123 



experience with land use regulation and cognizant of a growing public concern 

 about the environmental consequences of all land use, we now urge the enact- 

 ment of legislation that will encourage States to control not only how land will 

 be used, but how well it can be used. 



Senator Hoi-ungs. The committee will next hear from Mr. James 

 Goodwin, the coordinator for natural resources, State of Texas. 



Mr. Goodwin, we have a letter here from your distinguished Gov- 

 ernor, Preston Smith, the Governor of Texas, on your behalf which 

 we will include in the record at this time. 



Statement of the Department of the Tkeasurt Before the Senate 

 Committee on Commerce, May 11, 1971 



statement of HON. MURRAY L. WEIDENBAUM, ASSISTANT SECRETx\RY OP 

 THE TREASURY FOR ECONOMIC POLICY 



Mr. Weidenbaum. Mr. Chairman, I am pleased to be here today to 

 express the views of the Treasury Department on S. 582, a bill to 

 establish a na,tional policy and develop a national program for manage- 

 ment, beneficial use, protection, and development of the land and 

 water resources of the Nation's coastal and estuarine zones. 



I would like to offer my full statement for the record and sunmiarize 

 it orally. 



Senator Stevens. Your statement will be printed in the record in 

 full, and you may summarize your statement, Mr. Secretary. 



Mr. Weidenbaum. My comments will only cover the issued raised by 

 the provision which authorizes Federal guarantee of tax exempt secu- 

 rities. The new section 307 authorizes the Secretary of the Interior to 

 guarantee obligations issued by coastal States for land acquisition or 

 land or water development and restoration. The total amount of guar- 

 anteed obligations outstanding at any time ca,nnot exceed $140 million. 



The Treasury Department opposes Federal guarantees of tax-exempt 

 obligations. There are four fundamental reasons for our position. 



(1) The guarantee of tax-exempt obligations is an inefficient form 

 of subsidy. The tax revenues loss by the Treasury exceeds the interest 

 savings to the borroAver. Let's take the case of the guaranteed bond 

 which would sell in the current market at 5 percent on a tax-exempt 

 basis and 7 percent on the taxable basis. The tax-exempt feature thus 

 saves the State issuing the bond 2 percent. Yet in the case of the typical 

 investor in the 50-percent tax bracket, the Treasury would forgo the 

 31^ percent, 50 percent of the 7 percent, which would, of course, have 

 been paid in taxes if the taxable bond had been issued. Thus there 

 would be a 2-percent saving to the State or local government but a 

 3^2 -percent cost to the Treasury. 



(2) The guarantee of tax-exempt disproportionately benefits the 

 inve^toi-s in the higher tax braclvets. For example, an investor in the 

 30-percent bracket receives roughly the same income after taxes on a 

 7-percent taxable bond as on a 5-percent tax-exempt, but an investor 

 in the 70-percent bracket who holds a 5-percent tax-exempt bond is 

 receiving as much interest after taxes as he would on a 17-percent 

 taxable bond. 



(3) Guaranteed obligations heighten the competition for the lim- 

 ited amount of funds available to State and local borrowers, hence, 

 they raise the cost of financing of other local projects. For instance, 



