reasons: (1) It is patently discriminatory, and a few people are being asked to bear the burden of many. (2) It is an impossible law to enact, because of the extreme difficulty in the udministration of it. (3) Every American traveler will turn to devious means to avoid paying any taxes, including the easy one of traveling to Canada before leaving the United States. (4) A tremendous burden will be put on the travel business, as well as the airlines and aircraft industry. (5) It squelches what we believe to be an American birthright-free and unrestricted travel throughout the world. We earnestly hope that your committee will not give the President this legisla- tion which be has proposed, and that a more reasonable answer may be found to bring this country back to a stable economy. Very cordially, FEED DEL Pozzo. EVERGREEN TRAVEL SERVICE, Lynwood, Wash., Februciry 22, 1968. Re proposed travel tax legislation. Mr. WILBUR D. MILLS, Committee on Ways and Means, Longworth House Office Building, Washington, D.C. DEAR MR. MILLS: We are opposed to the proposed travel tax legislation for the following reasons: The Proposed legislature is discriminatory and unjust. It is against the American principal of free and unrestricted movement. It is short sighted expedient which will not solve any problems `but rather create more serious ones in the future. The livelihood of `our 200,000 citizens is in danger. The travel deficit has not been computed correctly. N~t included on the PLUS side has been the money spent by foreign countries for aeroplanes, parts, adver- tising in this country, airport charges, communications and commissary expenses, by foreign tourist offices. Equally signifidant (and not included in the government report) the more than $127 million spent and `earned by `domestic airlines from passengers on connecting flights to foreign countries. I am in favor at restrictIng or doing away with completely for the present time the $100000 allowed exemption on merchandise brought into the United States from foreign countries, as well as the $10.00 daily gift allowance. I propose that we do `as Great Britain has done. Allow our clients to prepay in full for all hotels, meals, sightseeing, tips and airfare, and take only a small amount out of the country for spending money. May I respectfully request that your committee carefully consider the damage that will be done to the travel agents througitout the country. This' propoSal will deliberately put out of business many companies. Sincerely, BETTY J. HOF~VMAN, Owner-Manager. FUN TRAVEL SERVICE, Puyaflup, Wash., February 15,1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, U.S. House of Representatives, Washington, D.C. DEAR SIR: With reference to the proposed legislation concerning (1) a perma- nent tax on International air transportation and certain International water PAGENO="0362" 1140 transportation, and (2) temporary graduated tax on expenditures in connection with travel outside the Western Hemisphere, I wish to emphasize, after httving discussed this with fellow members of my profession and many members of the general public completely divorced from my profession, that I am unalterably opposed to this legislation for the following reasons: FORMAL STATEMENT 1. The proposed legislation is discriminatory and unjust and may well be unconstitutional. 2. It is u~nenforceable, unworkable and leaves tioo many loopholes. 3. It is against the American principle of free and unrestricted movement. 4. It is a short-sighted expedient which will not solve ~ny problems but rather create more serious problems in the future. 5. The livelihood of our 200,000 citizens is in danger, the rights of millions of Americans are in jeopardy. Mr. Fowler's proposals are a confession of failure, the failure of the Treasury Department to cope with the Imbalance problem in a constructive manner. I trust that this protest will be properly channeled to create its most effective impact on your committee's weighty decision. Respectfully submitted, JOHN P. MADDEN, Eo,ecutive Manager. GELSTON JUDAH TRAVEL ADVISORS, &zn Francisco, Calif., February 19, 1968. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, U.S. House of Representatives, Longworth~ House Office Building, Washington, D.C. DEAR MR. MILLS: In your consideration of the Secretary of the Treasury's travel tax proposal, which I understand is due presently for a public hearing by your Committee, I should like to go on record as being completely opposed to any such legislation as proposed by Mr. Fowler for the following reasons: 1. The proposed program is discriminatory and unjust, based upon inaccurate and misleading statistics, and in this writer's opinion it is unconstitutional. 2. The proposed program is unenforceable, unworkable, and leaves many loop- holes. To illustrate: If travel within the Western Hemisiphere is permitted with- out penalty of tax, what is to prevent both travelers and business enterprises to remove their physical goods and selves to other geographic areas within the Western Hemisphere where valid U. S. passports are not required, then at these points complete arrangements to points abroad, resulting in a TOTAL loss of business from the approximate 6,000 to 7,000 travel agencies within the U.S.A. Who either will be forced out of business or who will close their offices within the U. S. and remove their business to such points as Canada, Mexico, The Bahamas or the Central American States further eliminating a prosperous business enterprise from the American Scene. 3. The entire act is in contradiction to the American principle of free and un- restricted movement. It is an isolationist act which will reduce any hope of world peace through knowledge of and mutual understanding of other people, and will bring the United States into a new period of Dark Ages, wherein truth and knowledge are buried by bureaucratic confusion. 4. The proposed legislation is a short-sighted measure which will not solve any problems but rather will create more serious problems in the future. Consider the type of policed state we would be headed for should any part of this proposed legislation be enacted. 5. The waves which ultimately will be generated by the enactment of such legislation, the chaos and disaster will be unthinkable. The livelihood of 200,000 citizens is in danger, the rights of millions of Americans are in jeopardy. So that you may know that President Johnson and the Secretary of the Treasury already have brought irrepairable hardship to my own business and to the travel In- dustry in general, I am attaching herewith photostatic copies of letters of can- cellation which I have received from long-time clients whose continued patronage is the backbone of my business. I have figured the proposed tax on one of these tours alone, which would have come to $1,914.83! Obviously, any law-abiding citizen who is Lu a position to take PAGENO="0363" 1141 annual holidays of this caliber already is contributing taxes at the 50% level, or higher-further taxing already taxed dollars to the extent proposed can only be classified as a new 20th century form of SLAVERY. I am ashamed to think our Head of State to be such an introvert as to propose to our Congress legisla- tion which can bring nothing but disaster to the American people. Further cancellations continue to be made in person and by telephone. New business is at a complete standstill. Rather than promote further failure by our Administration and Treasury De- partn~nt's inability to cope with the imbalance problem, it is this writer's opinid~ that immediate and constructive action should be taken to promote travel within the United States by foreign nationals by decreasing red-tape in their obtaining temporary tourist visas or tourist cards for travel within the U.S.A., by promoting a positive program to attract citizens of those countries who presently do have the monetary ability to visit the United States but who do not have the desire to come to know us because the promotion of our own national product abroad is lacking. It is my understanding that during the year 1967 the Province of British Columbia, Canada, spent in excess of one million dollars in the pre- motion of tourism to that Province alone from points within the seven western states, whereas during the same period the entire budget for the Visit U.S.A. prograpi spread among the ENTIRE WORLD was only slightly in excess of this one Canadian Province in its promotional efforts directed to one sectional area alone of the United States. How can we hope to maintain cordial relations with the rest of the world without the assistance of Congress and our Chief of State? Let us continue together in positive actions to bring our nation in tune with the rest of the world, and not regress to a negative path of action. Yours sincerely, GELSTON C JIJDAH, President. HOLIDAY TRAVEL Suaviox, Inc., Evansville, md., February 17, 19438. Mr. WILBUR P. MILLS, Chairman, Committee on Ways and Means, U.S. House of Representatives, Long~ worth House Office Building, Washington, D.C. DEAR MR. MILLS: I would like this to be considered a formal request to you and your committee to oppose the Travel Tax request from Mr. Fowler of the U.S. Treasury Department. As a spokesman for a suffering, under-paid industry, I feel as though you and your committee have not been told the truth about the deficit in the balance of international payment and spending. I have taken numerous trips abroad. I have talked with hundreds of others who have taken trips abroad. Not in one single case have any of us been asked, by any government, including our own, "how much money did you spend on your trip". Without this information, who can give an accurate figure on the deficit in travel spending? Instead, they, the Treasury Department, seemingly "reaches into the bat and pulls out any convenient figure to match or meet their needs". I for one, feel as though this proposed Travel Tax will make our friends to the north (Canada) one of the most prosperous nations in the world, if this tax is passed. We will see a mass exidous to nearby Canadian cities, where our people will purchase their travel requirements without tan. Then what have we as a nation gained? Please, please, please, do not pass this Travel Tax. Nor use it as an appease- ment to our President for other tax measures he asked for and was not granted. Sincerely yours, JAMES L, WILLIAMS, President. INPRRNATIONAL TRAVEL AGENCY, Mount Clemens, Mich., February 17, 1968. Mr. WILBUR P. MILLS, Chairman, Committee on Ways a~nd Means, U.S. House of Representatives, Long- worth House Office Building, Washington, D.C. DEAR ML MILLS: As just a small independent businessman and Travel Agent I would like to protest legislation that is under consideration by your committee. This legislation which would impose a graduated tax on expenditures in con- PAGENO="0364" 1142 nection with travel outside the western hemisphere, if passed, will impose an almost unbearable burden on the small agent like myself. As we see this, such legislation is discriminatory to only one small segment of the whole balance of payments problem. Also it is unenforceable with many loop- holes for the ones you are trying to reach. In all the history of this country there has never been any attempt to deprive Americans of free and unrestricted movement. Although I do not believe you will accomplish your objectives of restricted movement, you may well in. the process eliminate just one more small Ie~siriess like ours. I urge your committee to respond to this sincere plea an~ table permanently any such discriminatory legislation. Very Sincerely yours, M. W. CHAMBERLAIN, Partner. L-D TRAVEL SERvICE, Denver, Cob., February 13, 1968. Re travel tax proposals. Mr. WILBUR D. MILLS, Chairman, ComnUttee on Ways and Means, U.S. House of Representatives, Long- worth House Office Bu4bding, Washington, D.C. DEAR Sm: As a member of the Association of Retail Travel Agents, the pro- posed legislation which concerns us primarily comes in two parts: (1) A permanent tax on international air transportation and certain international water transportation; (2) A temporary graduated tax on expenditures in connection with travel outside the Western Hemisphere. We are opposed: Because the proposed legislature is discriminatory and unjust and may well be unconstitutional; Because it is unenforceable, unworkable and leaves too many loopholes; Because it is against the American principle of free and unrestricted movement; Because it is a short-signed expedient which will not solve any problems but rather create more serious problems in the future; The livelihood of our 200,000 citizens is in danger, the rights of millions of Americans are in jeopardy. Mr. Fowler's proposals are a confession of failure, the failure of the Treasury Department to cope with the imbalance problem in a constructive manner. Very truly yours, MARY 0. VENABLE, President. MARGARET CHASE TRAVEL SERVICE, Phoenia,, Ariz., February 27, 1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, U.S. House of Representatives, Longworth House Office Building, Washington, D.C. DEAR MR. Miu~s: We are opposed to the proposed legislation which would tax the traveler departing this country because: 1. It is discriminatory and unjust and may possibly be unconstitutional. 2. It is unenforceable, unworkable and leaves too many loopholes. 3. It is a short-sighted expedient which will not solve any problems but rather will create more serious problems in the future. 4. It is against the principle of free and unrestricted movement which is part of the American image and reality The few liberties we possess are being chipped away day after day. To tax foreign travel is to restrict it to some extent. This is alien to the Nation's purpose. Thank you for your courteous attention to the point brought out in this letter. Sincerely yours, MRS. VINCENT CHASE. PAGENO="0365" 1143 MEADOWBROOK TRAVEL AGENCY, East Meadow, N.Y., February 12, 1968. Re travel tax proposals. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, U.AS1. House of Representatives, Longworth Hone Office Building, Washington, D.C. DEAR Six: This letter is in regard to Mr. Fowler' tax proposal on a grad- uated tax on expenditures in conuection with travel outside the Western Hemisphere, which we are protesting. Very sincerely yours, MABIAN A. THOMPSON, Owner/Manager. MEBBIMAC TRAVEL, Lowell, Mass., February 38,1968. Re: travel ban. Hon. WIL13UR D. MILLS, House of Representatives, Washington, D.C. DEAR REPRESENPATIVE MILLS: As Chairman of the New England Agents com- mittee on travel liberty, I have done extensive research on the so called "travel gap." Since there are so many other gaps in the dollar drain, it is most un~ fortunate for the American Public that their rights to free movement are to be sacrificed for the sake of approximately 2 billion dollars, when we are spending 30 billion annually to preserve freedom in Viet Nam. Even if you enacted the punitive legislation that the treasury department Is advocating I am sure that by now, the press analysis which you would have read, has convinced you that the severe retaliation from abroad would cancel any savings you make. I have been further advised that EXPO 67 caused quite a bit of the imbalance. Anything enacted beyond the simple tax on an international ticket, would be folly. Even, this tax, would have to be assessed at departure on any ticket brought abroad to duck the tax, lest firms would have their international offices purchase their tickets abroad. Lest you feel that I am motivated by a self serving nature, please take cognizance of the fact that my business is predominantly domestic U.S.A. my nick name is Miami Mike, which would not find me international! My close knowledge of the problem motivates me. I am deeply concerned that the imprudent, ill-conceived, arbitrary piece of leg- islation that the treasury department has presented to you. It is the most fatal blow ever perpetrated on us American freedom loving people. The very punitive nature of it is without parallel In our history. Chairman Mills, I would not write you in this manner if I had nothing to offer! For two years I have anticipated this problem, and have been thinking out the solution for this time. It is not a panacea, but I know it will work, as well as you know your business. Here it is: The problem; There are literally hundreds of tours for U.S.A. citi- zens to visit Europe . . . stop In to any travel agent. There are virtually no tours for Europeans to come here. Why . . . the simple reason that 1. Agents are inhibited by a 30 year old rule, Sect. 211 of the I.C.C. act, prohibiting agents from running bus tours! 2. These tours, so set up, must have separate departures for each ethnic country abroad. We publish one tour of Europe, and it fits 200,000,000 Americans. To market abroad, we need one for each major country. In other words, asking Europeans to come here, without us having the goods, is folly. We must produce these ethnic tours, then market them. Not spend a fortune on U.S.T.S. when I can tell you truthfully, that the United States of America is not currently equipped with tours for these people. Please read the enclosed report [in committee file], with the understanding that, if punitive legislation is enacted on our travelers, the Europeans will just boycott us and compound the problem. We have been buying their good mill for years, why kill It now! Sincerely yours, MICHAEL A. SPINELLI, Owner. PAGENO="0366" 1144 STATEMENT OF ML JACK NELSON, PRESIDENT, NELSON TRAVEL SERVICE, SHAWNEE MISSION, KANSAS COMMENTS 1. Although loss of business is of concern, I am strongly opposed to the subject program because of the disastrous effect of such legislation on the U.S. economy and the American people. This has always been a nation of freedom of travel, as Well as expression, and such a program as proposed would restrict individual freedom. One immigrant was heard to say, "I came to this country in the first place for freedom because I was told where I could travel and when, back in Europe. But, now, there is talk of the same thing here." 2. The proposal is discriminatory legislation based upon misleading statistics, and strikes hardest at the middle and lower income earners by increasing their total travel costs approximately 30 percent. It will also limit the vitally needed stticlerti and teacher educational travel by the excessive costs it imposes. It will not deter the wealthy. 3. It will burden travelers and government with an interminable volume of paper work that will be impossible to administer equitably and create a larger bureaucracy at additional cost to the taxpayer. 4. It would drastically reduce many countries' vitally needed tourist dollars they use to pay for U.S. goods and services, thus affecting adversely our favorable trade balance. 5. If enacted, it would undoubtedly cause the cancellation of much of the al- most 2.5 billion dollars in aircraft orders placed with U.S. manufacturers by for- eign carriers and cause substantial unemployment in the aircraft, components and electronics industry. 6. A further drain on the U.S. dollar position would undoubtedly be generated by the need to replace tourist dollar earnings with greater foreign aid appro~ priations. 7. Since European travel is higher rated and higher commissioned than domes- tic travel, our sales would be reduced to the point where we would be facing a loss position, our federal income tax would be wiped out, and possibly our company. RECOMMENDATIONS 1. Feasible programs to promote increased two-way tourism to the United States, to reduce the imbalance of payments. 2. The organization of travel agents throughout the world in a cooperative campaign to send more tourism to the U.S. 3. The development of more low priced tours that will accent the possibility for a greater number of people to visit the U.S. All airlines, including foreign flag carriers, are now actively promoting this type of tourism. 4. Step up exports with the help of international airlines' marketing systems as well as those of the Department of Commerce including trade missions, export seminars, advice and counseL It seems fantastic that the business-men of our country, willing to travel to Europe to promote our exports, are now about to be penalized for doing so. `5. Re-examine the facts and figures supporting the statement that there is an imbalance of payments position with respect to Europe particular in view of the recent flood of direct mail brochures and literature received from the foreign flag carriers testifying to the fact that in their particular cases the imbalance is in favor of the U.S. ______ ONTARIO TRAvEL BUREAU, Ontario, Calif., February 13, 1968. Mr. WILBIJu D. MILLs, Ch,airman, Committee on Ways and Means, U.s. House of Representatives, Longworth House Office Building, Washington, D.C. DEAR SIR: The administration's proposed travel taxes should be soundly defeated. It is a slap in the face to any country Americans want to visit and will un- doubtedly provoke more "anti-American" feelings (which we have enough of now) and retaliatory measures by other governments to restrict their citizens from visiting the U.S. PAGENO="0367" 1145 In the over-all picture, we'll probably lose monetarily as well as in public opinion. Notice the "Back Britain" movement in England has already started. It probably was partially inspired by our wanting to curtail travel to England. Sincerely yours, DAVE FOHNSON, Owner. PENINSULA T~RAVEL Snnvicn, Monterey, Calif., February 15, 1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Mea~s, U.S. House of Representatives, Longworth House Office Building, Washington, D.C. DEAR MR. MILLS: This is a formal statement of protest against the proposed legislation of any restrictive tax on travel abroad by United States citizens. Treasury Secretary Fowler's proposals display a lack of knowledge or indif- ference to the actual monetary figures involved in the "travel gap", widely ad- vertise the economic misjudgment and inept stewardship of this administration and offer a myopic expedient which will create more monstrous problems to solve in the future. Mandatory controls on travel `abroad will be inequitable and disastrous for these, among many, reasons: 1. Collection, accounting and policing of revenues alleged to accrue from penalty taxes on foreign travel may cost more than the amount supposed to be saved. Mr. Fowler has not given an estimate of the cost of this proposed operation and the creation of another expensive bureaucratic pyramid may well be false economy. 2. Discrimination against the "little man" will `be most great. The "jet setter" and the businessman will be able to go wherever and whenever they choose or must, regardless of additional cost. The student, teacher and "save- for-a-lifetime" working man will be denied foreign travel because of increased cost. These latter are the segments of U.S. society which benefit most from travel abroad and contribute most effectively to show the benefits of U.S. democracy. 3. Circumvention of any tax, on the greater portion of foreign destination transportation will be possible for the determined traveler. The U.S. carriers and travel agents may well find themselves deluged for tickets to Canadian, Mexican,and Bahaman cities and for reservations (for which no revenue will be paid in the U.S.) from those cities to Europe, etc. This will be a boon to foreign carriers, penalize U.S. carriers, eliminate most U.S. travel agents from business completely and reduce revenue paid by foreign carriers in the U.S. for operational `costs and purchase of U.S-produced aircraft. 4. Many countries have a deficit to the U.S. of which these are but a few: Swedish-American Line claims that Sweden spends $140 million more in the U.S. than America spent in Sweden and that 49.44% of the Lines" U.S. de- rived revenues were spent in the U.S. for "supplies and operation expenses". Holland-America Line says "60% of dollars earned goes back to `the U.S. directly". Lufthansa claims to have spent more than 550 million dollars on American aircraft since 1955 and has contracted for. future delivery of over 130 million dollars in American-built aircraft. In addition, it claims th~it every dollar earned `by Lufthansa in the U.S. is retained in the U.S. 5. A travel tax is discriminating against one segment of international trade. When should there be a travel balance but no coffee, tea, steel, petro- leum, etc., balance? The deficit figures on these items alone would be most revealing to the taxpayer. We offer a few positive and more workable suggestions to eliminate a travel deficit. 1. Utilization of "counterpart funds"-the reserves abroad in foreign cur- rency owned by the U.S.-to launch large-scale promotions of travel to the U.S. in media abroad and to allow American flag carriers to expand their promotions overseas. These "counterpart funds" could also be made available to `tourists from the U.S. for spending in each of~the countries visited. 2. Increase of the U.S. Travel Service budget to a realistic level to obtain optimum results in securing sufficient tourist travel to the U.S. to maintain an equitable balance. A comparison of the U.S. Travel Service's budget to that of other nations' tourist bureaus which have been successful in attracting PAGENO="0368" 1146 high visitor records could easily show the "penny-wise pound-foolish" policy of the U.S. 3 Eliminate expensive irritating and useless visitor entrance procedures (visa, etc.) which repel the foreign tourist, costs the U.S. greatly in bureau- cratic expense and seem to serve as no deterent to U.S.-deemed undesir- ables who'are able to enter the U.S. in spite of the procedures. 4 Offer special inducements to foreign visitors as is done in many Euro pean countries These could include all inclusive low rates for transportation and accommodations discounts which allow the tourist to purchase gasoline less taxes etc 5 Expand much needed U S employment for students by training schools to provide a pool for visitor services which peak during the summer Yours very truly, W. H. BARTHOLD, President. ELLEN W. BARTHOLD. PROFESSIONAL TRAVEL SERVICE, Los Angeles, Calif., February 22, 1968. Mr. WIu3tm D. MILLS, Chairman, Committee on Ways and Means, U.s. House of Representatives, Longworth Ho'use Office Building Washington D C This is to inform you that we are strongly opposed to the intended Travel Tax bill being discussed by your Oommittee for these reasons It is discriminating and unjust It would be costly and cumbersome to operate both for the Government and for the travel industry It restricts the American's right to travel. It won't solve the Balance of Payments problem. If we restrict Americans from traveling abroad, foreign governments will be forced to retaliate and restrict their nationals from visiting the USA. So everyone loses. If people stop flying there will be widespread unemployment in the aircraft industry We need to encourage 2 way tourism-not build an iron curtain to prevent our citizens from traveling abroad MANUEL G RUIZ Coownor Kir BARNARD Coowner RESERVATIONS PLEASE! TRAVEL SERVICE INC., New York, N.Y., February 13, 1968. Hon. WILBUR D. MILLS, Chairman, Co'insnittee on Ways and Means, U.E1. House of Representatives, Longworth House Office Building, Washington, D.C. DEAR MR CHAIRMAN We are travel agents quite concerned with the proposed legislation which concerns us directly As members of the Association of Retail Travel Agents we are unequi~ ocally opposed to the discriminatory and unjust taxes proposed on travel We believe that practically all of the valid arguments which have been offered by our Association together with the airlines steamship companies travel bureaus, etc. adequately express our feelings on this proposed legislation. In addition to the above, our organization last year was one of the principal agencies in the United States that serviced and conducted a "Visit U.S.A." Program. During 1967, we handled over 2000 European visitors, who left in this country approximately $7~,000.00 and we have gone to great expense and time in promoting this phase of the travel business. We have published a wholesale' and Oonfldential Tariff for foreign tourist agencies and travel bureaus. We have made two trips to Europe promoting our Visit U S A Program and we have enlisted the aid of the American and Foreign carriers for their support. Based upon our conversations and correspondence with our foreign sources we fear that in addition to the disastrous economic effect that this proposed tax PAGENO="0369" 1147 would have on our industry, there would be a retaliation by the foreign govern- ments which would causs~ additional hardship to the industry as well as the effect it will have on our balance of payment. We cannot understand how a government such as ours can be so interested and anxious to help friendly foreign nations through the use of Foreign Aid and then take away the benefits of this Foreign Aid by the proposed legislation. We would appreciate your cooperation and we wish to thank you for your indulgence. Sincerely yours, SAUL T. GRAND. SALLY PARIs TRAVEL BUREAU, Los Angele8, Calif., February 23, 1968. Mr. WILBUR P. MILLS, Chairman, Committee on Ways and Means, Longworth House Office Building, Washington, D.C. DEAR MR. MiLLs: We are respectfully submitting to you a petition signed by 261 citizens of the United States who are residing in the State of California, expressing their feelings with regard to the Proposed Travel Tax on Travel out- side of the Western Hemisphere. [Petition is in the files of the Committee.] Please note that every person who signed this petition protested against this proposal on the part of Treasury Secretary Fowler. We must therefore ask that you please consider this petition as representing the feelings of a cross section of peoples of the United States, since these names come from all walks of life, industries, cultures and backgrounds. Mostly, the feeling against this proposed tax is one against the restrictions attem~~ting to be imposed against the free and unrestricted movement of citizens of the United States. It certainly will not Improve relationships with foreign governments or peoples and will do nothing to correct the supposed imbalance of trade, but only create chaos and disrespect for Americans everywhere. It will lead to retaliation on the part of foreign governments by forcing them *to restrict travel to the United States, and the imports of our products. It `will affect the economy of practically every locale in the United States In the mannfaoturing industry and otherwise. We, therefore, urge that you earnestly consider the negative aspects of Secre- tary Fowler's proposal and inject your denial of such travel tax. Sincerely, SALLY PARIs. SEVEN LEAGUE TRAVEL, Monroeville, Pen., February 16, 1968. Mr. WILBUR P. MILLS, Chairman, UomrnSttee on Ways and Means, U.S. House of Representatil.)es, Long- worth House Office Building, Washington, D.C. DEAR Mn. CHAIRMAN: This is a letter of protest against the proposed legislation of a permanent tax on international air transportation and certain international water transportation and the temporary graduated tax on expenditures in con- nection with travel outside the Western Hemisphere'. We are very much opposed because the proposed legislature is discriminatory and unjust and could well be considered unconstitutional. It is against the Amen- can principle of free and unrestricted movement and is' unenforceable, unwork- able and leaves many many ioopholes~ Furthermore, the livelihood of 200,000 citizens is in danger. These proposals are a confession of failure of the Treasury Department and their ability to' cope with the imbalance' problem in a constructive manner. We hope that you will involve yourself totally in time defeat of these proposals. Sincerely yours, P. FRANKLIN LONG. SHELBY TRAVEL, Babylon, Long Island, February 14,1968. Mr. WILBUR P. MILLS, Chairman, CommSttee on Ways and Means, U.S. House of Representatives, Long- worth House Office Building, Washington, D.C. DEAR SIR: We wish to go on record as being categorically opposed to the travel tax proposals for the following reasons: 89-749-68-Pt. 8-24 PAGENO="0370" 1148 This proposed legislature is discriminatory and unjust and possibility of being unconstitutional. It is unenforceable, unworkable and full of loopholes. It is against the American principle of free and unrestrictive movement. It is a short sighted expedient which will not solve any problems hut will very well create more serious future problems. We strongly feel that the rights of American citizens are in serious jeopardy and such legislature is against every principle and precept of the American way of life. Cordially, PRESTON C. JOHNSON, Vice President. SOCHOR TRAVEL Snnvicz, INC., Endicott, N.Y., February 15, 1968. Re proposed "travel taxes." Mr. WILBUR D. MILLS, (ihairman, Committee on Ways and Means, U.Ei~. House of Representatives, Longwortl?, House Office Building, Washington, D.C. DEAR Mn. MILLS: The recently advanced ideas on procedures and rates of travel taxes show more clearly as time goes by, how impractical and unfair the entire idea is. The enclosed Binghamton (N.Y.) Press editorial, "Invitation to Fraud", shows how unwise it would be to go through with this proposal. Yes, I agree that if so passed, it would mean a great increase of Federal payroll and thus eat up whatever they would collect. Still another bad feature is that a great many travellers would simply start and finish their European trips in Canada or Bermuda, without exhibiting their passports to TI. S. Authorities. There are many other reasons against. One of them, that the ordinary traveller is the least guilty of our Dollar problems; the trouble being in other spending-giving areas. Still another, where ilLS, factories would sell less abroad if travel was really reduced and the flow of dollars to our foreign customers thereby cut. Yes, other countries would surely retaliate in one manner or another. Judging by the confusion and fears by a large portion of our potential clients, if this hasty proposal is seriously considered, we will very likely have to cut some 3 to 5 persons in Our own little office, from the present employment of 14 people. How much damage to America, both in cash and reputation, at home and abroad, this self-defeating tax monster will do, is impossible to say. Since the administration of this proposed regulation would probably cost as much as it may take in and still do much damage elsewhere, we are asking you to do everything possible to withdraw this proposal outright. However, to help our Treasury in its time of need, we would suggest a simple, efficient, fair and almost painless travel tax STAMP (size of a postage stemp) of ~l1O.OO, to be purchased by every adult person named on a U.S. Passport-at the airport or seaport, just before boarding. This inexpensive handling of tax collection, coupled with serious efforts by the government to reduce its own for- eign spending, and measures suggested by others of how to increase the flow of incoming travellers, may be the answer. But not the proposed plan. It should be cancelled-and soon-before it does more damage. Respectfully, JOHN M. SOCHOR. [Editorial-Binghamton (N.Y.) Press, Feb. 12, 1968] INVITATION TO FRAUD The Johnson Administration's proposed travel taxes would apply to almost everyone; there are few exemptions; tax-free allowances are very small, and there is an effort to hit the big spenders hardest. That is the best that can be said about them. PAGENO="0371" 1149 `The worst is that they are unwieldy, unfair and probably unworkable. They also pose the threat of throwing the whole tax structure into disrepute by offering an easy target for evasion. What the administration is driving at is legitimate-re'du'cltiou by `a significant amount of the $2,000,000,000 drain generated by U.S. tourists abroad. When the idea was broached at the beginning of the year it sounded reasonable enough. Surely, it seemed, there must be some effective way to `do it. But the more one thought about it, the harder the job began to look, and the administration's disclosure of its proposals last week confirmed that view. The administration's plan can be broken into three parts-n transportation tax, a graduated tax on the amount of money spent abroad and a lowering `of the duty-free amount of goods that can be bought `abroad. The transportation tax-5 per cent on steamship or airline tickets-is all right, although regressive, like any other excise. The lowering of the duty-free limit also is worth putting into effect. Since the customs exemption discriminates against those of us who stay borne, it could be eliminated entirely in the interests of equity. It is the graduated tax on money spent abroad that strikes the `sourest note. The first $7 each day would `be tax free. The next $8 would be taxed at a rate of 15 per cent. Everything over $15 would be taxed at 30 per cent. Enforcement would depend on pretrip estimates, voluntary declarations `and spot checks. The possibilities for evasion are virtually limitless. The one good thing about most existing taxes is that they `are not easily evaded. It's easier to pay a `tax if one is convinced of its universality. The per diem travel tax would make cheats out `of honest men the way Prohibition made boozers out of the abstemious. Further, if eve'r adopted it Surely would involve `a welter of forms, a tangle of rules and an army `of inspectors whose cost in time and money ~o'ul'd be as high as their effectiveness Would be low. The daily-expense travel tax wa's a sincere try, but a bad on~ The congress had better forget about it, looking instead for ways of aiding the sale of more U.S. goods overseas, attracting more visitors `to this country from abroad and eliminating low-priority foreign expenditures. Tuos. Cooi~ & SON, INC., New York N.Y., February 13, 1968. Mr. JouN M. MARTIN, Jr., Chief Counsel, Committee on Ways and Means, Longworth House Office Butt ding, Washington, D.C. THE TRAVEL-TAX PROPOSAL DEAR Ma. MARTIN: You will probably receive many letters regarding the above. Let me try to make this one brief and (hopefully) logical... I am no't an unbiased correspondent. As president of Cook's, it is obvious that I have `a business interest opposed to restrictions on travel, Yet as `an American (three years overseas in the U.S. Army during World War II), I have a greater obligation to see that the U.S.A. follow's policies which are most advantageous to our citizens overall. My approach to the subject of travel restrictions has therefore been, as far as I could make it so, a balanced one. Too many people `speak of things "whereof they know not. . . ." May I qualify myself to comment on the subject at issue? My travel~ career spans forty-five year's (since graduation from Boston Uni- versity in 1923), including many "crises" and many sorts of taxes. I am familiar with similar problems in other countries-with exchange controls, and tourist marks, and all the episodes of international `tourism during `this long period. All will agree, first of all, that the balance~of-PaYments situation is unsatis- factory. Let us further agree that foreign travel expenditures obviously contribute to that adverse balance. There is, however, little confidence in how much they contribute, since the figures are based on small samplings and sometimes' on unreliable personal estimates. (See attached). So--some action must be taken, and the Treasury Department has submitted its proposals. Here are our frank reactions: PAGENO="0372" 1150 :1. The 5% "ticket tax" would be accepted by the public with little diffi- culty. It simply puts foreign transportation on the same basis as domestic, which seems fair. The tax should be on all transportation, with no conditions or exceptions. But a proviso should be that a substantial proportion of the revenue from this tax should go to the United States Travel Service-to increase quickly its promotion of foreign travel to U S A This is important 2. The reduction in duty exemption on purchases seems reasonable. But why reduce it from $100 to $10 Why not abolish all exemptions `~ And the decrease in packages sent from $10 to $1 Why ~ Allow no exemption at all, to simplify handling. 3. The main body of the proposal, though doubtless well-intentioned, is like something out of Alice-in-Wonderland. Consider- It is cumbersome, requiring thousands of new employees at a time when the Government is trying to save money. It is compljcate~: The explanations and figuring would be endless. It encourages evasion People scrupulously honest on their income tax will vie with each other to beat this hodge podge of conditions It is impracticable: Visualize Idlewild `at a busy time with inspectors trying to enforce such regulations It is destructive Though intended to restrict expenditures rather than travel its primary effect will be to make a European trip impos sible for the average American As business people we feel sure that the experienced members of your Corn mittee will not approve this illogical and unworkable conglomeration of dollars percentages taxes hours etc etc Out of all this discussion one constructive result must certainly emerge an aggressive properly financed campaign to get more foreigners to visit U S A We feel that the Committee members will eventually decide that this is the practical method of improving the travel balance-of-payments, and the only one consistent with the American way of doing things Cordially, E 0 CoNNoR President OPINIoN-TRAvEL DEFICIT MAY B~ FALSE By Eiic Friedheim Editor The Travel Agent One of the most compelling reasons why Congress should reject any taxes on tourism is that nobody in Washington really knows the actual size of our travel deficit. The Administration says Americans are spending $2 billion a year more on outbound travel than we receive from foreign visitors, including the Mexicans and Canadians. But this $2 billion figure could very well be highly inflated There are many researchers and economists who question the validity of the statistics from which the travel deficit is computed. Even those officials in the Department of Commerce who are responsible for compiling the travel figures admit they may be off as much as 10 percent which means that the deficit conceivably may be overstated by $200 million This is nearly half the amount that President Johnson wants to save on overseas travel in 1968 How does the Government arrive at its travel deficit? This job belongs to a small unit known as the Balance of Payments Dr~ ision in the Commerce Department, and which is considerably understaffed. Respon- sibility for putting together the information about travel rests with a corporal's guard of clerks headed by one official. He is turn is dependent on information extracted from 20,000 to 30,000 questionnaires distributed each year to U.S. travelers on their return trip This form is handed out by the Immigration Serv ice and a few are passed along abroad to returning citizens by the State De partment Current return is about 30 percent which may be statistically accept able but in actuality this means the Government bases its travel spending esti mate on the replies of about 10000 persons many of whom are filling out forms from memory which can be faulty and in some cases have reasons for not pro viding accurate data on how much they spent on their trip The Government s methods of calculating travel spending were criticized sharply several years ago by a special Committee appointed by the Budget Bu reau to review how the balance of payments statistics were gathered. This special PAGENO="0373" 1151 Committee was composed of a distinguished panel of economists and university professors. We quote from their report: "The Committee believes that concern with the `travel gap' reflects an unwise tendency to balance receipts and payments for types of transactions so narrowly defined as to lack significance. For purposes of estimation, travel is divided into three major categories: overseas, Canada and Mexico. The estimating procedures and their reliability differ among the categories, although there are deficiencies in all of them. "Questionnaires are mailed to a random sample of residents returning in one week of each quarter. Two serious errors are inherent in this procedure. Al- though about 23,000 returns were reecived in the year under study, and though the response rate compares favorably with other surveys by mail questionnaires, the rate is too low to inspire confidence without a systematic sampling of the nature of the non-response. "Another possible source of error Is inherent in the processing of the com- pleted questionnaires. Personal judgment as to what constitutes a reasonable level of expenditures may lead to error in the estimates, especially where the response rates are low or patterns of travel are changing; it needs to be exercised with care and supported by detailed knowledge of travel trends." Wide variations in response were reported between air travelerS and those returning from cruises and other sea passengers, as well as those coming into ports outside New York. Some foreigners also were shown to be vague in their answers on money. Until recently, the U.S. depended almost entirely on Canadian statistics for border traffic; now considerably less information is being made available to the Commerce Department by Ottawa. The Committee noted that the Canadian figures probably were of better quality than ours. Mexican border travel, which accounts for nearly $500 million of our foreign spending, also is estimated haphazardly. The Committee said little is known about crossings that involve travel or tourism and the method followed to estimate receipts and ex- penditures "has serious shortcomings." The Committee completed its study in 1965 and recommended a complete over- haul in the Commerce Department's statistical research. Many major improve- ments were urged, including more staff and the acquisition of data processing equipment. To date, none of these recommendations has been acted upon except for a minor effort to upgrade the Mexican border figures. Actually, the quality of overseas questionnaires has remained static `and there has been no increase in staff. All this boils down to the fact that the travel industry is being indicted by a bill of particulars that may be based on very false assumptions. Errors and omissions of as much as 50 percent were mentioned by the com- mittee in its appraisal of balance of payments reporting in earlier years. Clearly, no industry should face restrictive taxes if there is a possibility that it Is being accused unjustly. A fourth grade arithmetic student is aware that even a 10 percent error one way or another in dealing with billions can distort the results completely. Industry is `partially to blame for the dearth of acceptable travel data. But in the absence of valid information, Congress, in fairness `to the American people and particularly to those dependent on tourism, should defer any restrictions until it has irrefutable facts on which to make a judgment. REACTION OF PROSPECTIVE TRAVELERS THROUGHOUT THE COUNTRY (By Thos. Cook & Son, Incorporated) American citizens are likely to be more "public-spirited" than nationals in most foreign countries. Bitt they are inclined to be outspoken, too. You may be interested in reactions `of individual patrons at `our forty offices throughout U.S.A. Many people, of course, made no comment. Some voluntarily cancelled plans because of the President's appeal, only expressing disappointment. Others spoke emphatically of their disagreement with the principle `of restricting travel, whether by onerous taxation or otherwise. Here-as near verbatim as po.ssible-~are the most frequent comments :- "This is my money. I worked for it. `After I pay my taxes, why should the Government tell me how to spend my `own money ?" "A citizen in a democracy has `a right to go `anywhere he pleases. Are we getting new rules like those in Russia?" PAGENO="0374" 1152 "Why do they :pick on people? Can't they tax some luxury imports and cut them down, instead of restricting citizens?" "Why don't they cut out those billion-dollar Foreign Aid handouts which seem to go on forever?" "How can IJ.S.A. be the leader of the FREE world, when our own people aren't free? This will make us a second-class country." "What's to prevent people going to Montreal and buying their European trip up there?" This is what they said. Toun ARRANGEMENTS, INC., New York, N.Y., March 6, 1968~ Hon. WILBUR D. MILLS, Chairman, Honse Ways and Means Comrmittee, Washington, D.C. DE~a Mn. MILLs: For many years the gold and dollar reserves of the United States have been declining and these are now reduced to dangerously low levels. Clearly something must be done about this problem; and it needs to be done now! However, *there is no justification for singling out tourism as the target for balance of payments rectification. American investments abroad and the Govern- ment'~ own foreign expenditures are largely responsible. The growth of American tourism has been matched and even exceeded by the growth of tourism in other prosperous countries. That these foreign tourists have chosen to come to the United States in relatively small numbers is largely our fault. We have made no real effort to bring them here! Although it will not solve `the problem, attracting a larger proportion of foreign tourists to the United States will tend to reduce the dollar drain. On the other hand, the proposed taxes on American travel will, I believe, accomplish little except to make American travellers unhappy. While they may produce more revenue, they can even increase the dollar drain. Of the three pieces of legislation submitted to The Congress in relation to tour- i.sm and travel, the extension of the 5% domestic air tax to international air and steamship travel is not seriously objectionable. However, its purpose should be to secure revenue and should be judged accordingly. The second proposal, the tax on travel outside of the Western Hemisphere, viewed from the national interest is extremely undesirable. It is discriminatory; it infringes on one of the basic liberties; the process of collection can only be most unpleasant and time consuming for the traveller. This particular tax is bound to be considered unreasonable, and unfair, wholly unacceptable to the travelling public. Furthermore, this tax is easy to evade. To avoid or minimize payment, the traveller has only to understate the actual amount spent on his trip. And it is simple to conceal such action beyond any possible hope of discovery by tax examiners. Working as I did for so many years with European experts in the field of foreign exchange control, I know that it is most difficult to control illegal movements of funds. To mention a few of the possibilities; any person or corporation holding foreign exchange balances can readily use these to cover tourist expenditures. For example, it is quite impossible for American tax examiners to obtain information on accounts in Swiss banks. Transfers of funds under the guise of gifts or payments of private debts to friends or relatives living abroad are completely uncontrollable by the Treasury and cannot be verified. Other devices include understatement of receipts from foreign sales, overstate- ment of the cost of foreign purchases (by a business), transfers of funds for a fictitious purchase, advances of funds by foreign correspondents, foreign as- sociates or even friends or relatives. There is no limit to the possibilities; all are safe! To impose an unpopular tax which is almost unenforceable, is to encourage lawlessness. Legislation which encourages lawlessness is bad legislation. Also, it follows that this proposed tax will be excessively expensive to collect. Any attempt to enforce compliance will require extensive and rigid foreign exchange regu- lations. These the United States dare not institute. The willingness of foreign individuals and governments to hold dollars balances and the position of the dollar as an international monetary medium depends on the absence of such restrictions. Many of our closest allies and neighbour countries are to an unusual degree dependent on the American tourist for their foreign exchange earnings. True, these are mostly in the Western Hemisphere, and it is no doubt for this reason that travel to this area is excluded from the tax. Yet, other countries outside of PAGENO="0375" 1153 the Western Hemisphere are in the same situation. In this list are Israel, Greece, The United Kingdom, a~id Spain, to name four important examples. A particularly objectionable feature of the proposed tax is the obstacle placed in the way of business, professional and educational travel. It will increase the cost of doing business abroad; it will tend to limit American attendance at international meetings of professional and scientific organizations. (Such meet- ings are almost invariable held outside of the United States to avoid the ex- clusion of leading members who happen to be Communists.) By discriminating in favour of the Western Hemisphere, the proposed tax Is In direct violation of the spirit if not the letter of the "most favoured nation" clause which for many years has been a cornerstone of American foreign trade policy. All of our foreign trade treaties, as well as the various international trade agreements of GATT state that apart from certain stipulated exceptions, treat- ment of the United States shall be no less favourable than the treatment of any other nation. Are we prepared to put the "most favoured nation" policy in jeopardy? Finally there is a reasonable doubt about achieving a dollar saving, its osten- sible purpose. The net result may even be a dollar loss. Consider the following: 1. Any shift in travel from Europe to Western Hemisphere destinations will leave the overall balance of payments quite unaffected. (Surely the Administration is not thinking in terms of bilateral balancing, against which we have fought so long and so successfully through the Marshall Plan and the International Monetary Fund.) 2. To maximize their opportunities for understating actual travel expendi- tures, travellers will bypass their travel agents (to whom services must gen- erally be prepaid) and make all arrangements direct. This increases the foreign exchange cost of the travel by up to 10% the amount of the com- mission customarily paid to the travel agent by hotels, sightseeing companies and other overseas facilities. 3. Any apparent reduction in travel expenditures may be more than offset by reductions in dollars earnings for related items not shown under tourism in the balance of payments statistics, These include reduction in the ex- penditure of foreign air and other transport companies for such items as dollar maintenance cost, purchase of parts, sales and overhead expenditures, commissions to American travel agents, and purchases of fueL 4. Finally, any reduction in the statistics for travel expenditures which will be offered as proof that the tax has achieved its purpose will be fictious to an indeterminate extent. Rather, it may measure the fraudulent conceal- ment of such expenditures which, therefore, would appear elsewhere in the balance of payments. The third proposal, the reduction in duty free exemptions to $10.00 and for mailed gifts to $1.00 is of itself not objectionable. But, because of the tremendous administrative burden imposed, the Treasury would apply a fiat 25% duty of all items. This conflicts with tariff rates under all of our international tariff agreements. If to this is added the travel expenditure tax of 30%, the cost of bringing home purchases becomes prohibitive, which no doubt is the purpose. Since the amount of purchases by American tourists in foreign countries must total between $500,000,000 and $1,000,000,000, a not inconsiderable sum, a dollar savings could be large. But by the same token, various foreign countries will be severely hurt. The Congress will want to consider carefully the likelihood of retaliation by foreign countries who will regard such actions as a breach of their- trade agreements with us. Instead of the Administration proposal, I suggest (1), a lower flat duty than 25% where purchases total less than $100.00 (not $500.00 as proposed), (2), where purchases total in excess of $100.00, the actual duties be assessed as in the present practice, and (3), no tourist expenditure tax be applied. Although this will cause a much smaller reduction in dollar expenditures, it will not invite retaliation. Very sincerely, GEORGE M. AL5BERG, CTC, President. THE TRAVEL CENTERS, Quiney, III., February 15,1968. Hon. Wiurnn D. MILLS, Chairman, Committee on Ways and Means, House of RepresentatiDes, Washington, D.C. DEAR C0NG1mS5MAN MILLS: I wish to respectfully submit this statement for the official records of the hearing to be held by your committee regarding the im- position of a travel tax upon the American public. PAGENO="0376" 1154 As the owner c~f a multiple branch retail travel agency employing ten persons besides myself I protest any inference that travel outside the Western flem isphere is somehow unpatriotic From my reading of such highly esteemed papers as the Wall Street Journal The New York Times The Washington Post The Chicago Daily News Fortune Magazine Saturday Review Business Week U S News and World Report I can find no responsible opinion to the effect that in hibiting the freedom of the American people to travel will solve our balance of payments prohlem Quite the contrary I am sure you are aware of the repercils s1on~ that will result if this great United States should demean itself and its citizens by an attempt to curtain the freedom of its peo'p~e to travel. Please know that I do not speak from a purely selfish economic motive as we sell travOl to commercial accounts to U S and other Western Hemisphere destinations furthermore there are many people who will travel in spite of the tax and we will survive-although certainly not without financial hardship to all employees My protest is as a thinking citizen who feels the few freedoms we have left need to be preserved at all costs (el'~e why are we fighting in Vietnam for others freedom `?) and who feels that the travel industry is sorely needed in Ithis~ war torn ~ orld If ever we `are to stop kililng and learn to live together on this planet one of the main forces to this end is the traveling and intermingling of the peoples of the world in friendship rather than for the purpose of bearing arms against each o't'her. Pl ase think very strongly about the many alternative measures possible to stop the outflow of dollars i e the reduction of government spending abroad the re turn of troop's from Europe, the encOuragement `of `travelers to our shores' through the United States Travel Service. The peace and understanding Which is so des- perately needed in the world is served through the tourist industry and for this value alone we believe rather than being discouraged it should be encouraged in all its facets Respectfully yours (Mrs) BETTY Lou WALLACE President TRAVEL NEAR & FAR Ixo New York, N.Y., February 23,1968. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, Washington D U Dwi SIR I wish to register my opposttion to the proposed travel tiaxes both in principle and in practice A more negative discriminatory and ill conceived proposal would be difficult `to imagine The right of the inidividual to travel abroad ha's, never before been questioned by an American government This tax is deliberately designed to prevent the exercise of what has heretofore been ackno~w1ed'ged as a basic liberty of the citizen the right to leave and return to the country Previous attempts' to dis courage or prohibit action,s of the Individual which are not intrinsically immoral or ~inti social have always led to upright and honest citizens e,vathng the law Americans have always been great travellers and are known `around the world for this. Generations of citizens have gone to Europe to acquaint themselves with the cultural benefits of that area and to become more well-rounded and better Americ'an citizens, better able to understand fo'rOign nations `an,d their ways. That this greatest method of creating better understanding `between peoples should be in danger in this country is wrong We have always criticized Communist and other totalitarian countries for their rvstrictions on the free exit of their citizens yet now our own government wishes to dis,cour~age Americans~ in the same pursuit. The i eason for doing this is not important when the result is the same The United States has a favorable balance ott' trade although there are fluctu ations in this balance from year to year The figures derived, from tourism and travei ought not to be segregated from the whole any more than any other product or servic'e To tax touris'm and travel is discriminatory to the indus'try and to the peo'p'le who `avail them~s'elves of its services. The balance is adverse to us' in other areas of trade `such as Whiskey, coffee, etc. The proposed tax is doubly bad in that it fails to discriminate between those countries which cooperate with the United States in `our balance of payments problems and those Which do not For instance no `difference is malde if a person travels to Martinique or to Jamaica Yet the former is a department of metro PAGENO="0377" 1155 politan France and we are enjoined not to go to Eutope. As far ais money pay- ments are concerned, Martinique is France. On the other hand, travel to such cooperative countries as Great Britain and SeandiUavia is lumped in w~th the gold buyers of France and Belgium. The administration has made many statements to the effect that It is interested in attracting more European visitors to this country. In past years many other countries have had the same `desire, to attract more visitors to their shores. They ba~e invested In tourist omees over here to `puhilcize and promote themselves. This has paid off as we know because Americans have been visiting their coun- tries in great numbers. Yet we have not even made a `serious effort. Spain, Canada, England, Argentina and even India ~pend more per year than the United States to attract tourists. Per capita, the United States spends .024 per year compared with .~0çb for Canada or even .13(b for Great Britain. Per visitor we spent .3Oçb whereas Great Britain spent 2.~1cb. It is ironic that we who spend so much domestically on a'dvertising and promotion, so much that we become immune to the constant pitch, find promoting ourselves' overseas to be not worth the trouble. Yet on the other han'd it is felt that the way to `solve the problem is to restrict the liberty of the citizen in an unprecedented manner. There is s,omethin'g wrong with this way of thinking, something `out of touch with the meaning of America. The very `proposals themselves are products of an ivory-tower~meutalitY, dreamed up without regard to the `practicality of the situation or to the mechanics of the industry. `The mere complexity of the tax and its' administration will `be an invitation to e~asio'n. Since the purpose o'f the tax is prohibition rather than revenue-collection, it would not succeed in its aim. Rather it will create a new black-market, a whole new category of gray areas for individual conduct. It is a misuse of the taxing power, which ought to be used for revenue producing and not for enforcing policies or other l,a'ws, goo'd or `bad. It is impractical to tax transportation after arrival in, Europe at a different rate from other transp'ortation. Airline tariffs are `drawn up' in such a manner that to `divide the fare at some arbitrary point would be discriminatory and unjust. That a `person `stops in London first rather than I~o'me should not `be a rea's'on for taxing him more o'r less. The taxing `proposal rega'rding cruisesi which go outside the Western Hemisphere is the wo'rk of one who prefers complexity at the expense of reason And the idea of paying an estimated tax before de- parture `can only be compar~d to posting bond `to' get out of the country. The imagi- nation boggles at the added time needed at airports, at the vast increase in per- sonnel in the Internal Revenue Department, at the proliferation of forms, at the many amlendmeuts that will be needed to cover loopholes~ `and add `complication's, and at the co's,ts,, both monetary and s,piritual, of ,ad,m,inis,tering `the w'hole program. The administration says this tax will only be tem,p'o'rar'y. How often have we heard that before? Even with the best of intentions,, our government `seems to find it necessary to perpetuate "temporary" taxes and other legislation year after year. I am sure the legislators are well aware of the many "temporary" items whi~h remain in `effect. I `am reminded of the "temporary" Navy buildings' in Washington built during World W'a,r I which are very much in use today! The proposal of a tax on international travel is a most dangerous and pernici- ous precedent which if allowed to become law will plague us for years to come and make a mockery of our pretension's of individual liberty to travel. Very truly yours, PAUL H. SILVERSTONE Seoreta'ry-Trectsurer. TRAVELERS TRAVEL BUREAU, New York, N.Y., February 12, 1968. Mr. WILBUR D. MILLS, Chairnui~n, Coinimittee on Waifs and Means, House of Representatives, Washington, D.C. DRAB Mn. MILLS: We wish to place our objection on record of Mr. Henry Fowler's Travel Tax Proposals as discriminatory an'd unjust. We feel that a tax on plane-steamship--or railroad transportation could be levied and controlled, whereas a percentage on money spent on other travel services would discourage tours that would put thousands of transportation personnel as well as small travel agents like ourselves out of business and in the unemployment line of dependence, receiving checks on which no tax is paid to the Federal Government, rather than earning a living on which 20% and more is turned over in Federal tax alone. PAGENO="0378" 1156 May we suggest that you withdraw the needless $10.00 taxless gifts passengers are allowed to send for every day they are out of the Country-and reduce the current $100.00 duty free purchases allowed to $10.00 or zero dollars. Sincerely, CLAIRE PuGLIsI, Partner. UNITED STATES TRAVEL BUREAU, North Hollywood, Calif., February 16,1968. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR Sin: We wish to go on record that we are vigorously opposed to any aad all aspects of Treasury Secretary Fowler's travel tax proposals, for the following reasons: 1. The proposed travel tax legislation is discriminatory and unjust, and probably unconstitutionaL 2. This legislation is unenforceable and unworkable. The proposed grad- uated tax on travel expenditures will make liars and cheats out of many citizens. 3. This legislation violates the traditional American principle of free and unrestricted movement. 4. The balance of payments deficit has risen from a number of causes. Important among these are the Vietnam war (responsible by itself for 38% of the deficit, according to the Administration), maintenance of U.S. military bases overseas, U.S. aid to foreign governments, and foreign investments by U.S. businesses. The so-called "travel deficit", if it indeed exists at all, is a drop in the bucket in the total balance of payments problem. Yet this legis- lation proposes to punish American travelers out of all proportion to their overall deficit responsibility. 5. This legislation adversely affects the livelihood of many American citi- zens who work in the travel industry. 6. This legislation is a confession of failure on the part of the Adminis~ tration to cope with the balance of payments problem in other, more con- structive ways. We offer just one constructive alternative, which seems to us eminently work- able and practical. The Administration proclaims that large amounts of foreign currencies are being held by U.S. Government offices abroad, and that these cur- rencies cannot be converted directly into U.S. dollars. 1. We therefore propose that the Treasury Dept. or other responsible agency furnish all U.S. firms doing business overseas (among whom would be tour operators, travel agents, banks, importers, etc.) with lists of U. ~. embassies, consulates, trade delegations, etc., who have at their disposal U.S. Government-held local currencies in the countries where they are located. 2. We propose that a standard remittance form be prepared, for payments to foreign countries. 3. The firm doing overseas business would be required, when making for- eign payments, to send U.S. Dollar checks to the respective embassies, con- sulates or trade delegations, or to the State Dept. or designated Federal bank, who would then make the payments, in the corresponding local cur- rencies. A copy of the remittance form would be sent to each foreign payee, indicating that his payment would be promptly forthcoming, in his local currency. 4. Admittedly, this would create more paper work for the U.S. offices abroad. But it would certainly solve the problem of `the Government-held foreign currencies, and it would do more to solve `the balance of payments problem in a constructive way than would Secretary Fowler's restrictive tax proposals. Awaiting your early reply and comments', we are, Sincerely yours, MICHAEL R. SELIGMAN, Director. RICHARD L. WATSON, Tonr Manager. PAGENO="0379" 1157 VAGABOND CRUISES AND TRAVEL SERVICE, INC., Seattle, Wash., February 26, 196& COMMITTEE ON WAYS AND MEANS, Longworth House Office Building. Washington, D.C. (Attention of John M. Martin, Jr., Chief Counsel). GENTLEMEN: The enclosed article published in the Bremerton Sun, E~remerton, Washington expresses more fully and adequately than I could state my own views of the recent proposals concerning Umitations on travel. Having been employed during the past 14 years in a small, 4-persen travel agency, I have some experience and knowledge of bow such pronouncements af- fect the travel agency's business and customers. Already this eu~rent j~roposal has created uncertainty and doubt in the minds of our customers, sç that they will not definitely make a commitment until some more definite measures are known. Meantime, we are trying to keep our business operating, p~y our employees, and reassure our customers that we hope to be able to continue to make travel arrangements for them. Most sincerely yours, BARBARA BIRP, Secretary/Treasurer. [From the Bremerton Sun, Saturday, February 24, 19681 PROPOSED CURBS ON TRAVEL ARE JUST PLAIN RIDICULOUS (By Jenkin Lloyd Jones) In all the sweepstakes for foot-in-the-bucket legislation President Johnson's proposed taxes on travel outside the Western Hemisphere should win at least a red ribbon. It is, in the first place, an effort to blame on tourists what is chiefly the fault of the economic philosophy of the Great Society. The gold-drain stems, essen- tially, from fear by foreigners of the future of the dollar if our huge annual deficits continue. Secondly, the Administration has apparently given up attempting to persuade major labor unions to keep their demands for wage increases in line with in- creased productivity per worker. Frankly inflationary wage settlements have been hailed with apparent satisfaction from the White House. This raises the cost of goods we've been exporting. The loss of customers abroad diminishes our earnings of foreign currencies. And when we buy com- modities from abroad because they are cheaper, we lose dollars. Brave talk about further reductions of tariffs in accordance with the Kennedy round will be utter moonshine if we don't begin to get our own economic house in order, for both labor and industry will soon be demanding high protective tariffs. The idea of putting onerous taxes on Americans abroad except for those traveling in the Western Hemisphere is as political as it is illogical. The Presi- dent, apparently did ~ot want to anger our close neighbors, the Canadians and Mexicans, or risk the ire of our touchy friends in Latin America. But contrast Brazil, a treasure house of natural resources, in which we have sunk nearly $3 billion in foreign aid, with little Finland which owes us only $30 million and has been religiously paying installments on its World War I debt. Which deserves the American visitor more? As far as need to earn tourist dollars is concerned, compare hungry India with oil-rich Venezuela. The proposal that Americans traveling in transatlantic or transpncific coun- tries can spend seven whole dollars a day tax-free is ludicrous. The overseas expense accounts of our government officials should be pasted up on all the walls facing Pennsylvania Avenue. The only way to see around Europe on $7 a day is to hitchhike, feign blindness and carry a tin cup. Even then you'd better stay out of Scotland. The travel restrictions now proposed would encourage more dishonesty than any law since Prohibition. Think of the dodges: There'd be the big Canadian goose-hunt dodge. You could carry thousands of dollars into Canada without question. Then you'd simply take a plane for Europe. If the host countries co-operated by not stamping your passport, there'd be no PAGENO="0380" 1158 evidence of your journey unfless the U.S. Bureau of Internal Revenue could get hold of the passenger manifests. Imagine the Canadians agreeing to that! This escape hatch would also require you to take a foreign airline which would intensify the balance of payments problem. There's the friend-in-France dodge. You could travel openly to Europe and be the "guest" of your friend in France. He might not be able to accompany you on your foreign travels, but he could supply you with thousands of francs for the trip. Later you could entertain him on his visit to the States or ju~t send him a love offering. You don't even need a friend. There are no tariffs on genuine antiques. So you could order from Amsterdam an old chest worth $100, but you pay $1,000 for it. The dealer could be so overcome by your charm that when you got to Holland he'd give you $900 worth of guilders for your further travels. Our customs men, looking at the invoice and the chest, could only conclude that you'd been cheated. Such a law as has been proposed is leakier than cheesecloth. If we mean busi- ness, the State Department should issue passports only for valid business reasons and closh all borders to junketing Americans. How can you frisk every man, woman and child at the Niagara bridge, and how would you handle the problem of deposits made in advance in foreign banks? This would, of course, bring some repercussions. How, for example. would we expect to sell more Boeing and Douglas airplanes to foreign airlines that our government would be busy busting? If we make most of the world mad at us, who thinks we can increase foreign tourism to America? We're in a jam because of a lot of foolish things we've been doing for a long time. But if we want to choke off the outflow of tourist dollars, let's not do it in idiotic and unworkable ways that will turn thousands of our normhlly honest citizens into connivers and corner-cutters. WErrz TRAVEL INc., Cleveland, Ohio, February L~, 1968. Re: Proposed enactment of foreign travel tax proposals. Mr. Wn~rnja D. MIr~Ls, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR SIR: In view of the forthcoming hearings on the above subject, I'd like to take this opportunity to appraise you of our strong objections to the proposals, as presepted by the Secretary of the Treasury on February 5, 1968. In our con- sidered opinion, these proposals, if enacted into law, will have the following dire consequences: 1. The creation of an incredibly complex and costly bureaucracy, engaged solely in the counting of dollars and cents in form of cash, travellers checks, personal checks, credit card expenditures, etc., of every citizen leaving or entering the country. The image of this bureaucracy does not fit the country which is looked upon as the greatest and freest democracy in the world. 2. The creation of a privileged class to which an approximate 25% to 30% overall increase in cost means little or nothing, as opposed to the middle and lower income earners. 3. The travel deterent will, due to the incredible complexities of its planned enforcement, become an actual travel ban for a substantial number of all travellers. 4. The dollar reserves of our Allies in Europe and Asia, most of which buy more from us than we buy from them, will be rapidly depleted, forcing them to look for suppliers outside the United States dollar area, in turn, worsening our overall trade balance. 5. Foreign countries will, in order to conserve their dwindling dollars supply, retaliate either by curtailing or by outright prohibition, the travel of their nationals to th:e United States. 6. The cancellation of an unknown quantity of future airplane orders, or post- ponement, by European and other foreign airlines, resulting in unemployment in the aircraft, electronic and components industry. Finally, if the proposals in their presbnt form become law, we believe that not only will incredible damage be done to our own flag carriers, general travel in- dusiry, our investments in hotels and other facilities abroad, but also to United States' prestige, commerce and credibility. PAGENO="0381" 1159 We urge that In your deliberations, you carefully weigh the evidence sub.. mitteci by the aircraft, airline, travel lnd~stry and other interested parties which, collectively, seeks to indicate that with the cooperation of all concerned, alternative and far more de~irable measures could be adopted to overcome the problem of the so-called travel gap. Our services are at your disposal and we thank you for the opportunity to submit our opinion on this important ~bject. Very truly yours, l(AnL L. LEWIN, President. New York, N.Y., February 12,1968. JOHN M. MARTIN, Jr., Esq., Chief CownseZ, Committee on Ways and Means, Washington, D.C. DEAn Sin: It is our understanding that hearings are about to be conducted by the House Ways and Means `Committee in connection `with the Direct Foreign Investment Program and the Regulations Which have been issued thereunder. As you know, the Regulations contain `a provision w)iich requires that a specified share of total annual earnings from affiliated foreign ventures must be repatri- ated at least once each year. Published reports have stated that legislation is being sought which will provide Federal income tax incentives for such repatriation. The purpose of this letter is to set forth a suggested Federal `income tax incentive in a particular area. The suggestion herein is that the shar~holders of a Subchapter S corporation be granted a foreign tax credit with respect `t~o dividend's received `by the Sub- chapter S corporation from foreign subsidiaries. Domestic corporations are allowed a foreign tax credit `against their U.S. income tax for the following: 1. Income taxes `of foreign countries imposed on the domestic corporation itself (Sec. 901(a), mt. Rev. Code). 2. Income taxes of foreign countries imposed on a foreign corporation `subsidiary of `the d'om~stLc parent, in tax years in which the subsidiary dis- tributes a dividend to the parent. This `credit also exten'ds to foreign income taxes paid `by a s'ub~s'ub's'idiary. Thus, in tax years, where there are `dividends through the chain from the forei'gn `sub-subsidiary t'o foreign subs'idiary to domestic parent, `the `latter i,s `deemed to have paid an appropriate portion of foreign income taxes actually incurred by the foreign s'tiibsii'diary and sub- subsidiary (`Sec. 902(a) & (b), mt. Rev. `Code). In `a great many cases, the foregoing credits will completely eliminate any U.S. income tax on foreign corporation dividend income. However, the benefit of the for'egcdng credits is denied to the shareholders of a Subcapter S corporation, i.e., one which elects not to' be subject to Federal income tax pui~s'uant to rules stated in Code sections' 1371-8. Income taxes of foreign countries imposed on the Subchapter S corporation itself will result in tax benefit to the shareholders of the Subchapter S `corporation only a's a deduc- tion. The "deemed paid" foreign tax credit granted to a taxpayer corporation under Sec. 902(a) & (b') is completely lost under a Subchapter `S election. Thus, under present law, such foreign corporation dividend income will be fully taxed to the shareholders of the Subchapter S ~orpo'raUon without `benefit of any foreign tax credit whatever. This loss of foreign tax credits create~ `a ~lis~incent1ve to repatriation of earnings from foreign first and second tier subsidiaries where the domestic parent is a Subchapter S `corporation. We respectfully request that legislation along the following rough outlines be considered: (a), The shareholders `ocr the Subchapter S corporation rsmou~ld he deemed to have paid the foreign income taxes paid and deemed paid by the Sub- `chapter S corporation, computed `as if the corporation were a taxpayer cor- poration. The foreign tax credit "pass-through" might be allocated pro-rata to shareholders at the end of the tax year of the Subchapter S corporation. (b) In computing the taxable income of the Subchapter `S corporation, dividend income from foreign corporations would he "grossed up" by the amount of the "deemed paid" foreign tax credit `as If the Subchapter `S cor- poration were a taxpayer corporation. (c) For purposes of computing the limitation on the foreign tax credit under Section 904, there would be an appropriate "pass-through" `of the Sub- PAGENO="0382" 1160 chapter ,S corporation's income from foreign sources, i.e., in computing their own limitations on foreign tax credit, the Subchapter S corporation share- holders would include as income from foreign sources an appropriate por- tion of the Subchapter S corporation's income from foreign sources. Code Section 962 provides a precedent whereby individual taxpayers are granted foreign tax credits under Section 902, otherwise applicable only to cor- porate taxpayers. Please note that under this provision the foreign `tax credit is allowed under an election whereby the individual taxpayer is bound to pay tax on the foreign corporation dividend income at corporation tax rates. Such an approach might also be considered in connection with the proposed legislation outlined herein. Legislation such as the foregoing would create an incentive to repatriate divi- dends from foreign subsidiaries where the domestic parent is a Subchapter S corporation. Would you please give this matter your consideration. Thank you. Yours very truly, J. R. COLEMAN. SAN FRANCISCO, CALIF., February 27, 1968. Hon. JOHN M. MARTIN, Jr., Chief Counsel, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR Mn. MARTIN: This statment is submitted in accordance with the an- nouncement of the Chairman of the Committee that has been published in Para- graph 6185 of the Commerce Clearing House Report, No. 11, Page 71142. It is limited to the serious constitutional q~iestion presented in Sub-paragraph (1) (b) of one of the two major proposals of the Chairman's announcement of the testimony the Committee would receive. The United States Si~preme Court, in Kent vs. Duties, 357 U.S. 116, 78 5. Ct. 1113, 2 L.Ed.2nd. 1204, a case involving the question whether the Secretary of State bad exceeded his discretion in denying a passport to an applicant on the ground of his alleged communist connections, said :- "The right to travel is a part of the `liberty' of which the citizens cannot be deprived without due process of law under the Fifth Amendment. So much is conceded `by the Solicitor General * * * "Freedom to travel is, indeed, an important aspect of the `citizen's liberty'." The Court also said that travel was an "a'ctivity included in Constitutional protection". The opinion further said that "the right of exit is a personal right inciuded within the word `liberty' as `used in the Fifth Amenchnent." The Court concluded by saying that "we deal here with a Constitutional right of the citizen" (emphasis supplied). This is a clear pronouncement that every citizen has the absolute right irnder the Constitution to travel. The question involved in the present proposal is not whether a non-discriminatory tax can be imposed in connection with travel under some circumstances as an excise tax; the tax here proposed is' admittedly, and indeed is expressly asserted `to be, for the avowed purpose of preventing large numbers of middle-class and moderate income Americans from ewercising what the Fiupreme Court has declared to be a constitutional right. An earlier Supreme Court case, dealing with a tax on another right guaranteed by the Cor~sti'tution, `the tax being for the deliberate purpose of limiting or of bur- dening the exercises of that right, is G-rosjean vs. American Press Co., 297 U.S. 233, 56 S.Ct. 444, 80 L.Ed. 660. This case involved the Constitutional right guar- anteed by the First Amendment of freedom of the press. The tax was at the rate of two percent (2%) on the advertising revenue of newspapers, and, like the tax here proposed, was direcbly aimed at the exercise of that right. The unanimous Court, which included Justices Brandeis and Cardozo, both well known "liberal" members of the Court, s'aid, inter alia :- "If (the tax) were increased to a high degree, as it could be if valid (citing eases), it might well result in destroying both adverising and circulation." The court also s'aid "The tax here involved is had, not because it takes money from the pockets of the appellees. If that were all, a wholly different question would be presented. It i's had because in the light of its history, a'nd of its present setting, it is seen to be a deliberate and calculated device in the guise of a taw to limit the ciroula- PAGENO="0383" 1161 tion of `infornvcttion to which the public is entitled in virture of the constitutionai guarantees" (emphasis uupplied). The tax proposed by Mr. Forwler, like the tax in the Grosjean case, is "seen to be a deliberate and calculated device in the guise of a tax" to limit the public in the exercise of a constitutional right. These two decisions are controlling here. The issue is simple. May Congress impose a tax for the expre~s and announced purpose of preventing large numbers of citizens from exercising a constitutional right to travel, which in practice will not prevent a small class of the rich from the exercLse of the right thus denied most other citizens? The answer to this question seems obvious. I submit that the Committee should reject this plainly unconstitutional proposal. Respectfully submitted. NELsoN TROTTMAN, Lawyer. New York, N.Y., February 23, 1968. Hon. WILBUR D. MILLs, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR CONGRESSMAN MILLS: I submit the following statement for the considera- tion of the Committee on Ways and Means in connection with the hearings on the proposed travel tax. It is requested that this statement be made a part of the printed record of the Committee hearings. I should like to comment upon one aspect of the travel tax program as set forth in the Technical Explanation prepared by the Department of the Treasury and submitted to the Committee on February 5, 1968. I believe the recommended exception for lengthy business trips is inadequate in its scope, will work obvious inequities and in some cases may well bring about a result adverse to the United States balance of payments concern. Proposed e~vception for lengthy business trips While the general concept of taxing, subject only to minor exceptions, bona fide business travel hardly warrants uncritical acceptance-the American executive travelling six weeks in Europe to promote sales of his company's products does not readily appear a necessary object of an exaction motivated by a balance of payments concern-the subject of this commentary is of narrower compass. Assuming the Committee determines that the purpose of the proposed tax or a consideration of enforcement requires that business trips be included generally and excepted selectively, it is submitted that as presently proposed the travel tax establishes categories of exception that discriminate and penalize in a manner neither necessary nor desirable to carry out the objects that the tax is intended to accomplish. On page 5 of its Technical Explanation the Department of the Treasury describes the proposed lengthy business trip exception as follows: "An individual (and his dependents) shall be considered on a nontaxable trip if he is outside the Western Hemisphere for at least 120 consecutive days while engaged on a full-time basis in a trade or business or profession. This category of exceptions will cover the case of an employee who is transferred abroad by his employer for more than 120 days, an individual who goes abroad to teach on a full-time basis in a foreign school, and a professor on a sabbatical abroad who is doing research on a full-time basis in connection with his trade or business. "If the student, teacher, employee, or businessman, does not spend a total of more than 14 days outside the Western Hemisphere before and after the period he is carrying on exempt activities, his entire trip would be exempt. If he stays longer than 14 days, thus converting his trip to a partial vacation trip, he (and his dependents) would be considered on a taxable trip, but would be permitted to exclude all expenses incurred during the period he is engaged in the exempt activities. "If the student, teacher, employee, or businessman does not stay abroad for the prerequisite 120 consecutive days, his trip would be taxable unless he could not have reasonably foreseen the circumstances which caused him to cut his trip short." [Emphasis supplied] PAGENO="0384" 1162 Discussion Defining lengthy business travel in terms of 120 days seems neither clearly unreasonable nor, on the other hand, clearly appropriate and inevitable. The exception proposal properly recognizes that a general concern over the flow of gold must be balanced against the concern of the individual and of his employer that each be permitted to engage in legitimate business activity free from unreasonable harassment and confiscatory taxation. While we suggest that a period of 90 days would more fairly balance these interests, particularly as a businessman will likely be forced to expend very substantially more than $7.00 each day he is working in Europe, the essential difficulty we find in the exemption formula lies elsewhere. We believe that designing the lengthy business travel exemption solely in terms of 120 consecutive days is unreasonable and unnecessary and likely to prove contrary to the purpose of the statute. There appears to be no sensible basis for discriminating against the American engineer or executive who, detailed to work abroad eight months each year, is obliged to return to the United States for meetings and consultations every third month. It makes little business or governmental sense to encourage a change in the business pattern that would, for example, find the engineer or executive remaining abroad four consecutive months returning home the fifth or, as another example, cause him to remain abroad for lengthy periods and his colleagues to meet and confer with him abroad. The consecutive day requirement would fall most inequitably upon the Amer~ lean executive whose company's operations center in Europe but who chooses to maintain his family home in the United States. While the executive may spend twice 120 days abroad each year, lie will rarely if ever be outside the United States 120 consecutive days. As expenditures while abroad are made by the executive, whether or not reimbursed by his foreign employer, the tax burden should be maintain the past pattern likely would prove so great as to force the executive either to remain abroad and working longer than he otherwise would or to remove his family `and residence from the United States. J~ either ease the consecutive day provision will have generated a result contrary to the statutory purpose. Recommendation For the above reasons it is suggested that the exception for lengthy business travel be revised in either of two ways. First. it is suggested that the exception be based upon cumulative days. Thus, for example, an individual would be considered on a nontaxable trip if during any period of twelve consecutive months he is outside the We's'tern Hemisphere at least 120 days while engaged on a fufl-time basis in a trade `or business or profession. Second, if the Committee should find a cumulative days test inadequately pro- tective of the American balance of payments position, an alternative test might be employed. Thus, an individual would be considered o'n a nontaxable trip if (1) during any period of twelve consecutive months he is outside the Western Hemis- phere at least 150 (or 180) `days, or (2) he is outside the Western Hemisphere for at least 90 (or 120) consecutive days, in either case while engaged `on a full- time basis in a trade or business or profession. There is precedent in the Internal Revenue Code for a cumulative days exemp- tion formulation and for the use o'f such a formulation, effectively, as an alterna- tive ground for the securing of exemption. Subject to limitations, section 911 of the Code exempts from taxation foreign earned income `of two classes of United States citizens: In the first class is the citizen who has `been a b'ona fide `re'sident of a foreign country or countries for an uninterrupted period `which includes an entire taxable year; in the second is the citizen who during any period of eighteen consecutive months is present in a foreign country or countries during at least 510 full d'ay's. The latter category defines exemption in terms of cumula- tive days. The fo'rmer category, `to which it is alternative, is framed in terms of consecutive days of nonresident status. Respectfully submitted, MARTIN D. GINSBURG. PAGENO="0385" 1163 New York, N.Y., February 26, 1968. Hon. WILBUR P. MILLS, Convmittee on Ways and Means, Longworth House Office Building, Washington, D.C. DEAn SIR: In connection with the hearings that your Committee is holding with respect to the proposed travel tax program, I should like to submit the fol- lowing for your consideration. The Treasury's proposal excludes from the application of the tax business trips of a duration of at least 120 days. By this exclusion it would appear that the Treasury has recognized the desirability of fostering American business interests abroad, but it is difficult to conceive `of why `a minimum time limit should be em- bodied in the proposal. It is suggested that all business travel should `be excluded from the application of the tax. Business trips are taken abroad for the obvious purpose of fostering United States business interests which, when success'ful, result in the aggrandize- ment of U.S. income. The imposition of a tax upon such activities would in effect be a penalty upon the attempt to increase U.S. business abroad with the resultant flow of dollars to the United States. The imposition of the tax upon business travel will probably have very little effect on the activities of the larger U.S. corporations. The tax will merely be added to their cost of doing business which `they can readily absorb. On the other hand, we must bear in mind that the 800 largest U.S. corporations are responsi- ble for only 24% of employment in the United States. The rest falls largely upon the small and medium enterprises here. Business trips abroad for the small and medium business enterprises are not lightly taken, particularly since they involve for such companies a substantial risk as to whether or not the expenditures which are in `most cases anyway considerable will pr'oduce the desired results. The Treasury's proposed travel tax will increase the cost of such trip's substantially with the resultant increase in risk. The small and medium export `business will under the Treasury's proposal give far mo're thought to the `advisability of sending representatives abroad to promote their export trade; many will refrain at `the expense of potentially valu- able export trade. This trade is not self-generating but must be sold. With a cur- tailment of selling efforts abroad, the export trade of necessity will decrease rather than increase. With the decrease of the export trade the inflow of dollars will decrease. Many potential export trade getters will also be deterred by the proposed re- quirement to estimate any tiax expenditures abroad in advance at the risk of punishment if the ultimate expenditures differ more `than marginally from the estimate. There are numerous items in a business man's travel expenses which it is impossible to assess in advan'ce with any degree of accuracy, such as telex, cable, telephone, entertainment and transportation costs. With re'spect to the tax on transportation fares, the 5% excise tax recom- mended by the Treasury Department is `one which the Congress should and will consider. It is difficult to un'derstand, however, the functional or philosophical basis upon which this tax can leap from 5% to 30% merely because a stopover in transit exceeds twelve hours. In some c'ases because of transportation facili- ties a stopover in excess of twelve h'ours may be require'd for through-passage to the traveler's destination. In other cases a stopover in excess of the twelve-hour period may he indicated by the business requirements of an overall trip. It would appear appropriate that so far as a transportation tax is concerned the rate of tax should be uniform, whatever that rate may be. Respectfully yours, MILTON L. ROSENBERG. Chattanooga, Tenn., February 17, 1967. COMMITTEE ON WAYS AND MEANS, House of Representatives, Washington, D.C. GENTLEMEN: I am info'rmed that your Committee, in conducting the hearings on the proposed Travel Tax portion of the Administration's Balance of Payments propQlsals, will accept written statements submitted before March 1. Although this letter is on firm stationery, it is my individual eapression and is not written on behalf of the others in this office. Also, I wish to make it clear 89-749-68-pt. 3-25 PAGENO="0386" 1164 that neither I nor my firm represent any travel agency, and that this is not written on behalf of or at the instance of any client. I am deeply concerned as to the international gold situation and our Balance of Payments status. I seriously question whether the proposed attempted re~ strictions on foreign travel will either produce any actual net increase in tax receipts for our Government or benefit the United States in the matter of the Balance of Payments. At the outset, I think it should be made clear to the people of our County as to what is the purpose of this proposed legislation: Is it to produce tax income; to "fight back at DeGaulle (France)"; or to create a benefit for the United States in the matter of Balance of Payments? After we determine what is the true purpose, then we can weigh the benefits against the detriments. Assuming that the purpose is to raise revenue in the way of taxes, it seems to me that it might result in a loss of taxes rather than a gain. If it is effective in reducing foreign travel, it will adversely affect many, many American citizens presently enga~ged in work for travel agencies, carriers, hote1~, and entertainment spots. A person planning to make a foreign trip must travel from his home town (if it is inland) to the port or air terminal of embarkation. This involves an expenditure of travel fares, hotel accommodations, meals, and usually some theatre or entertainment along the way. If these items are cut, the people engaged in these businesses suffer and their incomes would be correspondingly reduced. It seems probable that the losses on their income tax returns may well offset the amount of net gain from the tax on the foreign traveler, to say nothing of the increased expense of processing and handling the Travel Tax collections. If the purpose is to provide spite legislation designed to hurt DeGaulle or France, it would be well to realize that we may be "cutting off our nose to spite our face." I know of a number of people who have planned trips abroad for this summer, none of whom are expecting to visit any part of France. The effect of the proposed travel restrictions would, therefore, adversely affect other coun- tries to their detriment and probably to ours. It seems to me that it is important for the United States to encourage travel interchange between its citizens and those of other nations. "Getting to know each other" is extremely important today. Friendships ripen from better acquaintance and better understanding, one of another. Also, it would be well to inform the public on what, if anything, is being done to make sure that the tremendous amounts being spent by our Government in foreign countries are being so controlled as to assure proper application to those funds to our benefit in the Balance of Payments situation. If the purpose is to benefit the international gold situation as reflected in the Balance of Payments, I am wondering just what analysis has been made to deter- mine just what the actual monetary improvement would be. If it really assures a substantial benefit, this should be explained to our people. From comments which I hear frequently, there is serious doubt and skepticism as to any real benefit in this direction. It seems to me that there needs to be real assurance that the benefits will be substantial in order to offset the hostility which may be en- gendered in nations whose friends'hip we need. We realize that the problems are complex. We trust that from your Committee hearings, there will come more complete explanations, and other and better ways and means of meeting these problem's. Yours very truly, JOHN S. CARRIGER. Pittsburgh, Pa., February 19, 1968. Hon. WILBUR D. MILLS, Chairman, House Ways and Means Committee, Washington, D.C. DEAR Sin: I want to express my objections to the Treasury Department's pro- posal for an excise tax on foreign travel for the following reasons: 1. Taxation is not the proper solution for the balance of payments problem. 2. The tax would encourage wid~spread evasion. 3. The tax would penalize less affluent citizens. 4. Foreign travel should be encouraged. 5. The tax will seriously affect the income of many United States orga- nizations. PAGENO="0387" 1165 The administration is increasingly using taxation for social and economic purposes. I recognize that it is impossible to reverse this trend in many areas of the tax laws, but I believe this trend should be curbed rather than extended. If the United States must reduce its balance of payments by reducing foreign travel, it should not do so through a tax device. If such curtailment of travel is so important to our economy, foreign travel itself should be restricted, with reasonable exceptions. The proper solution is an embargo on trave], just as we impose an embargo on sales of certain materials abroad to Communist-controlled countries. The provisions of the proposal appear to me to be simply unworkable. Obvi- ously, this kind of tax will be detested by travelers who feel that their freedom a~ Americans is being unnecessarily hampered. The volutary disclosure suggested by the Treasury Department and the voluntary assessment is not going to work as well as the present income tax voluntary a~sessment, with all the checks and balances that are available through automatic data processing. Probably traveletrs who continue to make extensive foreign trips will be those of our more affluent society, and I think it is to be expected that many of these will evade the tax by any number of devices, including outright fraud. Unless the administration can cover those who leave via Canada, those who use credit cards, those who transmit funds abroad, and those who simply lie about their spending, the proposal will simply harm the honest citizen without discouraging travel by the dishonest. The tax is severe enough that it ~vill inhibit foreign travel by many families who must scrape and save to make the once-in-a-lifetime trip to Europe. It will not, in my opinion, affect those who are wealthy enough to continue to make travel abroad. To them it will simply be an additional nuisance and inconven- ience. These are the travelers who spend the most abroad. Going to the merits of prohibiting foreign travel, there is first a basic argu- ment that Americans should be free to travel, wherever they like in the world. You know of the extensive criticism of the State Department in prohibiting visas to certain Communist-controlled countries. I do not debate the wisdom of these restrictions, but I do feel that our GoVernment's preventing normal social intercourse between Americans and foreigners is to be deplored. I am one of those who believe that the more American citizens travel in foreign lands, the greater understanding they have of foreigners, of foreign problems, of foreign philosophies, and become, because of this exposure, better American citizens. I will go with the old cliche that travel really is broadening. I think our Government should do everything it can to expose Americans to foreign in- fiu?nces, and, by the same token, increasingly to let foreigners learn that all Americans are not Hollywood movie stars, the "jet set", gamblers and the like. It is obvious, also, that such a tax will have a very adverse effect on the American travel business, air-lines and steamship companies. If the tax policy is to be successful, it will have to inhibit greatly the amount of travel done by Americans. The more that the foreign travel is reduced the less the Government will receive through the excise tax. At the same time there will be a greater less of revenue to American air-lines, travel agencies, steamship companies and the like, which receive a substantial part of their revenues from American foreign travel. Secretary Fowler's figures (Newsweek, Pebruary 19) indicate that 2,200,000 travelers spend an average of $450 for travel fare, It is reasonable to presume that a large part of this $990,000,000 goes to American businesses and that a large part of that is paid In income taxes. Where the income tax loss is measured against the expected saving in balance of payments of only $500,000,000, the whole scheme seems almost self-defeating. All of these factors indicate that this is an ill-considered tax, a poor and in- adequate solution to reduction of balance of payments. I hope that your com- mittee will not look favorably upon this latest Treasury proposal. I am sending copies of this letter to Senators Clark and Scott and to Congressman Oorbett, with the hope that they, too, will oppose this unwise and unjust tax. Respectfully yours, DONALD L. MCOAS~EL SHAKER HRIOHT5, OHIO, February 20, 1968. Cuii~r CoUNsEL, COMMITTEE ON WAYs AND MEANS, Longworth~ House OflieeBwWZiug, Washiugton, DXI. GENTLEMEN: It is my understanding that you are willing to receive written statements from indiriduals regarding the Hearings on the Administration's PAGENO="0388" 1166 Balance of Payments Proposal. I felt from the very beginning that the program as outlined by President Johnson would be detrimental to the United States in the long run. With more of an opportunity to study and read exactly what is sug- gesteci, I am now convinced it will be. I'm sure we all agree that we cannot~ continue to have a ~ balance of payments deficit. However, why is it logical to attack the very area that is adding to the credit side of the ledger, and to con- tinue with our many and varied non-productive Government overseas pro- grams? Is it logical to ask our corporations to curtail investments, which are now returning and will continue to return profits to the United States, while continuing with projects politically motivated, and which ultimately can return nothing to the United States? The facts and figures alone bear out some of the statements in the previous paragraph. In the first half of 1966, corporate and individual investments over- seas totalled 1.74 billion, and the return was 2.8 billion. For the whole of 1966, the return on investments was 5.65 billion, while new investments totaled. 4.025 billion, leaving a favorable balance in this sector of our economy of 1.625 billion. It is inconceivable to me that any American corporation would be desirous of, nor would the stockholders permit, making an investment in any country, United States or foreign, unless they expected a return greater than their invest- ment. To place a moratorium on this type of investment for a period of time is only giving a carte blanche to our European or Far Eastern competitors to in- crease their share of the market, and ultimately will contribute to our balance of payment deficit. The second item, the repatriation of foreign earnings, is much more difficult to discuss, and certainly we have a right in periods of national emergency to require that a percentage of foreign earnings be returned to the United States. It is not logical or economically sound, however, to set this percentage at such a high figure as to weaken our overseas corporations, and to leave them at the mercy of the foreign national organizations, who would ultimately destroy the profitability of same and again contribute to our payment deficit. The temporary curbs on overseas lending would appear to be logical. Most American corporations should be able to borrow funds in the foreign country, even though ultimately they must stand behind such a loan. In this particular instance I certainly have no personal objection, and can agree with the basic idea. Tourism-on the travel tax proposal. I find it quite difficult to understand why someone, a citizen of a free nation, should be told by the Government where he can travel. I realize that the proposal does not prohibit travel, but it has the same effect through the tax. The biggest objection I have to the travel tax pro- posal is the fact that I would expect to see a reaction by France, Germany, Italy, and other European nations, resulting in no great change in our balance of pay- ment picture. President Johnson's proposals for a travel tax would include businessmen traveling in order to increase exports. One way to help cure our deficit is to increase our exported goods, and yet the President is trying to tell the American businessman that he must pay an additional tax in order to help our program by creating more export sales This is somewhat like telling a young child that he should work hard at his studies so he will be able to fill a need as a reporter for the school paper. However, to fill the need, he must pay a higher fee if he is going to' study journalism. It is also true that at the very time President Johnson was telling Americans that he wanted them to s:tay home, and that if they insisted upon going `over- seas he wanted them to be `taxed heavily for this privilege, Senator Young of Ohio Vice President Humphrey and other members of the President s polit ical party were traveling around the world I find it difficult to discos er why they are abroad As a matter of fact the Vice President was promising to give more aid in some areas of Africa and hence cieate a bigger deficit I am* sure that the conimitte wants the thoughts of all interested citizens and I ho'pe I have clearly stated my reasons for believing that the proposals of Presi- dent Johnson will not solve our problems. No one propose'd a measure that would help curb the continual `outflow of `dollars to nations throughout the world for various aid programs. The Administration's proposals are merely an aspirin tablet and if the cause is not corrected, our headache will return. I only call to your attention that during the course of his explanation, the President made the following statement Today our domestic money the U S dollar is also the PAGENO="0389" 1167 money most used in international transactions. That money can be sound at home-as it surely is-yet it can be in trouble abroad-as it now threatens to become." During our efforts to work with the EFTA nations, we have stressed the need for convertibility. This requires the ftindamental fact that "a dollar must be a dollar", and it must be a sound dollar everywhere. However, the Administra- tion requests a 10% tax surcharge, but makes no efforts to cut the budget, and makes no effort to halt internal inflation. Gentlemen, yours is a very difficult job for you must attempt to do what is best for the nation as a whole, taking all factors into consideration, including short and long-term effects of any legislation or new regulations. I do not envy you~ your task and I thank you for taking my views into consideration. Very truly yours, JAY Moons.. STATEMRNP OF RALPH A. MILLER, MOUNT RAINIER, MD. Lady and Gentlemen: ~ummary.-The proposed Travel Tax (es) are Unconstitutional, but Imbalance of Payments could be reduced, :or eliminated, by using Counter Part Funds,and by a small Tax on Large Volume Imports. The propo~ed Tax(es) are discriminatory. The Administration should be required to "Come to Court with Clean Hands" by purging itself of Complicity in Creating the Imbalance of Payments. The proposal to Tax Travel to Certain Foreign Areas is Opposed for the follow- ing Reasons: 1. Unconstitutional.-It is prohibited by Article 1, Section 9, Para. 5 of the Federation Constitution. 2. Unconstitutional.-It is discriminatory, not applying to all Citizens, but only to those who travel Abroad, and is further discriminatory in that it does not apply to all places. 8. Clean Hands.-There is an established Legal Principle that a Plaintiff mtist come to Court with "Clean Hands". Chairman Mills of this Committee quit~ properly applied this principle when the 10% Surtax was requested, and this principle is equally valid regarding the proposed Foreign Travel Tax(es). The Administration should be required to purge itself of all guilt of Contributing to the Imbalance of Foreign Payments before the Congress gives any further con- sideration to this Request. 4. Counter Part Fund5.-The out-flow of U.S. Money can be reduced, however, without trying to `curtail our Constitutional Rights, `by the use of Counter Part Funds. By authorizing Banks to sell Counter Part Funds at a slight discount, Travellers would gladly buy them. This would cost us nothing, as we have already paid for `them. If the Counter Part Funds were sold at 95 per centum of Face Value, the Treasury would get 95 per centum of the money spent abroad, instead of perh'aps 25 per centum that the proposed Tax(es) would provide. Although all Countries may not have Counter Part Funds, the much greater percentage ac- cruing to the Treasury when Counter Part Funds are sold might be enough to compensate for the loss of Taxes on expenditures in Countries not having Counter Part Funds. 5. Uruel.-The proposed Taxes can be very Cruel. To a great many people, a Trip Abroad is a Long Cherished Dream, for which they have scrimped and saved for Years. These are mostly elderly people, to whom a difference of even two years can make considerable difference in their physical stamina, `a lessening of which might make the Trip impracticable. Young healthy people can sleep in Youth Hostels, and not spend more than $7.00 a day, but elderly persons can not "Rough it" as the young can, and I feel certain that, in many cases, the proposed Tax (es) would make the trip impracticable. As most people in this Country are of European descent, most, of them would probably want to go to Europe. 6. Duty Evemptions.-Tbe reduction of Duty Exemptions is also Cruel to the people mentioned in Para. 5 above. Friends and Relatives expect gifts from per- sons going Abroad. The proposed $10.00 Exemption is preposterous. A person with many friends and relatives could buy very little more than Poet Cards and Stamps with this amount. 7. More Import Duties.-Sbould, after the Administration has purged itself of Complicity in the Imbalance of Paymetits, there remain an appreciable Imbalance, this could best be remedied by a small Import Duty on materials that ~ import 89-749-68-pt. 8-26 PAGENO="0390" 1168 by the thousands of tons, such as Iron Ore, Copper, Crude Oil, Coffee, etc. The cost of these Duties would be spread more or less evenly over the whole People, and not concentrated on a special few. 8. Reject TrcsveZ Taa'es.-Any one of the above Considerations should be enough reason for not considering Imposing a Travel Tax, and reducing the Duty4ree Allowance. Taken to-gether, I consider that the `Congre~s has no choice but to refuse to make it a Law. STATEMENT or LEE B. THOMAS, Jib., LoUIsvILLE, Ex. SUMMARY The travel tax program is opposed on 5 principal points. 1. It discourages the interchange of people and ideas and thus restricts the international understanding so necessary to world peace. 2. It is a beginning of a further restriction on the freedom to travel by Americans-an abridgment of our civil liberties. 3. It discourages education `abroad to some extent, in spite of exclusions. 4. It discourages international trade. 5. It `makes it more expensive to administer foreign efforts of American companies and thus may `actually worsen the balance of payments through a reduction of repatriated profits and a reduction in export trade. DISCUSSION Obviously the power to tax is the power to destroy. When a rate of tax is 30% it makes an expenditure prohibitive in many cases. A's a matter of fact, the object of this legislation is admittedly not to raise revenue but to eliminate cer- tain kinds of foreign trade. For many years Russia and Eastern Europe were isolated behind the "iron curtain." During this time these coutries were extremely hostile to the United States. After much negotiation culminating in the Eisenhower conference at Camp David, Russia loosened restrictions so that I was `able to go to the USSR. I believe I was a reasonably effective goodwill ambassador for this country. In the years since, travel restrictions have eased and `so have tensions. I believe it would be `a great mistake to reverse the course. Because of the Vietnam war we are finding our relationships with some natural allies strained. Mr. deGaulle is not doing us any favors. Under these conditions we need person-to-person contacts. In a Democracy we, the electorate, make the ultimate decisions. At a time like this, when we `are at war, when the decisions may determine the fate of civiliza- tion itself, it is wrong to restrict the opportunity for the people to learn. No, let us encourage travel, not restrict it. TECHNICAL POINTS IN RE 120 DAY PROVISION 1. It is doubly unfortunate to discourage young people on trips shorter than 120 days and/or `on summer vacation tours. Many American young people need the broadening education. 2. Business executives overseeing foreign operatioos `are usually abroad for 20 to 60 d'ay's. This is not consistent with our desire for efficiency to discourage brief trips. In my responsibilities as president `of Vermont American Corporation, I usually spend 3 weeks in Europe. Of this time a `substantial percentage is spent visiting customers trying to stimulate export sales. BUFFALO, N.Y., February 15,1968. Re: The President's Balance of Payments Proposals. Changes in Custo'mis Rules. Pages 11 `through 14 of Technical Explanation of the Travel Tax Program and Proposed Changes In Customs Rules. JOHN M. MARTIN, Jr., Esq., Chief Counsel, Com-mittee on Ways and Means, House of Representatives, Washington, D.C. Sm: For importations not greater than $250, the distinction between "com- mercial" and "noncommercial" is fallacious. Since the application of a flat rate PAGENO="0391" 1169 to "noncam.m;ereial" shipments/acquisitions, would simplify the administrative task of Customs, could not the same be said of "commercial" shi.pmeuts/ acquisitions? There is inconsistency in the use of the words, "retail" ~nd "wholesale" with the various limits ($1, $10, $50, $250, $500). This creates confusion. Since virtually all customs valuation (apart from penalty matters) respecting ad valorem rates Is addressed to wholesale values, it would he desirable to use "wholesale" for the various limits for Informal entries, exemptions, gifts, low value items of under $1, and formal entries. ("$10" might be changed to "$6"). Better yet, why not raise the limit of informal entries to $500 wholesale and ap~ily a flat rate of 10%, whether or not the entry Is "cocmniereial" or "noncommercial"? Customs' administrative task will be simplified. 10% will serve as effective a deterrent as 25%. Yours respectfully, BEDsoS ODiAN, Attorney at Law. NoRTH TARRYTOWN, N.Y., Fsbrwary 15, 1968. Hon. WILBUR B, MILI~s, Chairm~an, Ways and Means Co~nmittee, Honse of Represeatatires, Wa~1i~ington, D.C. Dran Sin: I would like to record my opposition to the proposals now being considered by the Committee `on Ways ~ Means with respect to taxes on travel outside the Western Hemisphere, and changes in customs on tourist exèmptiôns. My occupation in publishing, in common with that of many hundreds of per- sons, in other industries, is directed to the very goal of improving our balance of payments, by `sellin.g and exporting to foreign markets American products. I have made in the pa'st many, and expect lii the future to make more foreign trips to develop our sales In the'se foreign markets. I fully agree with the need to develop `a `more favorable position ,for the U.S.A. in i'ts balance of payments, but I do not see how this proposed legislation is any remedy or cure. It Is like giving a cancer patient a `bottle of patent medi- cine,. and further compounding `the real problem by suggesting that if he takes th~ medicine all will be well. The restrictions, direct and implied, In this proposed legislation will do little but hinder our `efforts to reach our foreign markets, Foreign press comments show we have gained no new friends in this proposal; and will surely lose a great many if `such reStrictions are imposed. Against such legislation as this, our friends overseas have no defense. They certainly can react however by buying less of those products which American business is trying to sell `them; and by continuing their wi'thdrawal from other programs which are an integral part of our foreign policy. If the goal of government is to increase tax revenues, there are other means which at least have tradition and custom in their favor. Why need we create a kind of tax which ha's never before been Imposed on Americans? It also would follow that In this attempt to set a new tax the government will need yet another layer of tax inspectors, collectors, and enforcers. Any revenue earned from such a tax would surely be consumed in the administrative machinery required to keep it in operation. I must als'o express skepticism as to bow temporary such a tax would be; governments do not easily relinquish newly found sources of revenue, popular or not. The proposed method of taxing would doubtless be annoying to the tourist, but to a business organization, yet another administrative expense an'd chore. My viewpoint is largely that of business, `but I cannot help but look on these proposals also as a private person. If the goal `of :the government is to restrict travel, I can `only consider this to be a most reprehensible invasion of individual rights. More travel rather than less is one of the honored ways in, which inter- national understanding can be gained. The proposal then would appear to work more against our personal and national Interests than, in their behalf. I urge you to consider these points and to conclude th'e bearings on this legisla- tion `as promptly as possible on the ground that this is poor legislation in a doubtful cause. Siiicerely yours, GE0nGE H. RAPIOLE. PAGENO="0392" 1170 Nnw YORK, N.Y., Februo~ry 21, 1968. Cunor COUNSEL, COMMITTEE ox WAYS AND MEANS, IIo'sse Office Building, Washington, D.C. DEAR SIR: I put on record my strong opposition to any and all impediments to travel abroad, and I beg to make the following points. (1) Freedom of travel is one of the greatest of the rights and privileges of Americans, and one of the most useful. Acquaintance with the civilization, cul- ture, customs and languages of European countries makes an American aware of the situation of his country in the world, and makes him a better citizen by making him more international. As the acquaintance ripen into familiarity~ the effect is deepened. (I have had great opportunity to observe the converse. When long ago I began to travel to Europe, Europeans sotdom came to the USA except as diplomats or immigrants. The ignorance of America among Europeans was often appalling. It did harm to those countries as well as to ours). (2) Friendships between Americans and Europeans are particularly valuable to international relations. It takes repeated visits to build up a circle of close friends in Europe. My wife and I have been doing this for many years, and I dare to say that we have deserved well in making good friends for ourselves who became good friends of America. (3) Professional contacts between American and European professional peo- pie are valuable, and the more so the longer they go on and the oftener they are repeated. I am a physicist. I know by experience bow good it is for both sides that the physicists of the USA s~ould exchange views and experiences with those of Europe, in their laboratories and in their holmes. I have done much of this myself. And yet if special exemptions were to be made for students and teachers I should not benefit by either, for I belong to neither class. (4) There seems to be an idea that Americans abroad are lavish spenders belonging to the "jet set". Doubtless there are such; I do if ot know any. Much more abundant are other types: those who have saved money for years for a long~awaited trip; those who take package tours if which every item of expense is calculated and paid in advance; those like myself who live among the people and who shun luxury hotels and restaurants. (5) There are other ways of attacking the balance-of-payments problem. I think first of the enormous outflow of investment capital, fourteen billion dollars in 1967 alone, ac~ording to President Johnson himself. Let this be curbed not just by the 11% that Mr. Johnson wants, but by enough to take care of the "tourist deficit" as well. Then there are the schemes for encouraging travel from Europe to USA, such as those described in yesterday's New York Times, and the ingenious scheme of Mr. Henry Reuss of the Banking & Currency Com- mittee. Let these be used to the utmost, and see how things then go. Respectfully yours, KARL K. DAnnow. SAYvILr~, N.Y., February 26, 1968. HOUSE WAYS AND MEANS COMMITTEE, Washington, D.C. GENTLEMEN: The work the Ways and Means Committee is now doing on the travel question will ultimately affect all citizens and taxpayers of this country. Therefore you will surely solve the problem in the best interests of everyone in this nation. These are some of the reasons for No Travel Restrictions: Both at home and abroad we should preserve our reputation as the country of the free. It is not the time to endanger any peaceful and friendly international relations which generations of Americans have helped to create. Tourism & travel could fit into the country's budget under the heading of foreign aid. It is the best form of aid, going through average U.S. citizens from all walks of life, directly to the working people of a foreign nation. That money is earned respectably by those pursuing a trade and is not a handout. There would be a cultural and educational lag for the whole population if their teachers, fellow-students, co-workers and neighbors are no longer able to inform them about nations outside the western hemisphere. A 5% transportation tax to equalize foreign & domestic fares would be con- sidered reasonable. PAGENO="0393" 1171 But if the proposed taxes on other expenditures go through, will there be a financial burden on all tacepayers to enforce ,iuch ta~cues? When Secretary Fowler Says that on an outlay of just over $7 per day the tax Would "opiy" be 45~, can we be sure it also cost only 45ç6 to collect this tax? Oan a nation that is seriously striving to raise educational standards for all, afford to waste government funds in teaching the filling-out-of-forms? There should be No Reduction in the Present $100 Custo~ns Allowance. It Would cause more chaos at already crowded customs checkpoints. The allowance included everything acquired, even inadvertently, such as gifts received, or necessary repairs made. How much~ would it cost to reprint all the customs folders and manuals? The proposed 25% flat rate is unfair-It might be too much-or too little. How much will it cost all ta~vpasjers for the extra manpower needed to enforce the new regulations? So many of our problems across the nation are caused by an influx and spread of narcotics, pornography and contraband. But instead of dealing with such criminal activities, highly trained Federal employees will be used to dig tht~ough the dirty laundry at the airports. Our docks are riddled with corruption, crime and crippling strikes. Yet they will be swarming with an army of government workers-paper and pencils poised-ready to do battle with ordinary tourists and their souvenir ashtrays nnd straw hats. Possible helpful suggestions: For the proposed travel taxes and customs reductions there is a Compromise Solution, killing two birds with one stone, which is efficient, fair and democratic. It calls for a Graduated Customs Levy on Imports Over $100. That would effectively inhibit the high-spending jet-set with their Paris ward- robes, foreign furniture, and expensive jewelry. Like the income tax it would be in line with the progressive ability to pay. There would not be any interference with ordinary tourist souvenirs and gifts, some of which are educational, and the acquisition of which often means the making of a new friend for our country. Reduce the Frequency of the Customs Exception. The current once-in-30-days allowance benefits only the jet-set and the smug- glers. Only they bring in goods from several foreign trips a year. The average tourist or visitor to the old country goes between once-a-year to once-in-a-lifetime. Instead of tax money, ask travelers to contribute their time and talents to promoting the U.S. Most American travelers are not only good-will ambassadors, but the most successful advertisers in getting foreigners to visit our country. There is nothing like a personal, straight-from-the-horse's mouth description of our land and its wonders to convince relatives, old and new-found friends and even casual contacts to come and see the USA. I hope the Ways and Means Committee will deal with the travel propositions in a positive way, without having to resort to restrictions. Our country cannot afford the expense-educational, sociological, and financial-needed to support any restrictive regulations. Assuredly any citizen and taxpayer-whether he travels or not-would be paying for them. Yours very truly, DITA C. GREENE Mrs. Lawrence Greene. ARLINGTON, VA., February 27, 1968. Bon. WILBUR D. MILLs, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR CHAIRMAN MILLS: This morning's New York Times reports that Assist- ant Secretary of the Treasury, Stanley S. Surrey, caught an arithmetical error in testimony by the American Travel Association to your committee, I believe at- tention should be given to errors by the Treasury Department in testimony to your committee which are worse than mere arithmetical errors. In at least one case, the error amounts to using balance of payments data supplied by the Com- merce Department in a fallacious manner. The Treasury Department thus lends its authority to the misuse of data from the Commerce Department. PAGENO="0394" 1172 The American Travel Association had argued that "a little simple arithmetic" showed that only 100,000 additional tourists, each spending $500, would produce a $500-million improvement in the balance of payments. Their arithmetic was wrong and the correction brings the figure down to $50-million. But their eco- nomic reasoning was also wrong and perhaps Mr. Surrey did not mention this because the same criticism applies to the figures used to show how much our balance of payments would improve by restricting American travel abroad. The American Travel Association erred in assuming that the increased spending by foreign tourists in the U.S. would leave unaffected the purchases in their home countries of American goods. Some reduction in this would ensue because of their absence and this would have to reduce the $50-milion figure somewhat. This undoubtedly would be not a large reduction because the whole item is not very large in the international payments accounts. With the larger accounts, we cannot assume that the full gain is identical to the figures shown for the "guilty items" which, as it were, with a meat axe, are cut out of the' picture. This, however, is regularly done by the Treasury Department. On page 109 of the Treasury Department's January 1968 publication Maintain- ing the Strength of the United `States Dollar in a Strong Free World Economy, tables 20 and 21 deal with an artificial account called "travel account" and this is even broken down by geographical regions. This gives a false picture because in actual fact, the financing of travel in one direction does not come from travel in the other direction. Furthermore, this separation into an independent account of one item completely contradicts the whole purpose of showing the relaitonships between the various accounts in reports from the Commerce Department. (I notice that one of the above tables gives as its source the Commerce Department, but the other one's "source" is "derived from Department of Commerce data." I am willing to bet that the Commerce Department would not approve of this use made of their data and ask your committee to check on this.) As the February 1968 Monthly Economic Letter of the First National City Bank says (with emphasis on attempts to restrict investment abroad), "the new programs fragment the `balance of payments. But in practical reality, there are pitfalls in fragmenting what is an organic whole * * * `The concept `of an adverse tourist balance fails to take into account that foreign nations in turn have an adverse balance in the purchase of airplanes * * * Will our control approach richochet by implanting concern abroad about the investment income balance, adverse to most foreign countries and favorable to the United States ?" I hope your committee will heed some good advice given by Walther Lederer, who is Chief of the Balance of Payments Division of the Commerce Department. While he states this as only his own opinion and not that o'f th'e Department, it is more than just his opinion but represents one of those things that economists generally agree upon, in the face of their many disagreements. In "Measuring the Balance of Payments" (in Factors Affecting the United States Balance of Payments, 1962, Joint Economic Committee of Congress, pages 75-85), Mr. Lederer says': "Mere additio'n and subtraction o'f the various figures presented in balance-of-payments compilations is no't a sufficient tool to' analyze the balance of payments. * * * The balance-of-payments account has to be considered as a whole and analyzed by looking at the economy as a whole and its position in the economy in the rest of the world. If one industry loses out to foreign com- petition but other industries are not gaining sufficiently to offset the losses of the declining industry, the balance-of-payments problem is not just associated with this weak industry, it is economywide. * * * Of course, there are many people who want to draw attention to one or another item in the balance of pay- ments to explain an unsatisfactory `condition in `the balance as a whole. * * * J~ is the purpose of this paper to warn about the pitfalls of this procedure and help direct analytical endeavors to the broad and fundamental economic rela- tionships where they can be more productive and helpful in policy formulations'. After all, the economy is * * * an integrated whole, and not a pile of discon- nected segments." Mr. Lederer's advice would have served the Secretary of `the Treasury, Henry H. Fowler, in good stead in June 1965. A's shown in "Gold, the Dollar and the World Monetary System," A Committee for Economic Development Symposium, June 1965, (page 42) he said: "Each time the deficit was ,held down in one place, it bulged out in another. In fact, we have been plagued by a series of deficits aris- ing from a different mix of causes from ye'ar to year." He seemed surprised at this, seeing it as a "plague." But I am surprised that in his testimony of Februai~y 5 this year to your committee there is no recognition of `the organic nature of PAGENO="0395" 1173 our balanee-of-paymemts situation. This is shown by the assumption that `the way to get rid of an offending item is to subtract it Without regard to effect on other items and without regard to future impacts. I recommend to your committee's attentiOn the testimony of Professors Fritz M;achlup and Jack N. Bebrmaan~ which I heard on February 19 before the Joint Economic Committee. This shows that rather than blaming any "plague" for our troubles we should examine the undesirable side effects of our own action. The Secretary of the Treasury told your committee on February 5 that "the U.S. must seek a solution to the payments imbalance through the expansion of the world economy, rather than the severe contraction of its own, and, conse- quently, the world economy." Then he proceeds to propose contractions of our economy. Others `say they are trying to "defend" the dollar; then they proceed to undermine it, sometimes in the interest of `the defense of the contrived role of gold, masquerading as a "defense of the dollar." The February number of the MORGAN GUARANTY SURVEY (published by the Morgan Guaranty Trust Company of N.Y.) carefully specifies "devaluation of the dollar in terms of gold" when they talk about the possibility of increas- ing `the price of gold, which is a commodity resting on the U.S. Treasury prop of a fixed price it could not earn in a free market. (According to' Otmar Emmin- ger's statement, reprinted in the February 25 Washington Post, "the present arrangements provide the `speculators with a cheap one-way option," referring `to the fact that the gold market is no't free, since any falling pr'ice is made im- possible by our Treasury's standing offer to pay $35 an ounce come what may. Dr. Emminger, an official of the German Central Bank, knows what he is talking about, but `typically he plays down the offense against the `dollar which is widely prev~alent and encouraged by public `officials `supposed to be d'efending it.) The true devaluation of the dollar has to do with the exchange rate with other currencies and this is not the same as devaluation of the dollar in terms of gold, or what amounts to the same thing, raising the price of gold in terms of' dollars. Everybody knows that the value o'f the dollar within the domestic economy has to do with its purchasing power of the goods and services people normally want to buy, but many seem to forget about it when they turn to the international field, and rivet their attention `to gold, which hardly anybody wants, but about which persistent gold speculators are incredibly stupid. Anyone who bought gold in 1954 would hold now approximately one-fifth of the amount of weal'th that he would have if be bad bought instead Americ'an stocks in the New York Stock Exchange in an average combination, the Dow Jones combination. This was pointed out by Prof. Fritz Machiup of Princeton Univer- sity, before the Joint Economic Committee on February 1. Even if he had in- vested in Treasury bill's, which are the lowest yielding assets, in the last 10 years the value of his holdings would have gone up by 20%, while held In gold, they would have gone down in the same proportion, according `to Mr. Wm. F. Butler, Vice President of the Chase Manhattan Bank, who agreed with Prof. Machlup. Then Prof. Jack N. Behrman, of the University of North Carolina joined the fray by pointing out that if the U.S. had sold all our gold to thO rest of the world for francs, lire and pounds we would, holding `thes'e, even with the various devaluations, now hold $20-billion worth of assets. We could then have met all our deficits out of interest. In other words, these experts were saying that to get rid of the gold is the best business. The widespread fear abo'ut "the drain oil U.s. gold" is not based on hard facts. According to page 77 of the Joint Economic Committee Hearings on the Jan- uary 1965 Economic Report of the President, Mr. Ralph Young, Secretary of the Federal Open Market Committee, then sitting beside Federal Reserve Board Chairman William McC'hesn'ey Martin, wrongly stated that we would violate our agreement with the International Monetary Fund, if we lowered the price of gold. Letters to me from the Treasury Department and from the Legislative Ref- erence Service of the Library of Congress show he was wrong. We should not let the gold speculators "get away with murder" (which Is what Senator Prox- mire, In a letter to me, said be bad let Mr., Young get away with) thinking that the only direction the price of gold can move i's' up~ As stated by Howard S. Piquet, of the Legislative Reference Service ~f the Library of Congress, in "Some Con- sequenqes of Dollar Speculation in Gold," in the Joint Economic Committee's 1q62 compilation of studies, Factors Affecting the U.S. Balance of Payments, page 819, "Gold is a commodity, and the same reasoning applies to it that applies to wheat. The U.S. Treasury (not by statute, but by administrative practice,) sup- pOrts its price at $1 per 0.89 gram." PAGENO="0396" 1174 I cannot understand why our Treasury people persistently keep reassuring the gold speculators in their war against the dollar that they have nothing to fear. Mr. Robert V. Roosa, while Undersecretary of the Treasury did this for years, insisting on the sacrosanct "fixed relationship between the dollar and gold", but even after leaving office, he refuses to discuss the merits of his ease in the open. (See his book, The Dollar and World Liquidity, Random House, 1067, where he defends secretiveness in this area.) While Mr. Roosa was Under Secretary of the Treasury he kept emphasizing that "a continuously large deficit tends to weaken a nation's reputation for solvency and economic strength," (N.Y. Times, Dec. 29, 1961). He brought back blood-curdling reports from Europe, while the OECD report, at the same time (N.Y. Times, Jan. 2, 1962) pointed out that our deficit was not necessarily a mark against us, being due to Government and business lending. Why do our own officials work against us? It's done to this day. Now again our own officials are overawed by highsounding demands on us from foreign financiers to submit to a balance-of-payments discipline. We are told we must reach an "equilibrium," but this is a poor guide when they can't specify what kind of "equilibrium" will satisfy them. At the June 1965 Sym- posium on the International Position of the Dollar, conducted by the Committee for Economic Development, the Secretary of the Treasury was asked a question he has not been able to answer to this day. According to the conventional "liquidity" Commerce Department definition of "equilibrium" there was a $3- billion deficit in 1964, but it was less according to other definitions. There was one so-called basic deficit, used by various economists at the National Bureau of Economic Research and the Brookings Institution, which was virtuklly zero. In effect Secretary Fowler answered the question about the relative merits of the different definitions: Deficit, shmeficit, "various central bankers are putting a lot of dollars out and asking gold for them." While he had "not been aware there was considerable opinion to the effect that we had no deficit," among our economists, he seemed supremely sensitive to prejudices of foreign bankers even though the economies in their couatries were in a worse state than ours. (As is that of Prance today, in spite of the big talk from their financiers about what we `must do to win their approval.) Testimony before the Join:t Economic Com- mittee on September 9, 1966 included an analysis of "hilarious inconsistencies" of European finlanciers who call upon us to adopt certain policies and then squawk like hell when we take them literally. How can we explain the current and past devaluation of the dollar under the guise of its defense? Keeping the price of gold constant, as I have explained, does not prevent dollar devaluation. The dollar used for foreign military ex- penditures has in effect been devalued. This was done by trying to save foreign exchange whenever the cost of buying at home was more than 25%, later 50%, above the cost in foreign currencies, calculated at the official exchange rate. In other words, in decisions whether to buy at home or abroad, foreign currencies were given a higher value than indicated by the official parity. Correspondingly, the dollar was devalued. They had the temerity to call this "economy in military spending" when in fact it was a way to get less for our money. Through tying foreign aid to purchases of our products, the U.S. reduced the value of its foreign-aid dollar. Countries receiving aid bad to buy in this coun- try even if they could have bought at lower prices elsewhere. It cost some of `them 30% more, which corresponds to a devaluation of the aid-dollar by about 23%. In July 1963, the U.S. began taxing purchases of foreign long-term securities at a rate of 15%. This is the equivalent of devaluing the dollar used for buying foreign securities. This process of devaluation of the dollar is now continuing with the Adminis- tration's proposal to tax foreign travel and tourism, which would be equivalent to devaluing the tourist's dollar. To close the "tourist gap" concessions are pro- posed to foreigners coming to the U.S. which in effect improves their currency in relation to the dollar, another way of saying dollar devaluation. In addition, there are non-official propostals for taxes or tariff surcharges on imports-the equivalent of devaluing the dollar for imports--and for subsidies or tax-refunds on exports-the equivalent of lowering the value of the dollar to foreign buyers of our exports. This sneaky devaluation of the dollar discriminates against some and favors others. It is inefficient and probably will leave whatever problem it is supposed to solve worse than before. I request you put this letter, and accompanying material referred to in it, into the record of your Hearings on Administration Balance-of-payments proposals. Yours sincerely, SmNmr Kouirrz. PAGENO="0397" 1175 QuINor, ILL., February 24, 1968. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR CONGRESSMAN MILLS: In regards to the travel tax proposal I would like to submit this statement of protest for the records of the Ways and Means Committee hearing. I am a travel counselor in a rather large agency and as such I have a double interest in this matter. I am strongly opposed to Mr. Fowler's thoughtless pro- posal. Aside from the fact that it is discriminatory, unjust, unenforceable, short- sighted, and I am sure unconstitutional in its restrictiveness, it is absolutely stupid in that it will create a destructive retaliation. American tourism is one of the principal businesses all over the world, pro- viding an income which permits foreign countries to purchase our goods. If travel is curtailed we can look forward to more taxation in order to increase our foreign aid to these countries as they will no longer be able to support themselves. We in the travel business have been supplied with official statements from every foreign carrier and government and without exception they prove with facts and figures that they are pouring millions of dollars more into our country, in wages, advertising, American built aircraft, etc., than they are taking out. At this very moment Boeing and McDonell-Douglas have nearly two and a half billion dollars in aircraft orders from foreign airlines, and this is just one, very small, example. Why not put our energy into a more forward and constructive solution such as the United States Travel Service. Let us make the United States a desirable place to visit. Let us continue to travel to far off places so that the world may know that we still believe in our constitution; only then can other countries believe in us. Respectfully yours, DEANNA HUTMACHER. AUSTIN, TEX., February 12, 1968. GENTLEMEN: I wish to go on record as expressing my objection to the proposed travel tax. The very concept of a tax on world travel is repugnant, and it is painfully ironic that it is proposed by an administration which castigates as "isolationists" those who oppose our involvement in the Vietnamese war. What could be more isolationistic than so blatant a disregard for inteynational trade relations, and ultimately world economy, as this tax represents? On a more basic level is the question of whom such a tax would affect most heavily. Contrary to Congressman Pickle's statement to his constituents who oppose the tax, it is not "those who travel for pleasure and spend large amounts of `money abroad," but the middle class people who have saved for years for their trip who are gOing to be mogt seriously affected. My husband is a secondary school teacher, and among our friends are sia' couples who planned on European trips this summer. They are all~ teachers or professors and all have come within reach of these trips by ~noney put aside from obviously limited salaries. That money is a set quantity. There simply is no more. The person with less limited financial resources may be annoyed' at the extra outlay brought on by the tax; if they are terribly annoyed,, they can always decide to go another year, or make this year's trip within' this hemisphere. But there is a vast difference between being annoyed and being prevented. This tax can either prevent the trips of persons like my husband and myself, or decrease their length-the length of perhaps a once in a lifetime trip, not `a "this year's trip." Three of the six couples mentiohOd are young and without children; to try and postpone their trips until another year would almost certainly mean that the ne~t attempt to take the trip would be when they have children, whiCh would either be prohibitive or limiting. Even if the trip were possible after the arrival of a child or children, it would understandably not be the same trip; it could never be the sathe trip. The proposed tax affects those who travel because' they cOnsider it important, not because they're looking for diversion and have seen all the current movies (if that is' what Congressman Pickle means by travelling "for pleasure.") But regardless of whom it affects', in principle the tax represents a restriction on the freedom of international exchange in all forms. It is a `move worthy of the current Greek military regime. Surely a noisy lobby is not required in order to see this proposal rejected. Sincerely, LESLIE L. FENTON Mrs. Alan H. Fenton, Jr. PAGENO="0398" 1176 WOODLAND, CALIF., February 28, 1968 Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C.: This is being sent in the form of a formal statement on the proposal to taco overseas travellers. I wish to go on record as stating that this proposal is unfair to the majority of the citizens of these United States. The proposed legislature is discriminatory and unjust and seems to me to be unconstitutional to the American way of life. It leaves too many loopholes. It is a short-sighted expedient which will not solve the financial problems of America but will create more serious problems in the future. Our so called good relationship with peoples of other nations will be seriously jeopardized. I sincerely hope and pray that you good gentlemen will have the foresight to see the dangers in this proposed legislation and will vote against this. Sincerely, Miss FRIEDA HANICE. THOuSAND OAKS, CALIF., February 25,1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR Sin: I would like to write to formally protest the proposed legislation concerning taxes on International traveL I feel the proposed legislation is discriminatory and unjust. It seems to me that it is against the American principle of free movement. I am writing to protest this most strongly and hope your Committee will realize the danger of this legislation. Yours truly, Bonts MANN. STATEMENT OF STEVEN B. PEYETTE, ET AL, OF BERKELEY, CALIF. Due to various administrative, economic, and political policies, the United States of America is presently faced with an extremely tense and critical drain of its economic resources. Part of the administration's proposed solution, is to initiate a temporary two-year tourist tax upon Americans traveling abroad, the amount of which is dependent on the traveler's destination and purpose. Consequently, such national legislation would deter many Americans from traveling abroad, and thus limit the number of American dollars flowing from the United States. Possibly, this action would stem the present deficit balance of payments and bring our economy closer to international economic balance. However, I feel that this prospective tourist tax will impose yet another restriction upon my individual right to freedom of choice, upon which our philosophy of government was founded. There are other solutions to resolve this economic dilemma; however, if we, as capitalists, deny or impose burdensome and monetary regulations upon our rights to travel and shop in the International Market Place, then we have usurped our concept of competitive freedom. This loss of personal and economic freedom Is essentially what brings me to submit this statement. I urge the Committee to oppose strongly this proposed legislation which attempts to deny each and every American his freedom of travel, his freedom of choice. If, however, such legislation Is approved by our leaders, we can only look forward to the pendulum of increased restrictions in all areas of our political, social, and economic lives. The following persons join me in the submission of this statement: Margaret L. Fraga, Jessica Nason, Barbara Brock, A. F. Jacobs~ Louis Taylor, Robert B. Moffett. PAGENO="0399" 1177 SPBIxGFxm~n, MASS., February 10, 1968. Mr. Jo~x M. MAitrIx, Jr., Chief Counsel, CorieUttee On Waifs dud Means, Long'worth House 0ft106 Bsi4klAng, Washington, D.C. )EAE Sm: I submit the following statement to the liouse Ways and MOans Committee on the Administrations proposed travel tax program. As a citizen of the United States I find myself quite revolted by the "travel tax" that the present Administration iS proposing. My wife and I have traveled extensively in the United States and have been overseas twice. The last time we went abroad we visited, among other places, Egypt, where they cheek the amount of money you take in, make you exchange It for Egyptian currency, and then make you give them an accounting when you leave. Our entire group was disgusted with this type of bureaucracy and I thanked my lucky stars that I was born in a country where people could come and go with dignity. A more unpalatable method of collecting taxes I cannot imagine for a United States citizen than to face an inquisition of how much money he is taking out of the country, how much he brings back, plus the other suggested frustrations outlined in current news articles. If something must be done, and I do not believe it necessary at all if the govern~ ment would cut down by a few billion dollars on the taxpayers money they are spending overseas, why not do something basic like calling in all passports and reissuing them at $50.00 each for a two year period? I request that the Committee give thoughtful consideration to the proposals that are being made bearing in mind that this is supposed to be the "Land of the Free", not a police state. Sincerely, ChARLES F. BURNEAM. PASAr~ENA, CALIF., February 19, 1968. Mr. WILBUR D. MILLS, Committee on Wa~ys and Meaias, House of Representatives, WasMngton, D.C. Mx DEAR MR. MILLS: No doubt you have received many letters concerning the proposed action which would curtail people from enjoying the fruits of their labors during the Sunset Days of life. I personally have been traveling to dIfferent parts of the world since 1932 and I find the big majority of travelers are folks above sixty years of age. They are people who have worked hard for many years and have Saved their money for this great pleasure, and to enforce a curtailment on their privilege to spend their money for something that is a milestone in their lives just doesn't seem to be morally right. I know many, many couples that I have met in various countries during my lifetime who were enjoying so much their one week's vacation, and a great number of these people are no longer living. I hope that you will not be a party to am~ such legislation which will deprive these people who, instead of saving their money to leave to their heirs, have decided to see some of the other parts of the world before they pass on. It is my privilege to have breakfast in t~os Angeles with about 200 executIves every Tuesday and last week the air was a little thick with criticism of the administration for even contemplating such legislation. You and your committee, by opposing this legislation, could pass on to your Maker feeling that you had not thrown any obstacle in the way for people to receive this one big thrill out of life. Cordially yours, M. W. KELLY KuLso. PA5AOENA, CALIF., February 22, 19d8. Mr. WILBUS D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR MR. MILLS: I wish to respectfully register my opposition to the proposed restrictions on travel and travel taxes. PAGENO="0400" 1178 The proposals by the Secretary of Treasury impress me as being very discrim- inatory, unjust, and enforcement would create a monstrous situation. I am utterly opposed to any restrictions to travel on our citizens except only under strict National emergency. The principle of free and unrestricted move- ment should be encouraged-not opposed. Granted the balance of foreign payments is a very serious problem, but I truly do not feel travel is the area to be examined and I question the Secretary of Treasurer's statistics with reference to tourists overseas spending. My basis for opposition is based on a total of 41 years experience in the field of Transportation-eight years experience as an officer in the U.S. Merchant Ma- rines; five years active duty in the U.S. Navy with every moment associated with transportation, both overseas and in Navy Headquarters in Washington; ten years as an executive in U.S. Steamship Companies; and 18 years as a Travel Agent. I bring out these personal statistics merely tO try to prove my point that I am writing from long experience, and a lot of thought. I sincerely hope that you and your committee will find means to avoid what I consider unnecessary curbs. Respectfully yours, R. P. KINGSBURY. LAGUNA HILLs, CALIF., February 17, 1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR SIR: I should like to register my opposition to the proposed International Travel Tax which I understand will receive a public hearing in the House Ways and Means Committee next month. This proposal strikes me as being discriminatory, unjust, unworkable, the enforcement of which would create another bureaucratic monster, and we now have too many of those. Very truly yours, Mr. and Mrs. FLOYD M. SHARP. Los ALAMITOS, CALIF., February 19, 1968. Mr. WILBUR P. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR SIR: Please accept this as a formal statement of protest to the Proposal to Tax Overseas Travellers. We, as American citizens feel that any tax of this kind is discriminatory and unjust because it is against the American principle of free and unrestricted movement. We believe it is unworkable and leaves too many loopholes. We feel it is a short-sighted expedient which will not solve any problems but rather create more serious problems in the future. This tax will not affect the wealthy, for a few more dollars means nothing to them so it will only create hardships on those Americans who have been saving for a trip to Europe for many years. We have earned our money honestly, we have paid our share of taxes and we are asking that our voices be heard in this matter! Yours truly, JAMES W. HARRISON. LAURA M. HARRISON. GAY L. HARRISON. LONG BEACH, CALIF., February 19, 1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR Sin: We are writing to you in formal protest in regard to the proposed overseas travelers tax. Any such tax in our opinion would certainly be discrimi- natory and unjust, and may even be unconstitutional. We feel that it is against the American Principle of free and unrestricted movement. PAGENO="0401" 1179 Please give this your very serious consideration, and by all means we would urge that you vote against the tax. Yours very truly, Mr. and Mrs. M. R. BEBBOWER. ALUAMBRA, CALIF., February 19, 1968. Mr. WILBUR D. MILLS, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAR Mn. MILLS: We wish to go on record as being opposed to the proposed legislation regarding the travel tax of which you are the chairman. We feel it is discriminatory and unjust and will work a hardship on the average traveler. Mr. Fowler might have good intentions, but we, and many of our friends, feel that there are many, many loopholes and are very much against this proposed legislation. Sincerely yours, Mr. and Mrs. L. S. MOCLARY. GLENDALE, CALIF., February 16, 1968k Mr. WILBUR D. MILLS, Committee on. Ways and Means, House of Representatives, Washington, D.C. DEAR MR. MILLS: `I wish to respectfully oppose the proposed legislation relat- ing to the travel, opposition as promoted by the president in his efforts to correct the balance of trade funds. I consider it unjust anddiscriminatory. It touches a small ~omparative group and a small amount of the total problem of money spent abroad. In my opinion, the results will prove to be exactly opposite to what should be accomplished. The Impact of this kind of legislation will so antagonize foreign nations, both friendly and unfriendly, that they will curtail purchases in the United States in far greater amounts than are now being spent abroad. I consider it opposed to our ideas of Freedom and absolutely upworkable if public opinion proves to turn in the direction it appears to be leaning. I urge your committee to consider very carefully all the potential harm that could come from such distorted and short-sighted thinking. Very sincerely yours, H. PARK ARNOLD. LONG BEACH, CALIF., February 23, 1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C.: We are opposed- because the proposed legislature is discriminatory and unjust and well may be unconstitutional, because it is unenforceable, unworkable and leaves too many loopholes, becatise It Is against `the American principle of free and unrestricted movement. because it Is a short-sighted expedient which will not solve apy problems but rather create more serious problems iti future, because Americans are in jeopardy and Mr. Fowler's proposals are, in our opinion, a confession of failure and therefore a' failure of the Treasury Department to cope with the imbalance of payments problem in a construc- tive manner. JUSTIN N. CARTER, Registered Voter. MARGARET B. C~siiTErs; Registered Voter. SEATTLE, WASH., February 26, 1968. Mr. JOHN M. MARTIN, Jr., Chief Counse', Committee on Ways and Means, Longworth House Office Building, Washington, D.C. DEAR MR. MARTXFr: My husband and I wish to be on record as being against the proposed travel tax program requested by President Johnson. An editorial PAGENO="0402" 1180 appeared in a recent Wall Street Journal which sets forth our feeling better than we could ever express it to you. We therefore quote this editorial to you: "The striking thing about the Administration's proposed Travel Tax Is that it is Intentionally designed to interfere with the liberties of American citizens. "That the tax will inhibit the ability of ordinary Americans to travel to Europe is not merely an unfortunate side effect. The whole purpose of the proposal Is to allow the Government, in its ultimate wisdom and benevolence, to control the movement and spending of its citizens. "It is all very well for the Administration to cloud the coercive intentions of the tax with deductions and other gimmicks. Yet in doing so it paints a curious picture of its own notions of social worth. It allows a $7 daily allowance free and taxes the next $8 a day at half the ordInary 30% rate. "The intentiQu, apparently, is to avoid interfering with the dirty shirt set, skylarking students and other minimal spenders. But the modest American who has put aside $1,000-say, $200 a year for five years-~-.-for the total expenses of three weeks in Europe will find he now needs about 15% more, which will prove painful if not prohibitive. "To help enforce these elevated and discriminating notions, the traveler is faced with elaborate methods of repression. Report and justify and post bond before you can be released from the United States. "It Is also very well for the Administration to say the tax will expire In two years if Congress enacts It at all, but that is one we have heard before. Our own morning line has very long odds on this tax passing from the national scene any time before tue current Administration does. "Especially so since the Administration is doing nothing to attack the more basic causes of the baiance.of-payments problem. It is not In any significant way cutting back on its own overseas commitments, which lie much nearer to the heart of the problem than tourism does. Nor is it pursuing the Governmental austerity at home which is the only internationally proven cure `for payments deficits. At the same time it proposes the travel tax It presents a budget with a deficit, if everything goes exactly perfectly, of some $8 billion. "The travel tax, then, is merely the latest edition of a weary story. For the mistakes of their governors, the people will pay, not only with their money, but with their freedom." We are a retired couple and had planned that at this time of our lives, after many years of working and saving toward this end, we might enjoy the fruits of our labors and take a trip or two before settling down to the years of retire- ment ahead. My husband was in the service for 21/2 years in World War II; we are the generation that suffered abominably through the worst depression this country has ever known following World War I; and now Inflation threatens the very core of our economic lives, to say nothing of losing the basic freedoms our ancestors fought~so desperately to preserve. We fervently hope our complaint added to the many we know you will have received, will have some affirmative effect upon a completely irresponsible ad- ministration. Yours very truly, Erunn liL LOUGHABY. Los AxOELES, CALIF., February 28,1968. Mr. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DuAls Mu. MILLs: We wish to register our opposition to the proposed legislation to tax international air and water transportation, and especially the tax on expenditures outside the U.S. This is a very short~sighted proposal and It will create endless problems, that will solve nothing in regards to the imbalance of payments problem, and will result only in confusion and chicanery, plus the expense of trying to police the travelers. Let the Committee on Ways and Means rather try to cut down on junkets by members of Congress, their wives, and co-workers all over the world. This one step, easily implemented, can save dollars that are being spent that are highly resented by all taxpayers. Very truly yours, Mr. and Mrs. Hunnnur FREEDMAN, Los Angeles, Calif. 0