Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

114. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Bator) to President Johnson¹

Washington, January 13, 1967.

SUBJECT

• Supplementary Balance of Payments Measures

At Tab I is a memorandum from your Cabinet Committee on the Balance of Payments recommending measures to supplement the Commerce and Federal Reserve programs you approved last month.² The major points and issues are as follows:

1. The Committee unanimously recommends that we ask the Congress for a three-year extension of the Interest Equalization Tax (IET)—which expires on July 1—together with new authority to vary the tax rate from 0 to 2% (instead of the present flat rate of 1%). This tax is our strongest current restraint on foreign borrowers. The variable rate will allow us to increase the restraint if easier money at home leads to a greater incentive for foreigners to borrow in our markets. (The detailed argument on this is on page 1–3 of the Fowler memorandum, Tab I.)

O.K.³

No

2. The Committee unanimously recommends an expanded travel program, but is divided on some of the details.

(i) Travel Task Force. Everybody agrees that you should appoint a high-level Task Force to recommend ways to expand travel to the U.S. from abroad. It should be chaired by a senior businessman, and have members from both industry and government. The Committee is also agreed that, in announcing this Task Force, you should pledge your willingness to approach the Congress for much more money for the U.S. Travel Service—up to perhaps $25 million instead of the current $3 million—to carry out any recommendations you approve. (Fowler thought it might be appropriate for the Vice President to act as your agent in this. Thus, he suggests that the Task Force report to the Vice President.)

(Details are on pages 3–5 of the Fowler memorandum, Tab I.)

O.K.⁴

No

(ii) Raise the Passport Fee From $10 to $20–$25. Your advisers are divided:

• —The Vice President and McNamara favor it and would earmark the proceeds for the U.S. Travel Service.
• —Connor, Gene Rostow, and Freeman would raise fees, but not earmark the receipts.
• —Fowler would prefer to fund the Travel Service through a larger regular appropriation, but would favor raising passport fees and earmarking them if that is the only way to get more money for USTS.
• —Ackley, Schultze, Gaud, Bill Martin, Bill Roth, and I are for higher appropriations for the Travel Service, but against a higher passport fee on grounds that: it will not deter travel; it won’t really allow us to get around Mr. Rooney’s opposition to a higher USTS budget; and, last, it is a very regressive form of taxation which will only hurt our poorest travelers. In addition, Schultze strongly objects to the precedent of earmarking. (Details are on pages 5–7 of Fowler’s memorandum, Tab I.)

Raise the fees

Earmark them for USTS

Don’t raise fees⁵

(iii) Presidential Appeal to U.S. Travellers. A majority of the Committee—including Fowler and Connor—believes that equity requires that we make some pitch to the traveller to balance what we have said to the corporations and the banks. The rest of us feel that such an appeal would not save much money, that it would squander your prestige in a futile cause, and would create an undesirable impression that every traveller is violating the explicit wishes of his President. My own strong vote is against such an appeal. (Details are on pages 8–10 of the Fowler memorandum, Tab I. At Tab I–B, is a draft Presidential Message on travel prepared by Fowler. The proposed appeal is on page 4, at Tab “Appeal”.)⁶

I will make the appeal

No⁷

(iv) Reduce Customs Exemption for Returning Travellers from $100 to $50. Fowler favors this reduction, particularly because of its psychological effects. State and the Fed argue that the expected savings of $25–$50 million are not worth the substantial political and economic problems this would cause us abroad, particularly in Latin America. Gene Rostow’s memorandum, at Tab I–C,⁸ gives a full exposition of the State view. State has my vote.

O.K.

No⁹

(v) Legislation Imposing a $2 Handling Charge on Tariff-Exempt Gift Packages. The Committee is unanimously in favor.

O.K.¹⁰

No

Bator Comment.

The extension of the IET is a serious and important part of the balance of payments program. I strongly favor the Committee’s recommendation. If you approve, Fowler will approach Mills and Long to pave the way.

A serious effort to get foreigners to travel in the U.S. could be of long-term importance. Thus, the Task Force is a good idea. The other proposals are much more marginal. I have given you my views on each; none is of great significance.

Fowler proposes to announce all of these steps in your Economic Message on January 26.¹¹ Thus, it would be very helpful if we had your decisions by Monday or Tuesday—in time for Ackley to have prepared a printed draft for your review toward the end of the week.

Francis

Speak to me on all unchecked items¹²

1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. IV, January 1967 [2 of 2], Box 3. Confidential. Attached to the source text is a note from Bator to the President, January 17, saying that he understood that the original of this memorandum, forwarded to the President on Saturday morning, January 14, may have been lost and that “I am afraid we need decisions almost right away if the Economic Report is to get out on time.”
2. Tab I is a memorandum to the President, dated January 12 and signed by Fowler, not printed. The Department of Commerce program refers presumably to its voluntary program with the business community for 1967. The text of a Commerce undated draft announcement of this program is attached to a memorandum from Fowler to President Johnson, December 12, 1966. (Ibid., Vol. 3 [1 of 2], Box 2) An undated draft press release prepared by the Board of Governors of the Federal Reserve System outlining new guidelines for financial institutions cooperating with the President’s voluntary program is ibid.
3. This option is checked.
4. This option is checked.
5. This option is checked, and the President wrote in the margin: “See me.”
6. The draft Presidential message and the proposed appeal are not printed.
7. This option is checked.
8. See Document 112.
9. This option is checked.
10. This option is checked. Below this paragraph are listed the options: “O.K.” or “No.” The former is checked.
11. For text, see Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1967, Book I, pp. 72–89.
12. This option is not checked. Just above it is an indecipherable word followed by “L[yndon].”