Letter to the Chairman, House Ways and Means Committee, Endorsing the Interest Equalization Tax on foreign Securities.

Dear Mr. Chairman:

In answer to your request conveyed to me by Secretary Dillon, I am glad to stress the importance of H.R. 8000, the bill to impose an interest equalization tax on foreign securities.

This tax was originally proposed by President Kennedy on July 18, 1963. He was concerned because the outflow of portfolio capital from this country had reached unprecedented and unacceptable levels.

To protect the stability of the dollar and of the entire international payments system, these flows had to be reduced. President Kennedy did not want to impose direct governmental controls. He proposed that a tax be levied on purchases of foreign securities from foreigners, effective generally as of July 19- This would increase by approximately one percent per annum the cost to foreigners of American portfolio capital.

Capital outflows have been markedly reduced since then and our balance of payments situation has improved. The outflow from transactions in new and outstanding foreign securities shrank to an annual rate of less than $100 million in the fourth quarter. Our balance of payments deficit on regular transactions was reduced to an annual rate of $1.5 billion in the last quarter.

I believe the program announced last July--and in particular the proposed interest equalization tax--has been largely responsible for this improvement. But we must not relax our efforts to eliminate the balance of payments deficit and to insure the stability of the dollar. This remains a top priority of this administration.

I fully support H.R. 8000 as reported by the Committee on Ways and Means. I hope it receives prompt and favorable consideration in the House of Representatives.

Sincerely,

LYNDON B. JOHNSON

[Honorable Wilbur D. Mills, Chairman, Ways and Means Committee, House of Representatives, Washington, D.C.]