Payment of Federal Taxes and the Treasury Tax and Loan Program

[Federal Register Volume 64, Number 146 (Friday, July 30, 1999)]
[Proposed Rules]
[Pages 41748-41749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19564]



[[Page 41747]]

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Part VI





Department of the Treasury





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Fiscal Service



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31 CFR Part 203



Payment of Federal Taxes and the Treasury Tax and Loan Program; 
Proposed Rule

Federal Register / Vol. 64, No. 146 / Friday, July 30, 1999 / 
Proposed Rules

[[Page 41748]]



DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 203

RIN 1510-AA79


Payment of Federal Taxes and the Treasury Tax and Loan Program

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of the Treasury (Treasury), Financial 
Management Service (FMS), is proposing a revision of its regulations 
governing the Treasury Tax and Loan (TT&L) program and specifically a 
change to the interest rate Treasury charges on TT&L note balances, 
including funds loaned through the direct investment and special direct 
investment programs. Under the current rule, the TT&L rate of interest 
is the Federal funds rate published weekly by the Board of Governors of 
the Federal Reserve System less 25 basis points. Treasury is proposing 
to change the basis for computing the TT&L rate of interest to an 
overnight repurchase agreement rate in order to better approximate the 
market interest rate for collateralized lending.
    Comments are specifically requested on whether the rule is well 
organized and states its requirement clearly. Also, we welcome 
suggestions on how to make the rule easier to understand.
    Treasury invites comments on all aspects of the proposed change in 
the regulation.

DATES: Written comments must be received on or before September 28, 
1999.

ADDRESSES: Comments or inquiries may be mailed to Cynthia L. Johnson, 
Director, Cash Management Policy and Planning Division, Financial 
Management Service, Room 420, 401 14th Street, SW, Washington, DC 
20227. Comments also may be submitted electronically via e-mail to 
203.comments@fms.sprint.com or by filling out the comment form 
available on the EFT website at https://www.fms.treas.gov/eftps. A copy 
of this notice is being made available for downloading from the 
Financial Management Service web site at the following address: https://
www.fms.treas.gov/regs.html.
    Comments on the proposed rule will be available for public 
inspection at the Department of the Treasury Library, Room 5030, 1500 
Pennsylvania Avenue, NW, Washington, DC. Please call (202) 622-0990 to 
make an appointment.

FOR FURTHER INFORMATION CONTACT: Mary Bailey, Financial Program 
Specialist, at (202) 874-6749; Walt Henderson, Senior Financial Program 
Specialist, at (202) 874-6705; Cynthia L. Johnson, Director, Cash 
Management Policy and Planning Division, at (202) 874-6590; or Ellen 
Neubaurer, Senior Attorney, at (202) 874-6680.

SUPPLEMENTARY INFORMATION:

Background on the Treasury Tax and Loan Program

    The Treasury Tax and Loan (TT&L) program encompasses two separate 
components--a depositary component through which the Treasury collects 
Federal tax deposits and payments from business taxpayers for employee 
withholding and other types of taxes, and an investment component 
through which the Treasury invests short-term operating balances not 
needed for immediate cash outlays.
    Through the TT&L depositary component, which comprises nearly 
10,500 commercial financial institutions and Federal Reserve Banks 
(FRBs), the Treasury collected almost $1.4 trillion in Fiscal Year 
1998, representing approximately 80 percent of the total Federal annual 
receipts, from approximately 5 million business taxpayers.
    More than 1,500 of the TT&L depositaries borrow excess short-term 
Treasury operating funds by participating in the investment component 
of the TT&L program. Through agreements executed under this Part, 
participating depositaries borrow Treasury funds in the form of a note 
secured with collateral pledged to Treasury and pay interest to the 
Treasury on these balances. In Fiscal Year 1998, the Treasury earned 
$1.2 billion in interest income through the TT&L investment component.

Treasury Tax and Loan Rate of Interest

    The interest rate that the Treasury charges on a TT&L depositary's 
note balance is the Federal funds rate [computed on a weighted average 
effective basis by the Federal Reserve Bank of New York (FRBNY)] less 
25 basis points (25 hundredths of one percentage point). The Federal 
funds rate is the interest rate at which financial institutions 
exchange balances in their accounts at the Federal Reserve with each 
other on an overnight, unsecured basis.
    The current formula was put into place in 1978. At that time, the 
overnight repurchase agreement market was not mature and a published 
rate was not available. Thus, the TT&L rate of interest was set as an 
approximation of an overnight repurchase agreement rate. When the 
current formula was put into place in 1978, it was generally believed 
that the Federal funds rate averaged 25 basis points above the volume-
weighted average interest rate from overnight repurchase agreements 
secured by Treasury securities and select Agency securities executed by 
the FRBNY for its monetary operations. An overnight repurchase 
agreement is the economic equivalent of an overnight loan 
collateralized by securities.
    Treasury is proposing to change the TT&L rate of interest to an 
explicit overnight repurchase agreement rate. This change will allow 
Treasury to receive the actual interest rate, rather than a proxy rate, 
on an economically similar transaction.
    Specifically, Treasury is proposing that FRBNY, as fiscal agent for 
the U.S. Treasury, compile and publish a volume-weighted average 
overnight repurchase agreement rate. We propose that the FRBNY compile 
this rate from data it would obtain from its domestic open market 
counter parties (``the primary dealers'') regarding the volume-weighted 
average overnight rate the primary dealers paid to finance general 
collateral securities. The Treasury requests comments on this proposed 
methodology.
    Replacing the formula or proxy rate with an explicit overnight 
repurchase agreement rate will provide depositaries with an easily 
understandable rate which will be publicly available. Historically, 
these two rates generally have moved broadly in tandem. From the 
inception of the investment program in 1978 through May 1999 the 
Federal funds rate averaged approximately 29 basis points (29 
hundredths of one percentage point) over the overnight repurchase 
agreement rate. Since 1990, however, the average difference between the 
two rates has been only approximately 2 basis points (2 hundredths of 
one percentage point).

Availability of the Overnight Repurchase Agreement Rate

    It is important that the TT&L rate of interest be readily available 
to the public. The Treasury proposes to request that the Federal 
Reserve publish an overnight repurchase agreement rate on a basis 
similar to that used to publish the Federal funds rate. Thus, financial 
institutions that elect to maintain a TT&L note balance will have a 
readily accessible indicator on which to estimate the cost of funds.

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Section by Section Analysis

Section 203.2--Definitions

    Treasury proposes to change the definition of the ``Treasury Tax 
and Loan (TT&L) rate of interest'' from the Federal funds rate less 25 
basis points to a volume-weighted average overnight repurchase 
agreement rate. Treasury also proposes to add a definition of 
``Overnight Repurchase Agreement Rate''. This new term is used in the 
redefined ``Treasury Tax and Loan (TT&L) rate of interest''. As a 
result of this new definition, this section will be renumbered.

Rulemaking Analysis

    Treasury has determined that this proposed regulation is not a 
significant regulatory action as defined in Executive Order 12866. It 
is hereby certified that this rule will not have a significant economic 
impact on a substantial number of small business entities. The proposed 
rule does not require any actions on the part of small entities. 
Accordingly, a Regulatory Flexibility Act analysis is not required.

Request for Comment

    The Treasury invites comments on all aspects of the proposed change 
in the Treasury Tax and Loan rate of interest for calculating interest 
due to the Treasury on TT&L note balances. In particular, the Treasury 
invites comments on the potential impact to the investment component of 
the TT&L program--specifically, whether depositaries are likely to 
alter their participation in the program and, if so, by how much--and 
on the proposed methodology for determining the overnight repurchase 
agreement rate. Treasury is also interested in comments regarding the 
extent to which TT&L participants would be interested in obtaining TT&L 
note balances for a guaranteed term.

List of Subjects in 31 CFR Part 203

    Banks, Banking, Electronic funds transfers, Taxes.

    Accordingly, it is proposed to amend 31 CFR part 203 as follows:

PART 203--PAYMENT OF FEDERAL TAXES AND THE TREASURY TAX AND LOAN 
PROGRAM

Subpart A--General Information

    1. The authority citation for Part 203 continues to read as 
follows:

    Authority: 26 U.S.C. 6302; 31 U.S.C. 321; 31 U.S.C. 323; 31 
U.S.C. 3301-3304; 12 U.S.C. 90; 12 U.S.C. 265-266; 12 U.S.C. 332; 12 
U.S.C. 391; 12 U.S.C. 1452(d); 12 U.S.C. 1464(k); 12 U.S.C. 1767; 12 
U.S.C. 1789a; 12 U.S.C. 2013; 12 U.S.C. 2122; and 12 U.S.C. 3102.

    2. Section 203.2 is amended by deleting paragraph (j), 
redesignating paragraphs (k) through (w) as paragraphs (j) through (v), 
adding a new paragraph (w) and revising paragraph (kk) to read as 
follows:

Subpart A--General Information.


Sec. 203.2  Definitions.

* * * * *
    (w) Overnight repurchase agreement rate means the interest rate 
calculated by the Federal Reserve Bank of New York from the volume-
weighted average overnight rate paid to finance general collateral 
securities compiled by the Federal Reserve Bank of New York and 
published weekly by the Board of Governors of the Federal Reserve 
System.
* * * * *
    (kk) Treasury tax and loan (TT&L) rate of interest means the 
overnight repurchase agreement rate.

    Dated: July 26, 1999.
Donald V. Hammond,
Fiscal Assistant Secretary.
[FR Doc. 99-19564 Filed 7-29-99; 8:45 am]
BILLING CODE 4810-35-P