31. Memorandum From the President’s Special Assistant for National Security Affairs (Bundy) to President Johnson1
SUBJECT
- Balance of Payments Committee Work
This morning we had the best meeting yet of the Cabinet Committee on the Balance of Payments, but there is still several days’ work before we will be in shape to talk with you.
There is now a pretty general agreement on a number of specific items. The most important are:
- a.
- The Gore Amendment to tax bank lending of one year or more, imposed at the present rate basis (a large item).
- b.
- Encouragement of foreign investment in the U.S. (a small but useful item).
- c.
- Limitations on free imports by U.S. tourists (also small but useful).
- d.
- Increases in the interest equalization tax on capital outflow (middle-sized).
- e.
- A quite general effort in partnership with the Fed and perhaps with an additional tax to control both bank and non-bank short-term capital movements. (This may be a quite substantial item, since there appears to be a large pool of short-term funds of U.S. corporations which is held abroad for very small interest advantages.)
- f.
- A further intensification of savings on the military dollar account. This is more for show than for use, and it has important budgetary costs because U.S. oil is more than twice as expensive as Middle East oil for some of our forces, but we all agree that it is worth including for appearances sake.
- g.
- Finally, there is agreement, at least for the moment, that we should open an attack on overseas investment in the developed countries, but not by proposing legislation this year. The idea is that with John Connor as your Chief of Staff you should mount a major campaign of personal leadership with the top business leaders whose firms do most of this investing. Connor and McNamara believe that this would have a very substantial effect for a year or so, and that then we could ease up if conditions improve or move to legislation with less business opposition than we would be sure to get now.
The ways and means of some of the more complex parts of this program—notably the limitations on short-term capital movement—are being examined over the week end. We are also trying to get harder figures on projected savings, though there is inevitably a lot of guess work in all this. We should have a further report for you then.
[Page 84]The one item which is losing ground in the Cabinet Committee is the tax on tourist travel. An interesting coalition led by Rusk, Ball, Connor and Herter is strongly opposed. Their arguments turn on the damage to our own citizens of a regressive tax, the bad political impact abroad, the damage to our own tourist program, and effects on the Kennedy Round.
All of this will culminate in recommendations next week for a Presidential message. In addition, it looks as if you would be asked to take on three particular tasks:
- 1.
- The work with the business leadership on overseas investment already explained.
- 2.
- A message to Mike Pearson to emphasize to the Canadians the importance of limiting their very heavy borrowing in our market. (This would then be followed up hard by Treasury and State.)
- 3.
- A personal word from you to Bill Martin
which would have two components:
- a.
- You care even more about confidence in the dollar than he does, and this program is designed to prove it.
- b.
- You expect to hold him to the promise he gave in the Committee today—that if confidence can be sustained, U.S. domestic credit will be kept easy. This is regarded by Gordon, McNamara and Ackley as very important in the light of the strong possibility that we may need even easier credit before the end of this year.
The clearly dominant judgment of your Committee now is that we must have a strong widely based program. We don’t have it yet, but we are getting there.
- Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. 2 [2 of 2], Box 2. Personal and Confidential.↩