I

103D CONGRESS

1ST SESSION H. R. 251

To require the Secretary of the Treasury to issue a portion of the public

debt in the form of obligations indexed for inflation.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 5, 1993

Mr. NEAL of North Carolina introduced the following bill; which was referred

to the Committee on Ways and Means

A BILL

To require the Secretary of the Treasury to issue a portion

of the public debt in the form of obligations indexed

for inflation.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Monetary Policy and

5 Treasury Finance Enhancement Act of 1993’’.

6 SEC. 2. PURPOSES.

7 The purposes of this Act are to facilitate the infer8 ence of inflation expectations by the Board of Governors

9 of the Federal Reserve System and by investors, to assist
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1 the Board of Governors in reducing inflation, and, through

2 lower inflation, to contribute to lower interest rates.

3 SEC. 3. ISSUANCE OF INDEXED OBLIGATIONS.

4 (a) IN GENERAL.—Subchapter I of chapter 31 of title

5 31, United States Code, is amended by adding at the end

6 thereof the following new section:

7 ‘‘§ 3114. Indexed Obligations

8 ‘‘(a) MANDATORY ISSUANCES.—

9 ‘‘(1) IN GENERAL.—At least 10 percent of the

10 aggregate face amount of longer-term public debt

11 obligations issued during a fiscal year shall be in the

12 form of indexed obligations.

13 ‘‘(2) HIGHER REQUIREMENT IN CERTAIN

14 CASES.—If, as of the beginning of any fiscal year,

15 less than 10 percent of the aggregate face amount

16 of outstanding obligations issued under section 3102

17 and 3103 and having at least 5 years to maturity

18 are in the form of indexed obligations, the aggregate

19 face amount of longer-term public debt obligations

20 issued during such fiscal year which shall be in the

21 form of indexed obligations shall be at least the

22 greater of—

23 ‘‘(A) the amount required to be in such

24 form under paragraph (1), or
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1 ‘‘(B) 2 percent of the aggregate face

2 amount of obligations issued under section

3 3102 and 3103 which, as of the beginning of

4 such fiscal year, are outstanding and have at

5 least 5 years to maturity.

6 The indexed face amount of an outstanding indexed

7 obligation shall be taken into account under this

8 subparagraph and subsection (c) (in lieu of its ac9 tual face amount) in determining the amount of in10 dexed obligations required or permitted to be issued.

11 ‘‘(3) LONGER-TERM PUBLIC DEBT OBLIGA12 TIONS.—For purposes of this subsection, the term

13 ‘longer-term public debt obligation’ means any obli14 gation issued under section 3102 or 3103 which ma15 tures at least 5 years after the date of issue.

16 ‘‘(b) DISCRETIONARY ISSUANCES.—

17 ‘‘(1) IN GENERAL.—The Secretary of the

18 Treasury may issue obligations under section 3102

19 or 3103 which mature at least 270 days but less

20 than 5 years after the date of issue in the form of

21 indexed obligations.

22 ‘‘(2) MINIMUM ISSUANCE IF DISCRETION EXER23 CISED.—The Secretary of the Treasury may exercise

24 the authority under this subsection only if at least

25 5 percent of the aggregate face amount of the obli-
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1 gations referred to in paragraph (1) which are is2 sued during a fiscal year are in the form of indexed

3 obligations.

4 ‘‘(c) AGGREGATE LIMIT.—Not more than 50 percent

5 of the aggregate face amount of obligations issued under

6 section 3102 or 3103 which mature on any day shall be

7 in the form of indexed obligations.

8 ‘‘(d) INDEXED OBLIGATIONS.—For purposes of this

9 section—

10 ‘‘(1) IN GENERAL.—The term ‘indexed obliga11 tions’ means any obligation—

12 ‘‘(A) which has a redemption value at ma13 turity equal to its indexed face amount,

14 ‘‘(B) which has a face amount at issuance

15 of at least $1,000 but not more than $5,000,

16 ‘‘(C) which may not be redeemed before

17 maturity, and

18 ‘‘(D) the interest (if any) on which is pay19 able for any period on the basis of its indexed

20 face amount as of the beginning of such period.

21 ‘‘(2) INDEXED FACE AMOUNT.—The term ‘in22 dexed face amount’ means, as of any date, the sum

23 of—

24 ‘‘(A) the face amount of the obligation at

25 issuance, plus
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1 ‘‘(B) such face amount multiplied by the

2 percentage by which—

3 ‘‘(i) the selected index for such date,

4 exceeds

5 ‘‘(ii) the selected index for the issue

6 date of the obligation.

7 ‘‘(3) SELECTED INDEX FOR DATE.—The se8 lected index for any date is the selected index for the

9 second calendar month preceding the calendar

10 month in which such date occurs. If the selected

11 index is not determined on a monthly basis, the Sec12 retary of the Treasury shall prescribe a rule for de13 termining the selected index for any date, and such

14 prescribed rule shall apply in lieu of the preceding

15 sentence.

16 ‘‘(4) SELECTED INDEX.—

17 ‘‘(A) IN GENERAL.—Except as provided in

18 subparagraph (B), the term ‘selected index’

19 means the CPI.

20 ‘‘(B) ANOTHER INDEX MAY BE USED.—If

21 the Secretary of the Treasury and the Chair22 man of the Board of Governors of the Federal

23 Reserve System—

24 ‘‘(i) agree that the use of the CPI for

25 purposes of paragraph (2) is unsatisfactory
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1 and that the use of another index would be

2 more satisfactory for such purposes, and

3 ‘‘(ii) submit a report to Congress

4 jointly recommending the use of such other

5 index,

6 the term ‘selected index’ means such other

7 index.

8 ‘‘(C) CHANGES IN INDEX.—The selected

9 index applicable to any indexed obligation shall

10 be such index as of the date of issue of such ob11 ligation, and such index shall be determined,

12 with respect to such obligation, without regard

13 to changes in its structure or computation after

14 such date.

15 ‘‘(5) CPI.—The term ‘CPI’ means the

16 Consumer Price Index for all urban consumers pub17 lished by the Department of Labor.

18 ‘‘(e) TERMS AND CONDITIONS.—Indexed obligations

19 may be offered for sale on a competitive or other basis

20 under such regulations and upon such terms and condi21 tions as the Secretary of the Treasury may prescribe. The

22 Secretary shall provide that such obligations shall be avail23 able for purchase by individuals both directly from the De24 partment of the Treasury and through Federal Reserve

25 System facilities.
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1 ‘‘(f) CONSULTATION WITH FEDERAL RESERVE.—

2 The Secretary of the Treasury shall consult with the

3 Chairman of the Board of Governors of the Federal Re4 serve System in determining the amounts, maturities, and

5 timing of issuances of indexed obligations under this sec6 tion. The Secretary shall maintain appropriate records of

7 all recommendations received from the Chairman in such

8 consultations.

9 ‘‘(g) CONSIDERATIONS.—In determining the

10 amounts, maturities, and timing of issuances of indexed

11 obligations under this section, the Secretary of the Treas12 ury shall—

13 ‘‘(1) attribute reasonable benefits to improve14 ments in monetary management resulting from the

15 issuance of indexed obligations, including reasonable

16 estimates for reduced interests costs on obligations

17 that are not indexed obligations arising from better

18 inflation control and from smaller budget deficits as

19 a consequence of improved economic stabilization,

20 and

21 ‘‘(2) assure liquidity and pricing reliability in

22 indexed obligations and the competitiveness of such

23 obligations with nonindexed obligations issued under

24 section 3102 and 3103 with comparable maturities,

25 including assuring that each issue of interest-bearing
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1 indexed obligations is of an amount sufficient to per2 mit the right to receive interest on such obligations

3 to be traded separately from the underlying obliga4 tions.

5 The Secretary shall periodically announce expected issu6 ance and maturity dates of issues of indexed obligations

7 and the expected proportion of the total obligations issued

8 under sections 3102 and 3103 having those maturity dates

9 which are expected to be indexed obligations. Such an10 nouncements shall precede expected issuance dates by at

11 least 1 year.

12 ‘‘(h) MONITORING.—The Secretary of the Treasury

13 shall monitor the ownership and trading activity of in14 dexed and nonindexed obligations issued under section

15 3102 or 3103 having the same maturity dates for pur16 poses of assuring liquidity and pricing reliability with re17 spect to indexed obligations.

18 ‘‘(i) REPORTS.—Not later than 2 years after the date

19 of the enactment of this section, and not later than the

20 close of each 2-year period thereafter, the Secretary of the

21 Treasury shall submit to the Congress a report on the pro22 gram established under this section. No report shall be

23 required under this subsection for any period after the

24 10th year after the date of the enactment of this section.’’.
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1 (b) PROCEDURE.—Subsection (a) of section 3121 of

2 such title 31 is amended by striking ‘‘and’’ at the end of

3 paragraph (6), by redesignating paragraph (7) as para4 graph (8), and by inserting after paragraph (6) the follow5 ing new paragraph:

6 ‘‘(7) whether the obligation is to be issued as

7 an indexed obligation; and’’.

8 (c) CLERICAL AMENDMENT.—The table of sections

9 for subchapter I of chapter 31 of title 31 of such Code

10 is amended by adding at the end thereof the following new

11 item:

‘‘3114. Indexed obligations.’’.

12 (d) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to fiscal years beginning after the

14 date of the enactment of this Act.

15 (e) TAXATION.—It is the intent of the Congress

16 that—

17 (1) except for changes to minimize any Federal

18 income tax incentives or disincentives to acquiring

19 indexed obligations as compared to nonindexed obli20 gations, Federal income tax changes which affect

21 nonindexed obligations should apply to the fullest ex22 tent feasible to indexed obligations, and

23 (2) there should be symmetrical treatment ap24 plied to increases and decreases in the indexed face

25 amount of an indexed obligation such that, for ex-
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1 ample, if increases in the indexed face amount of an

2 obligation are includible in gross income as ordinary

3 income, decreases in the indexed face amount of an

4 obligation should be allowable as a deduction as an

5 ordinary loss.

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