in the month of August we have seen quite clear evidence that we have bottomed out and the indixes I have looked at show progress in our move to control inflation and to start the economy back on a progress of growth.

Mr. ULLMAN. Are you referring to the economic slow-down or recession, or are you referring to the problem of inflation?

Secretary KENNEDY. I think on both sides you see progress both on the price level, which is not satisfactory and it is not as much as we would like in the wholesale or the CPI. We are seeing it also in the various areas of the money market, funds becoming more available and at lower rates. The housing market looks better. You can go through a whole list and you will find encouragement. We have not had a great pick-up but it is encouraging. The psychology on the part of the public and business looks good.

Mr. ULLMAN. The progress we have made in interest rates and the progress we have made in controlling inflation are not by any stretch of the imagination satisfactory to me. We have watched these trends before. Some slight modification may be due to many causes, but I don't believe we have seen enough consistency about it to call it a trend. You are saying here that you think it is a trend.

Secretary KENNEDY. That is right.

Mr. ULLMAN. But I think you would agree the figures are far from conclusive in that regard.

Secretary KENNEDY. There is no question you can't take one or two figures for 1 or 2 months, but as you measure it over this period it looks like it is showing improvement.

Mr. ULLMAN. I am happy for your optimism, and I was interested to read Secretary Stans' remarks that we are going to see 6-percent interest rates but I don't know if he was speaking of 90-day bills or 18-month notes or 20-year mortgages. I suspect he was not talking about anything longer in duration than 90-day bills.

Secretary KENNEDY. You have to bear in mind, Mr. Ullman, over this period of restraint there was lack of liquidity in the economy, and it was not only in the banking system and the corporate system, it was in many areas. Now the demand for credit, whether it is by the municipalities or the corporations, is moving through the market very well. Even with the large volume of flotations through the market the rates have been reflecting a greater flow of funds and a change in the money market situation.

Mr. ULLMAN. Do you have the interest figures on your latest issues of the various categories of paper? Do you have that for the record here?

Secretary KENNEDY. I will be glad to put it in the record. We issued the last major financing at about one-fourth of 1 percent below the previous issue.

Mr. ULLMAN. What was your last 7-year note? What was the effective rate of interest?

Secretary KENNEDY. The 18 months was 7%; 7% was sold at a slight discount. I will submit that, plus the bill rate, so you can see the chart of rates.

(The tables of rates referred to follow:)

INTEREST RATES ON US. GOVERNMENT SECURITIES (MARKET QUOTATIONS)

1 Peak rates were reached on Dec. 29, 1969 except for the 7-year maturities which peaked on May 26, 1970. INTEREST RATES ON NEW TREASURY BILLS ISSUED (DISCOUNT BASIS) (SELECTED END OF MONTH DATES)

Mr. ULLMAN. What about the last 7-year notes that you issued? Secretary KENNEDY. They held up very well in the market and have gone to a premium which indicates the rate would be lower. Mr. ULLMAN. Are they over 8 percent?

Secretary KENNEDY. No; they are under.
Mr. ULLMAN. About 7% percent?

Secretary KENNEDY. Yes.

Mr. ULLMAN. All I would say is, if Federal Government has to finance its debt at 7% percent, it almost staggers the imagination what the total interest bill is going to be that the taxpayers are going

to pay.

You have not seen any noticeable decline in long-term paper; have you?

Secretary KENNEDY. Yes; there has been a noticeable decline--it depends on what you mean by noticeable. I think a quarter percent. in this time frame is a reasonable thing. You would not expect a large

change in a short period of time because of the lack of liquidity in the corporations and the municipalities, which have been having difficulty. They have moved in and have floated large financing, so you would expect the financing to hold pretty close to the previous level, but that has been done in a market that is inclining rather than declining. Mr. ULLMAN. Mr. Secretary, it is too late in the day to pursue this at any great length. I just want to register my continuing protest against continuing high price of money in this country and I for one can't see any progress toward a balanced economy until we get our whole interest rate picture back into proper focus. I have expressed this to you before. I have seen nothing in the recent trends to give me the kind of hope that you seem to express, but I want to express my appreciation to you, Mr. Secretary, Mr. Veneman, and all of the rest of you for your patience in dealing with the committee today.

The committee will stand adjourned until 10 o'clock tomorrow morning.

(Whereupon, at 4:15 p.m. the committee was adjourned, to reconvene at 10 a.m., Thursday, September 10, 1970.)

TAX RECOMMENDATIONS OF THE PRESIDENT

THURSDAY, SEPTEMBER 10, 1970

HOUSE OF REPRESENTATIVES,
COMMITTEE 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. Wilbur D. Mills (chairman of the committee) presiding.

The CHAIRMAN. The committee will please be in order. Our witness this morning is the chairman of the Commerce Technical Advisory Board Panel on Automotive Fuels and Air Pollution, Dr. David V. Ragone. We appreciate having you with us and you are recognized,

sir.

STATEMENT OF DR. DAVID V. RAGONE, CHAIRMAN, TECHNICAL ADVISORY BOARD PANEL ON AUTOMOTIVE FUELS AND AIR POLLUTION, DEPARTMENT OF COMMERCE

Dr. RAGONE. Mr. Chairman, my name is David Ragone. I am dean of the Thayer School of Engineering at Dartmouth College. I appear before you today in my capacity as chairman of the Commerce Technical Advisory Board Panel (CTAB) on Automotive Fuels and Air Pollution.

This CTAB panel issued a report in June of 1970, on the implications of lead removal from automotive fuel. I feel that the contents of this short report is germane to the considerations of this committee. Mr. Chairman, may I ask that a copy of this report be inserted into the record as part of my testimony?

The CHAIRMAN. Without objection it will be included in the record at the conclusion of your oral statement.

Dr. RAGONE. I would like briefly, to review the contents of this report. The conclusions of the Panel are based on the effect of lead additives on present and future control of gaseous automotive emissions, CO, hydrocarbons, and nitrogen oxides.

The conclusions are not based on possible medical effects. As you no doubt know, the addition of lead alkyls is the least expensive way to increase the octane rating of motor fuels. However, these additives interfere with the development of exhaust treatment systems, especially those using catalysts. The proposed 1975 HEW emission standards call for dramatic improvement in emission control.

There are at the present no production proven devices available to meet these standards. A satisfactory device must be effective for many thousands of miles of consumer driving and must be economical

in terms of initial cost and fuel consumption. The development of a variety of devices depends on the assurance that an unleaded fuel will be generally available when needed.

The first recommendation of our Panel was that legislation should be enacted to establish the authority of the Federal Government to regulate such fuel additives.

In recommending this the Panel noted that it is impossible to remove all of the lead from motor fuel immediately and still maintain present octane levels. To do so would require the construction of $5 to $10 billion of refinery equipment in addition to that needed for normal replacement and increases in annual fuel volume. Such equipment would take many years to build. The Panel notes, however, that automobile manufacturers have announced that over 90 percent of the cars produced in the 1971 model year will be designed to run on 91 octane fuel. This policy will probably continue for several model years so that by 1975 over half the cars on the road will be able to use 91 octane gasoline. The production of low leaded or unleaded 91 octane fuel requires much less investment.

The Panel has noted that the 1975 standards are difficult to meet. An important class of potentially useful emission control devices to meet the 1975 standards involve the use of catalysts. Many catalysts can be destroyed by just one tankful of high leaded fuel. Assurances are needed that leaded fuel will not be used in cars whose emission control devices can be ruined by lead. The Panel also notes that emission control technology is evolving rapidly and the regulatory process put on automotive fuels should be flexible enough to account for and encourage innovation.

However, both the automotive and petroleum industries must know soon what fuel engine requirements will be for the 1975 model year. Therefore the Panel recommends that the regulatory agency declare immediately its intention to require the general availability of an unleaded grade of gasoline by the middle of 1974.

The Panel also believes that the early availability of low leaded, low-octane fuel is advisable. High lead concentrations in fuel contribute to increase hydrocarbon emissions, the early use of low leaded fuel will provide an appropriate time period for customer acceptance of lower octane fuel and will allow for the accumulation of field experience on the performance of new low octane card with prototypes of advanced emission control systems that use it. Accordingly our Panel has called for the nationwide availability of low-leaded fuel no later than the end of calendar 1972.

I notice from the newspaper accounts of yesterday's testimony that there was some interest in the question of whether or not the public would buy this low leaded or unleaded grade. In this regard, our panel notes that unleaded 91 octane fuel will cost more to produce than the present high leaded 94 octane regular gasoline and will probably cost more at the pump.

Cars designed for 91 octane fuel can also use the higher leaded 94 octane fuel. Motorists will thus be tempted by the lower cost to use the higher leaded fuel.

It is clearly possible, through taxation or subsidy, to reverse the cost difference and our Panel believes that it is in the interest of the national automotive emission control program to do so. Therefore,