August 15, 1948
INTRODUCTION
I am issuing today my regular midyear review of the Budget of the United States. The Federal Budget expresses in dollar terms the policies and programs of our Government. This review sets forth the changes which have taken place in the Budget for the fiscal year ending June 30, 1949, since it was originally transmitted to the Congress last January. This review, therefore, gives the American people a factual report on the revised costs of these policies and programs and a reappraisal of our fiscal position. It reflects the effect upon the Budget of subsequent amendments which I have proposed, of actions taken by the Congress, and of changes in conditions both at home and abroad.
The outstanding facts shown by this review are as follows:
1. Budget expenditures for the fiscal year 1949 are now estimated at $42.2 billion-substantially higher than was estimated in January--largely because of increases in the national defense program, increased benefits for veterans, and increased tax refunds.
2. The tax reduction enacted in April will cause receipts for the fiscal year 1949 to be substantially lower than was estimated in January. Budget receipts are now estimated at $40.7 billion.
3. As a result, an operating deficit of $1.5 billion is now anticipated for 1949, compared with the record surplus of $8.4 billion in 1948. This sharp reversal eliminates one of the principal forces that have been restraining further inflation.
4. The public debt was reduced by $6 billion in 1948. Present estimates indicate that no further reduction in the total debt will be possible in 1949.
5. As we look ahead it is clear that our national and international responsibilities make impossible any sharp reduction in Government expenditures in 1950--indeed it is likely that there will be some increase. It is plain, therefore, that the ill-timed tax reduction of last spring has left the Government facing a period of deficit financing.
PART I. SUMMARY
Budget receipts for the fiscal year 1949 are now estimated at $40.7 billion, $3.7 billion less than was estimated last January. This lower estimate of receipts reflects the impact of the Revenue Act of 1948. It assumes a continuation throughout the fiscal year of approximately the present level of incomes.
Budget expenditures are estimated at $42.2 billion, an increase of $2.6 billion above the estimate made in January.
On the basis of these estimates, an operating deficit of $1.5 billion for the fiscal year 1949 is indicated. However, the Economic Cooperation Act required the transfer of $3 billion of the 1948 surplus to pay part of the 1949 expenditures under that Act. This results in an adjusted surplus of $1.5 billion for 1949.
During the past 3 years I have repeatedly taken action to enforce sound and prudent management of our fiscal affairs, in order to curb inflationary pressures, to safeguard our financial position, and to permit reduction of the public debt.
Nevertheless, as we enter the fiscal year 1949 we can foresee only a "paper" surplus of $1.5 billion. This should be a sobering thought for all of us. Such a surplus--even if it were real, rather than produced merely by a bookkeeping shift from one year to another--would provide a financial margin far too small in view of present-day uncertainties and the necessity of reducing the debt during periods of prosperity.
TABLE 1. BUDGET TOTALS
[In millions]
1949 estimated
Budget Revision
1947 1948 January August
actual actual 1948 1948
Receipts 1 $43,050 $44,486 $44,402 $40,658
Expenditures 1 42,296 36,066 39,594 42,203
Surplus (+) or Deficit (--) +754 +8,419 +4,808 --1,545
Adjustment for Foreign Economic
Cooperation Trust Fund --3, 000 +3, 000
Adjusted Surplus +5,419 +1,455
1 Budget receipts and expenditures in this review exclude payments into the Treasury by wholly-owned Government corporations for retirement of capital stock or for dividends. Such transactions, previously included in Budget totals, simply inflate both receipts and expenditures by equal amounts. They do not represent operating costs, nor do they affect the size of the Budget surplus or deficit.
In the message accompanying the 1949 Budget I stated that the Budget "demonstrates alike the heavy responsibilities of our international position and our concern for the maintenance of a sound domestic economy." I also pointed out that "our Budget must remain high until we have met our international responsibilities and can see the way clear to a peaceful and prosperous world ."
Events of the past 6 months have added emphasis to these facts. We have been compelled to reexamine our requirements for national defense. At the same time, the Federal Government, like the private citizen, has had to meet rising prices. In an effort to keep benefits, services and salaries in step with the mounting cost of living, the Congress has enacted increases in veterans' pensions, other veterans' benefits, grants to States for public assistance, Federal salary scales, and other programs.
Events of the last 6 months have also emphasized that we cannot plan our fiscal policy on the basis of a single year only. Programs already authorized for the National Military Establishment will require a higher level of expenditures for the fiscal year 1950. Expenditures for the European recovery program will reach their peak in the same year. These increases cannot be met next year by the convenient bookkeeping device of a $3 billion transfer.
During the fiscal year 1948, the debt was reduced from $258 billion to $252 billion. On the basis of present estimates no further debt reduction can be achieved this year. Indeed, as long as the present fiscal outlook prevails, we may face an expanding debt-even in a period of high national income when financial prudence clearly would dictate continuing debt retirement.
It is possible that further inflationary developments may produce higher revenues than those now estimated--revenues might even rise above expenditures. Even if this should prove true, however, it is hardly sound fiscal policy to rely on inflation as a method of balancing the Budget.
To cut Government revenues in the face of expanding national and international requirements, and at a time of increasing inflationary pressures, was obviously a grave error.
Appropriations and other authorizations
In this review prospective Government outgo has so far been expressed in terms of estimated expenditures. It is also necessary to consider the appropriations and other authorizations enacted by the Congress, which permit Government agencies to incur obligations. Expenditures occur when obligations are paid; they do not necessarily coincide with Congressional authorizations in any given fiscal year.
The 80th Congress in its second session reduced annual definite appropriations, relating to both the fiscal years 1948 and 1949, by $2.7 billion below the amount which I submitted. For several reasons, however, this figure does not realistically reflect the results of Congressional actions. It relates to only one segment of the budgetary actions of the session. It ignores types of authorizations other than appropriations, such as loan and contract authorizations, which the Congress increased more than $1 billion over my recommendations. It does not allow, of course, for the supplemental appropriations for 1949 which will be required before the close of the year.
A better perspective may be obtained from the following:
I submitted for the fiscal year 1949 specific requests for appropriations and other forms of authorizations totaling $36.3 billion. Congressional enactments to date, together with permanent appropriations, amount to $34.6 billion, or $1.7 billion less than requested. These Congressional reductions in authorizations will have to be restored for some items, such as veterans' allowances and postal expenditures. Furthermore, it will be necessary to provide appropriations to carry out several laws enacted by the Congress for which it made no financial provision--such as the increases in Federal employees' salaries and veterans' pensions. Finally, a number of programs, such as international aid, will require additional appropriations. In all, it is now estimated that it will be necessary later this year to request $3.6 billion as supplemental appropriations.
PART II. MAJOR CHANGES IN EXPENDITURES
BY FUNCTION
Expenditures for the fiscal year 1949 are now expected to be $2.6 billion higher than they were in the January Budget.
Major changes in expenditure estimates since January include:
An enlarged national defense program, including expanded air strength and increases in military personnel, with added expenditures in 1949 of $1.1 billion. This takes into account a reduction of $400 million resulting from failure to enact a universal training program.
Higher readjustment benefits and pensions for veterans, which will increase expenditures for veterans' programs by $689 million.
Increased tax refunds amounting to $799 million, resulting chiefly from the new tax law.
TABLE 2. BUDGET EXPENDITURES BY FUNCTION
[ In millions ]
1949 estimated
Budget Revision
1948 January August Net
Function actual 1948 1948 change
National defense $10,648 $11,025 $12,140 +$1,115
International affairs and finance 4,745 7,009 7,010 + 1
Veterans' services and benefits 6,563 6,102 6,791 +689
Social welfare, health, and security 1,946 2,027 2,009 --18
Housing and community facilities 96 38 327 +289
Education and general research 73 387 86 --301
Agriculture and agricultural
resources 687 838 868 +30
Natural resources 1,095 1,625 1,586 --39
Transportation and communication 1,269 1,646 1,835 +189
Finance, commerce, and industry 95 185 77 --108
Labor 97 116 98 --18
General government 1,390 1,157 1,187 +30
Interest on the public debt 5,211 5,250 5,300 +50
Refunds of receipts 2,309 1,990 2,789 +799
Reserve for contingencies 200 100 --100
Adjustment to Daily Treasury
Statement --158
Total Budget expenditures 36,066 39,594 42,203 +2,609
NOTE: Detailed figures do not necessarily add to totals due to rounding.
Larger mortgage purchases, which will increase expenditures for housing and community facilities by $289 million.
There have also been some major reductions in the 1949 Budget since it was transmitted last January. In large measure, these result from the failure of the Congress to enact legislation which I have recommended, such as Federal aid to education, and for which estimates of expenditures were included in the January Budget.
The estimates of expenditures which follow are based not only on appropriations and authorizations already enacted, but also upon anticipated supplementals which it will be necessary to submit to the next session of the Congress.
National defense
Expenditures for national defense are now estimated at $12.1 billion for the fiscal year
1949, an increase of $1.1 billion above the January estimate and $1.5 billion above the amount spent in 1948. The increase since the Budget was transmitted in January reflects the initial impact upon Budget expenditures of the expanded military program enacted last spring.
Within the total of $12.1 billion in estimated expenditures for the national defense program, $4.8 billion, or 40 percent, will be spent for the pay and maintenance of military personnel.
Expenditures in other defense categories for fiscal 1949 are projected at an increased rate over 1948. Payments for aircraft procurement in 1949 will increase by $520 million to a total of $1.3 billion. Expenditures for procurement of ordnance and other equipment and supplies are also expected to rise. Payments for strategic materials for the stockpiling program are estimated to increase from $84 million in 1948 to $300 million this fiscal year.
Increased authorizations for 1949 will result in still higher expenditures in 1950. The trend of expenditures beyond 1949 is indicated by the fact that appropriations and contract authorizations enacted amount to $54.3 billion--including $2.9 billion made available late in the fiscal year 1948. This compares with my recommendation of $10.9 billion in the January Budget plus more than $3.8 billion of increased recommendations which I submitted during the spring to meet our changed security requirements in the light of world conditions. Thus there was a net reduction of $400 million below my recommended authorizations.
The Congress made certain revisions and changes in my recommendations, resulting in a net increase of $110 million. Increases of $880 million were authorized, above my recommendations, principally for aircraft procurement for the Air Force. New authority enacted for other military programs was $770 million less than I requested.
On the other hand, this review omits appropriations of $500 million tentatively included in the January estimates for the proposed universal training program, which was not enacted. However, a new program for training 161,000 18-year-old voluntary enlistees was enacted and authority granted to cover initial expenses from the appropriations already made for the National Military Establishment. Whether or not supplemental appropriations for this new program will be necessary can only be determined by later reviews of the military program.
International affairs and finance
Expenditures for international aid programs are now estimated at $7 billion, the same as in January. Actual expenditures in 1948 were $4.7 billion.
More than half of all international expenditures in the fiscal year 1949 will be required for aid to Europe under the Economic Cooperation Act. In January, expenditures for this program were estimated at $4 billion for 1949; they are now estimated at $3.8 billion. This downward revision results largely from the Congressional reduction of the initial appropriation by $245 million.
Expenditures for Greek-Turkish aid in 1949 are now projected at $385 million, $181 million above the January Budget, largely due to shipments and payments delayed from the fiscal year 1948.
Estimated expenditures for aid to China in 1949 have been revised upward, from $240 million to $359 million, to reflect the increased program enacted since last January.
Expenditures under the Army's program for relief and reconstruction in the occupied areas are now expected to total $1,280 million, a reduction of $70 million since January. This decline is mainly in the reconstruction portion of the program.
Although the Congress reduced the recommended authorization for the European aid program by $1.5 billion, it provided that on recommendation by the Economic Cooperation Administrator and with my approval, the funds appropriated could be fully obligated by April 2, 1949. To permit this program to go forward without interruption during the last quarter of the fiscal year, additional authority and appropriations will probably be necessary. I am therefore including in this review a tentative estimate of $1.5 billion for a supplemental appropriation. Its enactment will not have a significant effect on expenditures until the fiscal year 1950.
Veterans' services and benefits
Expenditures for veterans' programs for the fiscal year 1949 are now estimated at nearly $6.8 billion. This is an increase of $689 million over the January estimate and is $228 million more than was actually spent in the fiscal year 1948.
Nearly four-fifths of the expenditures will be direct cash payments in the form of pensions and readjustment benefits, including education and training benefits.
Expenditures for readjustment benefits are now estimated at $3.2 billion in fiscal 1949--nearly $600 million higher than in January. Most of the increase results from new laws providing increased subsistence allowances in the educational program and more liberal allowances for on-the-job trainees which will add expenditures of about $550 million. Furthermore, expenditures will be increased because of bigger enrollments in the education and job-training programs and higher per capita tuition costs. On the other hand, newly enacted limitations on avocational and recreational training will result in estimated savings of $100 million.
Expenditures for veterans' pensions, including subsistence allowances for disabled trainees, are now estimated at nearly $2.2 billion in fiscal 1949. New laws provide higher compensation for dependents of deceased veterans and for dependents of veterans with major disabilities. These will add an estimated $100 million of expenditures during the fiscal year 1949, and larger expenditures in future years.
Two other major revisions are also made in expenditure estimates for the veterans' program. Additional transfers to the National Service Life Insurance trust fund required by a revaluation of the Government's liabilities for war risk cases probably will require $200 million more than was estimated in January. The lag in construction of veterans' hospital and domiciliary facilities, however, results in an almost equal reduction in estimated expenditures for 1949.
Supplemental appropriations of 1942 million for veterans' programs are now anticipated for the remainder of the fiscal year 1949 to restore necessary amounts eliminated by the Congress and to cover the higher expenditures required by new laws and increased program needs.
Social welfare, health, and security
For the fiscal year 1949, expenditures for social welfare, health, and security are now estimated at $2 billion, approximately the same as in the January Budget.
The Budget estimates last January, however, included expenditures for putting into effect proposed legislation to provide a much more adequate program, with greater emphasis on contributory social insurance. Instead, the Congress enacted, over my vetoes, revisions which narrowed the coverage and thereby weakened the system of old-age and survivors' insurance.
Because the existing temporary provisions governing grants to States for public assistance were liberalized, the revised expenditure estimates assume a supplemental appropriation of $120 million to provide these larger grants in this fiscal year.
Estimated expenditures for transfers to the railroad retirement trust account do not include $175 million which would be required under present law during 1949 or 1950 to cover the military service credits earned by railroad employees. Good budgeting requires that this law be changed, so that these transfers may be made annually on the basis of claims actually approved as workers retire in the years ahead, rather than on a conjectural, lump-sum basis, estimated far in advance, as the law now requires.
Housing and community facilities
Expenditures for housing and community facilities in 1949, which were estimated at $38 million last January, are now estimated at $327 million. Purchases of guaranteed housing mortgages by the Federal National Mortgage Association (a subsidiary of the Reconstruction Finance Corporation) are expected to be roughly $300 million, partly to meet commitments to purchase mortgages insured by the Federal Housing Administration, and partly under new legislation authorizing purchases of mortgages guaranteed by the Veterans Administration. The actual amount of mortgage purchases will depend on developments in the housing and mortgage markets which cannot be accurately predicted now.
The Congress failed to enact major elements of the comprehensive housing program which I recommended and did not accept my recommendation to revive the authority of the Federal Works Agency to make advances to State and local governments for the planning of their public works. This reduces expenditure estimates by $44 million.
Education and general research
Expenditures for education and general research in fiscal 1949 are now estimated at $86 million--$301 million less than in the January Budget. This results primarily from Congressional failure to provide general assistance for elementary and secondary education. An estimated expenditure of $290 million was included for this program in the January Budget. The Congress also did not establish a national science foundation, which had been expected to spend $5 million this year.
Agriculture and agricultural resources
Programs to promote agriculture and conserve and develop our agricultural resources will require expenditures of $868 million in the fiscal year 1949, $30 million more than the January estimate.
The Congress enacted a more flexible price support program, such as I recommended, but postponed its effective date. This postponement will result in increased expenditures during the fiscal year 1949 above those estimated in January. This increase will be offset, however, by larger repayments on commodity loans than were previously anticipated. Increases in prices paid by farmers during the past year and a half, coupled with decreases in prices received by farmers for some agricultural commodities, such as wheat, cotton and potatoes, have narrowed or eliminated the margin between market prices and minimum support levels. Under these circumstances, expenditure estimates in this field must be regarded as tentative.
Increased authorizations for Rural Electrification Administration loans, and higher conservation and use payments authorized for the 1949 crop year, will not materially affect expenditures until the fiscal year 1950.
Natural resources
The revised estimate of $1.6 billion for the conservation and development of our natural resources during the fiscal year 1949 is $39 million below the January estimate and $491 million above the 1948 level. Almost 90 percent of all expenditures for natural resources in 1949 will be devoted to atomic energy, flood control, reclamation and power.
Expenditures for the development and control of atomic energy are estimated to be $648 million, $26 million less than the January estimate. This change is the net effect of reductions in appropriations, offset in part by an acceleration of work already under way and expenditures for activities not anticipated in earlier estimates.
The Congress reduced appropriations on approximately one-third of the Corps of Engineers flood control projects under way and disallowed funds for five projects, but added funds to start 22 projects not in my recommendations. The net result will be to increase expenditures substantially during future years. Appropriations for the Bureau of Reclamation were reduced, thus delaying reclamation work in the great basin areas of the West. Expenditures for these two programs in 1949 will be $24 million below the January estimate.
The Congress reduced appropriations in numerous cases which will have the effect of delaying the production and transmission of power urgently needed to relieve present or anticipated shortages. It reduced appropriations for power features of a number of multiple-purpose flood control, river and harbor, and reclamation projects. The Congress denied the request of the Tennessee Valley Authority for $4 million to begin construction of a steam plant, although this plant is needed to assure an adequate and flexible power supply within the TVA system. In addition it denied all appropriations for new construction in the southwestern power transmission system.
Transportation and communication
A sharp rise in the postal deficit is the chief factor which increases Federal expenditures for transportation and communication activities $189 million above the January estimate. Expenditures for this group of activities are now estimated at $1.8 billion.
The postal deficit for the fiscal year 1949 is now estimated at $539 million, payable from the general fund. Last January this deficit was estimated at $321 million. The higher deficit is largely due to the fact that the cost of the pay raise recently enacted for Post Office employees will be only partly covered by the increase in postal rates provided in the same legislation. There have also been increases in the prices of materials and in transportation costs.
Changes in the outlook for road construction result in a reduction of $42 million below the January estimate of expenditures for the Federal-aid highway program. Other transportation and communication programs show no significant changes in expenditure estimates for 1949.
A number of major additions to the January estimates of appropriations and authorizations have been enacted, which will not affect expenditures until the fiscal year 1950. The main increases are $470 million authorized for public roads in the Federal-Aid Highway Act of 1948, and $65 million provided for Maritime Commission ship construction. As in the case of flood control, appropriations for existing rivers and harbors projects were held below my recommendations, but numerous new projects were added by the Congress which will result in higher expenditures in later years.
As part of the civil aviation program for 1949, considerable emphasis will continue to be placed upon the installation of airway and landing aids which will further improve safety and regularity of flight over the Federal airway system. While the Congress reduced recommended appropriations for the Civil Aeronautics Administration by some $57 million, the bulk of this reduction was offset by grants of contract authority; there will be no substantial change in estimated expenditures. The Federal airways program in 1949 will follow in general the outlines laid down in the report of the Radio Technical Commission for Aeronautics. In addition, an Air Navigation Development Board has been established to plan and coordinate research and development work required to achieve an all-weather air traffic control and navigation system suited to joint military and civil use.
Finance, commerce, and industry
Expenditures for Government programs affecting finance, commerce, and industry are now estimated at $77 million, a reduction of $108 million from the January estimate. Most of this amount had been included in the Budget to administer an adequate anti-inflation program, which was not enacted. Reduced estimates of Reconstruction Finance Corporation loans to business account for most of the remaining decrease.
Supplemental appropriations of $22 million will be required, principally to restore cuts made in funds for the census of business and to extend the rent control program.
Labor
Expenditures for labor programs are now estimated at $98 million, $18 million below the January Budget estimate. Of this decrease, $11 million results from reduced appropriations for the United States Employment Service and affiliated State employment services. Most of the remainder results from Congressional failure to approve authorizing legislation for an expanded industrial safety program in the Department of Labor and for the establishment of a national commission against discrimination in employment.
General government
The estimated total of expenditures for general government in fiscal 1949 is now $1.2 billion, $30 million above the January estimate, and $203 million below the 1948 total. The largest expenditures in the general government category are for collecting taxes, for disposing of surplus property and for the Government payment toward the civil service employees' retirement fund.
The reduction below 1948 is primarily due to reduced administrative expenses for disposing of surplus property, and to reduced interest payments by the Reconstruction Finance Corporation reflecting the cancellation of its war-created obligations to the Treasury.
The increase since January allows for some additions to the staff of the Bureau of Internal Revenue, to improve the administration of the tax laws. It includes also an upward revision in estimated expenditures for the return of war dead.
Interest on the public debt
Interest payments on the public debt are now estimated to increase to $5.3 billion in the current fiscal year, or $50 million higher than anticipated in the January Budget.
Despite the reduction in the interest-bearing debt in 1948, interest payments will be $89 million higher in 1949 than in 1948. Accruals on savings bonds will continue to rise substantially as bonds purchased during the war approach maturity. In addition, short-term interest rates have increased, and there has been a gradual shift in the composition of the debt from low-interest obligations held by banks to higher rate securities held by government trust funds and non-bank investors.
Because some of these forces will continue to operate, the failure to achieve any debt reduction in fiscal 1949 will probably mean even higher interest payments in 1950.
Refunds of receipts
Expenditures to refund overpayments of taxes and other receipts are estimated at $2.8 billion. The estimate has been increased by $799 million since January, chiefly because the Revenue Act of 1948 will require refund payments of nearly $700 million. The 1948 experience indicates that corporation tax refunds also will run above the levels previously expected.
PART III. RECEIPTS FROM AND PAYMENTS TO
THE PUBLIC
Receipts from the public during the fiscal year 1949 are now estimated at $44.1 billion and payments to the public at $42.7 billion. These totals include trust accounts as well as Budget accounts, but exclude all intragovernmental transactions. Accordingly, they show the flow of money between the Federal Government and the public.
The excess of cash receipts over cash payments in the fiscal year 1949 is now expected to be only $1.4 billion, compared with $7.1 billion estimated in the January Budget. This change reflects a combination of a decline of $4.2 billion in receipts and an increase of $1.5 billion in payments.
The excess of cash receipts arises largely from the accumulation of funds in the social security trust accounts during a period of full employment. This accumulation represents a reserve for future payments of old-age, unemployment, and similar benefits.
NOTE: Appended to the President's statement are tables revising tables 1, 3, 5, 11, and 14 of the Summary and Supporting Tables in the 1949 budget document.
INTRODUCTION
I am issuing today my regular midyear review of the Budget of the United States. The Federal Budget expresses in dollar terms the policies and programs of our Government. This review sets forth the changes which have taken place in the Budget for the fiscal year ending June 30, 1949, since it was originally transmitted to the Congress last January. This review, therefore, gives the American people a factual report on the revised costs of these policies and programs and a reappraisal of our fiscal position. It reflects the effect upon the Budget of subsequent amendments which I have proposed, of actions taken by the Congress, and of changes in conditions both at home and abroad.
The outstanding facts shown by this review are as follows:
1. Budget expenditures for the fiscal year 1949 are now estimated at $42.2 billion-substantially higher than was estimated in January--largely because of increases in the national defense program, increased benefits for veterans, and increased tax refunds.
2. The tax reduction enacted in April will cause receipts for the fiscal year 1949 to be substantially lower than was estimated in January. Budget receipts are now estimated at $40.7 billion.
3. As a result, an operating deficit of $1.5 billion is now anticipated for 1949, compared with the record surplus of $8.4 billion in 1948. This sharp reversal eliminates one of the principal forces that have been restraining further inflation.
4. The public debt was reduced by $6 billion in 1948. Present estimates indicate that no further reduction in the total debt will be possible in 1949.
5. As we look ahead it is clear that our national and international responsibilities make impossible any sharp reduction in Government expenditures in 1950--indeed it is likely that there will be some increase. It is plain, therefore, that the ill-timed tax reduction of last spring has left the Government facing a period of deficit financing.
PART I. SUMMARY
Budget receipts for the fiscal year 1949 are now estimated at $40.7 billion, $3.7 billion less than was estimated last January. This lower estimate of receipts reflects the impact of the Revenue Act of 1948. It assumes a continuation throughout the fiscal year of approximately the present level of incomes.
Budget expenditures are estimated at $42.2 billion, an increase of $2.6 billion above the estimate made in January.
On the basis of these estimates, an operating deficit of $1.5 billion for the fiscal year 1949 is indicated. However, the Economic Cooperation Act required the transfer of $3 billion of the 1948 surplus to pay part of the 1949 expenditures under that Act. This results in an adjusted surplus of $1.5 billion for 1949.
During the past 3 years I have repeatedly taken action to enforce sound and prudent management of our fiscal affairs, in order to curb inflationary pressures, to safeguard our financial position, and to permit reduction of the public debt.
Nevertheless, as we enter the fiscal year 1949 we can foresee only a "paper" surplus of $1.5 billion. This should be a sobering thought for all of us. Such a surplus--even if it were real, rather than produced merely by a bookkeeping shift from one year to another--would provide a financial margin far too small in view of present-day uncertainties and the necessity of reducing the debt during periods of prosperity.
TABLE 1. BUDGET TOTALS
[In millions]
1949 estimated
Budget Revision
1947 1948 January August
actual actual 1948 1948
Receipts 1 $43,050 $44,486 $44,402 $40,658
Expenditures 1 42,296 36,066 39,594 42,203
Surplus (+) or Deficit (--) +754 +8,419 +4,808 --1,545
Adjustment for Foreign Economic
Cooperation Trust Fund --3, 000 +3, 000
Adjusted Surplus +5,419 +1,455
1 Budget receipts and expenditures in this review exclude payments into the Treasury by wholly-owned Government corporations for retirement of capital stock or for dividends. Such transactions, previously included in Budget totals, simply inflate both receipts and expenditures by equal amounts. They do not represent operating costs, nor do they affect the size of the Budget surplus or deficit.
In the message accompanying the 1949 Budget I stated that the Budget "demonstrates alike the heavy responsibilities of our international position and our concern for the maintenance of a sound domestic economy." I also pointed out that "our Budget must remain high until we have met our international responsibilities and can see the way clear to a peaceful and prosperous world ."
Events of the past 6 months have added emphasis to these facts. We have been compelled to reexamine our requirements for national defense. At the same time, the Federal Government, like the private citizen, has had to meet rising prices. In an effort to keep benefits, services and salaries in step with the mounting cost of living, the Congress has enacted increases in veterans' pensions, other veterans' benefits, grants to States for public assistance, Federal salary scales, and other programs.
Events of the last 6 months have also emphasized that we cannot plan our fiscal policy on the basis of a single year only. Programs already authorized for the National Military Establishment will require a higher level of expenditures for the fiscal year 1950. Expenditures for the European recovery program will reach their peak in the same year. These increases cannot be met next year by the convenient bookkeeping device of a $3 billion transfer.
During the fiscal year 1948, the debt was reduced from $258 billion to $252 billion. On the basis of present estimates no further debt reduction can be achieved this year. Indeed, as long as the present fiscal outlook prevails, we may face an expanding debt-even in a period of high national income when financial prudence clearly would dictate continuing debt retirement.
It is possible that further inflationary developments may produce higher revenues than those now estimated--revenues might even rise above expenditures. Even if this should prove true, however, it is hardly sound fiscal policy to rely on inflation as a method of balancing the Budget.
To cut Government revenues in the face of expanding national and international requirements, and at a time of increasing inflationary pressures, was obviously a grave error.
Appropriations and other authorizations
In this review prospective Government outgo has so far been expressed in terms of estimated expenditures. It is also necessary to consider the appropriations and other authorizations enacted by the Congress, which permit Government agencies to incur obligations. Expenditures occur when obligations are paid; they do not necessarily coincide with Congressional authorizations in any given fiscal year.
The 80th Congress in its second session reduced annual definite appropriations, relating to both the fiscal years 1948 and 1949, by $2.7 billion below the amount which I submitted. For several reasons, however, this figure does not realistically reflect the results of Congressional actions. It relates to only one segment of the budgetary actions of the session. It ignores types of authorizations other than appropriations, such as loan and contract authorizations, which the Congress increased more than $1 billion over my recommendations. It does not allow, of course, for the supplemental appropriations for 1949 which will be required before the close of the year.
A better perspective may be obtained from the following:
I submitted for the fiscal year 1949 specific requests for appropriations and other forms of authorizations totaling $36.3 billion. Congressional enactments to date, together with permanent appropriations, amount to $34.6 billion, or $1.7 billion less than requested. These Congressional reductions in authorizations will have to be restored for some items, such as veterans' allowances and postal expenditures. Furthermore, it will be necessary to provide appropriations to carry out several laws enacted by the Congress for which it made no financial provision--such as the increases in Federal employees' salaries and veterans' pensions. Finally, a number of programs, such as international aid, will require additional appropriations. In all, it is now estimated that it will be necessary later this year to request $3.6 billion as supplemental appropriations.
PART II. MAJOR CHANGES IN EXPENDITURES
BY FUNCTION
Expenditures for the fiscal year 1949 are now expected to be $2.6 billion higher than they were in the January Budget.
Major changes in expenditure estimates since January include:
An enlarged national defense program, including expanded air strength and increases in military personnel, with added expenditures in 1949 of $1.1 billion. This takes into account a reduction of $400 million resulting from failure to enact a universal training program.
Higher readjustment benefits and pensions for veterans, which will increase expenditures for veterans' programs by $689 million.
Increased tax refunds amounting to $799 million, resulting chiefly from the new tax law.
TABLE 2. BUDGET EXPENDITURES BY FUNCTION
[ In millions ]
1949 estimated
Budget Revision
1948 January August Net
Function actual 1948 1948 change
National defense $10,648 $11,025 $12,140 +$1,115
International affairs and finance 4,745 7,009 7,010 + 1
Veterans' services and benefits 6,563 6,102 6,791 +689
Social welfare, health, and security 1,946 2,027 2,009 --18
Housing and community facilities 96 38 327 +289
Education and general research 73 387 86 --301
Agriculture and agricultural
resources 687 838 868 +30
Natural resources 1,095 1,625 1,586 --39
Transportation and communication 1,269 1,646 1,835 +189
Finance, commerce, and industry 95 185 77 --108
Labor 97 116 98 --18
General government 1,390 1,157 1,187 +30
Interest on the public debt 5,211 5,250 5,300 +50
Refunds of receipts 2,309 1,990 2,789 +799
Reserve for contingencies 200 100 --100
Adjustment to Daily Treasury
Statement --158
Total Budget expenditures 36,066 39,594 42,203 +2,609
NOTE: Detailed figures do not necessarily add to totals due to rounding.
Larger mortgage purchases, which will increase expenditures for housing and community facilities by $289 million.
There have also been some major reductions in the 1949 Budget since it was transmitted last January. In large measure, these result from the failure of the Congress to enact legislation which I have recommended, such as Federal aid to education, and for which estimates of expenditures were included in the January Budget.
The estimates of expenditures which follow are based not only on appropriations and authorizations already enacted, but also upon anticipated supplementals which it will be necessary to submit to the next session of the Congress.
National defense
Expenditures for national defense are now estimated at $12.1 billion for the fiscal year
1949, an increase of $1.1 billion above the January estimate and $1.5 billion above the amount spent in 1948. The increase since the Budget was transmitted in January reflects the initial impact upon Budget expenditures of the expanded military program enacted last spring.
Within the total of $12.1 billion in estimated expenditures for the national defense program, $4.8 billion, or 40 percent, will be spent for the pay and maintenance of military personnel.
Expenditures in other defense categories for fiscal 1949 are projected at an increased rate over 1948. Payments for aircraft procurement in 1949 will increase by $520 million to a total of $1.3 billion. Expenditures for procurement of ordnance and other equipment and supplies are also expected to rise. Payments for strategic materials for the stockpiling program are estimated to increase from $84 million in 1948 to $300 million this fiscal year.
Increased authorizations for 1949 will result in still higher expenditures in 1950. The trend of expenditures beyond 1949 is indicated by the fact that appropriations and contract authorizations enacted amount to $54.3 billion--including $2.9 billion made available late in the fiscal year 1948. This compares with my recommendation of $10.9 billion in the January Budget plus more than $3.8 billion of increased recommendations which I submitted during the spring to meet our changed security requirements in the light of world conditions. Thus there was a net reduction of $400 million below my recommended authorizations.
The Congress made certain revisions and changes in my recommendations, resulting in a net increase of $110 million. Increases of $880 million were authorized, above my recommendations, principally for aircraft procurement for the Air Force. New authority enacted for other military programs was $770 million less than I requested.
On the other hand, this review omits appropriations of $500 million tentatively included in the January estimates for the proposed universal training program, which was not enacted. However, a new program for training 161,000 18-year-old voluntary enlistees was enacted and authority granted to cover initial expenses from the appropriations already made for the National Military Establishment. Whether or not supplemental appropriations for this new program will be necessary can only be determined by later reviews of the military program.
International affairs and finance
Expenditures for international aid programs are now estimated at $7 billion, the same as in January. Actual expenditures in 1948 were $4.7 billion.
More than half of all international expenditures in the fiscal year 1949 will be required for aid to Europe under the Economic Cooperation Act. In January, expenditures for this program were estimated at $4 billion for 1949; they are now estimated at $3.8 billion. This downward revision results largely from the Congressional reduction of the initial appropriation by $245 million.
Expenditures for Greek-Turkish aid in 1949 are now projected at $385 million, $181 million above the January Budget, largely due to shipments and payments delayed from the fiscal year 1948.
Estimated expenditures for aid to China in 1949 have been revised upward, from $240 million to $359 million, to reflect the increased program enacted since last January.
Expenditures under the Army's program for relief and reconstruction in the occupied areas are now expected to total $1,280 million, a reduction of $70 million since January. This decline is mainly in the reconstruction portion of the program.
Although the Congress reduced the recommended authorization for the European aid program by $1.5 billion, it provided that on recommendation by the Economic Cooperation Administrator and with my approval, the funds appropriated could be fully obligated by April 2, 1949. To permit this program to go forward without interruption during the last quarter of the fiscal year, additional authority and appropriations will probably be necessary. I am therefore including in this review a tentative estimate of $1.5 billion for a supplemental appropriation. Its enactment will not have a significant effect on expenditures until the fiscal year 1950.
Veterans' services and benefits
Expenditures for veterans' programs for the fiscal year 1949 are now estimated at nearly $6.8 billion. This is an increase of $689 million over the January estimate and is $228 million more than was actually spent in the fiscal year 1948.
Nearly four-fifths of the expenditures will be direct cash payments in the form of pensions and readjustment benefits, including education and training benefits.
Expenditures for readjustment benefits are now estimated at $3.2 billion in fiscal 1949--nearly $600 million higher than in January. Most of the increase results from new laws providing increased subsistence allowances in the educational program and more liberal allowances for on-the-job trainees which will add expenditures of about $550 million. Furthermore, expenditures will be increased because of bigger enrollments in the education and job-training programs and higher per capita tuition costs. On the other hand, newly enacted limitations on avocational and recreational training will result in estimated savings of $100 million.
Expenditures for veterans' pensions, including subsistence allowances for disabled trainees, are now estimated at nearly $2.2 billion in fiscal 1949. New laws provide higher compensation for dependents of deceased veterans and for dependents of veterans with major disabilities. These will add an estimated $100 million of expenditures during the fiscal year 1949, and larger expenditures in future years.
Two other major revisions are also made in expenditure estimates for the veterans' program. Additional transfers to the National Service Life Insurance trust fund required by a revaluation of the Government's liabilities for war risk cases probably will require $200 million more than was estimated in January. The lag in construction of veterans' hospital and domiciliary facilities, however, results in an almost equal reduction in estimated expenditures for 1949.
Supplemental appropriations of 1942 million for veterans' programs are now anticipated for the remainder of the fiscal year 1949 to restore necessary amounts eliminated by the Congress and to cover the higher expenditures required by new laws and increased program needs.
Social welfare, health, and security
For the fiscal year 1949, expenditures for social welfare, health, and security are now estimated at $2 billion, approximately the same as in the January Budget.
The Budget estimates last January, however, included expenditures for putting into effect proposed legislation to provide a much more adequate program, with greater emphasis on contributory social insurance. Instead, the Congress enacted, over my vetoes, revisions which narrowed the coverage and thereby weakened the system of old-age and survivors' insurance.
Because the existing temporary provisions governing grants to States for public assistance were liberalized, the revised expenditure estimates assume a supplemental appropriation of $120 million to provide these larger grants in this fiscal year.
Estimated expenditures for transfers to the railroad retirement trust account do not include $175 million which would be required under present law during 1949 or 1950 to cover the military service credits earned by railroad employees. Good budgeting requires that this law be changed, so that these transfers may be made annually on the basis of claims actually approved as workers retire in the years ahead, rather than on a conjectural, lump-sum basis, estimated far in advance, as the law now requires.
Housing and community facilities
Expenditures for housing and community facilities in 1949, which were estimated at $38 million last January, are now estimated at $327 million. Purchases of guaranteed housing mortgages by the Federal National Mortgage Association (a subsidiary of the Reconstruction Finance Corporation) are expected to be roughly $300 million, partly to meet commitments to purchase mortgages insured by the Federal Housing Administration, and partly under new legislation authorizing purchases of mortgages guaranteed by the Veterans Administration. The actual amount of mortgage purchases will depend on developments in the housing and mortgage markets which cannot be accurately predicted now.
The Congress failed to enact major elements of the comprehensive housing program which I recommended and did not accept my recommendation to revive the authority of the Federal Works Agency to make advances to State and local governments for the planning of their public works. This reduces expenditure estimates by $44 million.
Education and general research
Expenditures for education and general research in fiscal 1949 are now estimated at $86 million--$301 million less than in the January Budget. This results primarily from Congressional failure to provide general assistance for elementary and secondary education. An estimated expenditure of $290 million was included for this program in the January Budget. The Congress also did not establish a national science foundation, which had been expected to spend $5 million this year.
Agriculture and agricultural resources
Programs to promote agriculture and conserve and develop our agricultural resources will require expenditures of $868 million in the fiscal year 1949, $30 million more than the January estimate.
The Congress enacted a more flexible price support program, such as I recommended, but postponed its effective date. This postponement will result in increased expenditures during the fiscal year 1949 above those estimated in January. This increase will be offset, however, by larger repayments on commodity loans than were previously anticipated. Increases in prices paid by farmers during the past year and a half, coupled with decreases in prices received by farmers for some agricultural commodities, such as wheat, cotton and potatoes, have narrowed or eliminated the margin between market prices and minimum support levels. Under these circumstances, expenditure estimates in this field must be regarded as tentative.
Increased authorizations for Rural Electrification Administration loans, and higher conservation and use payments authorized for the 1949 crop year, will not materially affect expenditures until the fiscal year 1950.
Natural resources
The revised estimate of $1.6 billion for the conservation and development of our natural resources during the fiscal year 1949 is $39 million below the January estimate and $491 million above the 1948 level. Almost 90 percent of all expenditures for natural resources in 1949 will be devoted to atomic energy, flood control, reclamation and power.
Expenditures for the development and control of atomic energy are estimated to be $648 million, $26 million less than the January estimate. This change is the net effect of reductions in appropriations, offset in part by an acceleration of work already under way and expenditures for activities not anticipated in earlier estimates.
The Congress reduced appropriations on approximately one-third of the Corps of Engineers flood control projects under way and disallowed funds for five projects, but added funds to start 22 projects not in my recommendations. The net result will be to increase expenditures substantially during future years. Appropriations for the Bureau of Reclamation were reduced, thus delaying reclamation work in the great basin areas of the West. Expenditures for these two programs in 1949 will be $24 million below the January estimate.
The Congress reduced appropriations in numerous cases which will have the effect of delaying the production and transmission of power urgently needed to relieve present or anticipated shortages. It reduced appropriations for power features of a number of multiple-purpose flood control, river and harbor, and reclamation projects. The Congress denied the request of the Tennessee Valley Authority for $4 million to begin construction of a steam plant, although this plant is needed to assure an adequate and flexible power supply within the TVA system. In addition it denied all appropriations for new construction in the southwestern power transmission system.
Transportation and communication
A sharp rise in the postal deficit is the chief factor which increases Federal expenditures for transportation and communication activities $189 million above the January estimate. Expenditures for this group of activities are now estimated at $1.8 billion.
The postal deficit for the fiscal year 1949 is now estimated at $539 million, payable from the general fund. Last January this deficit was estimated at $321 million. The higher deficit is largely due to the fact that the cost of the pay raise recently enacted for Post Office employees will be only partly covered by the increase in postal rates provided in the same legislation. There have also been increases in the prices of materials and in transportation costs.
Changes in the outlook for road construction result in a reduction of $42 million below the January estimate of expenditures for the Federal-aid highway program. Other transportation and communication programs show no significant changes in expenditure estimates for 1949.
A number of major additions to the January estimates of appropriations and authorizations have been enacted, which will not affect expenditures until the fiscal year 1950. The main increases are $470 million authorized for public roads in the Federal-Aid Highway Act of 1948, and $65 million provided for Maritime Commission ship construction. As in the case of flood control, appropriations for existing rivers and harbors projects were held below my recommendations, but numerous new projects were added by the Congress which will result in higher expenditures in later years.
As part of the civil aviation program for 1949, considerable emphasis will continue to be placed upon the installation of airway and landing aids which will further improve safety and regularity of flight over the Federal airway system. While the Congress reduced recommended appropriations for the Civil Aeronautics Administration by some $57 million, the bulk of this reduction was offset by grants of contract authority; there will be no substantial change in estimated expenditures. The Federal airways program in 1949 will follow in general the outlines laid down in the report of the Radio Technical Commission for Aeronautics. In addition, an Air Navigation Development Board has been established to plan and coordinate research and development work required to achieve an all-weather air traffic control and navigation system suited to joint military and civil use.
Finance, commerce, and industry
Expenditures for Government programs affecting finance, commerce, and industry are now estimated at $77 million, a reduction of $108 million from the January estimate. Most of this amount had been included in the Budget to administer an adequate anti-inflation program, which was not enacted. Reduced estimates of Reconstruction Finance Corporation loans to business account for most of the remaining decrease.
Supplemental appropriations of $22 million will be required, principally to restore cuts made in funds for the census of business and to extend the rent control program.
Labor
Expenditures for labor programs are now estimated at $98 million, $18 million below the January Budget estimate. Of this decrease, $11 million results from reduced appropriations for the United States Employment Service and affiliated State employment services. Most of the remainder results from Congressional failure to approve authorizing legislation for an expanded industrial safety program in the Department of Labor and for the establishment of a national commission against discrimination in employment.
General government
The estimated total of expenditures for general government in fiscal 1949 is now $1.2 billion, $30 million above the January estimate, and $203 million below the 1948 total. The largest expenditures in the general government category are for collecting taxes, for disposing of surplus property and for the Government payment toward the civil service employees' retirement fund.
The reduction below 1948 is primarily due to reduced administrative expenses for disposing of surplus property, and to reduced interest payments by the Reconstruction Finance Corporation reflecting the cancellation of its war-created obligations to the Treasury.
The increase since January allows for some additions to the staff of the Bureau of Internal Revenue, to improve the administration of the tax laws. It includes also an upward revision in estimated expenditures for the return of war dead.
Interest on the public debt
Interest payments on the public debt are now estimated to increase to $5.3 billion in the current fiscal year, or $50 million higher than anticipated in the January Budget.
Despite the reduction in the interest-bearing debt in 1948, interest payments will be $89 million higher in 1949 than in 1948. Accruals on savings bonds will continue to rise substantially as bonds purchased during the war approach maturity. In addition, short-term interest rates have increased, and there has been a gradual shift in the composition of the debt from low-interest obligations held by banks to higher rate securities held by government trust funds and non-bank investors.
Because some of these forces will continue to operate, the failure to achieve any debt reduction in fiscal 1949 will probably mean even higher interest payments in 1950.
Refunds of receipts
Expenditures to refund overpayments of taxes and other receipts are estimated at $2.8 billion. The estimate has been increased by $799 million since January, chiefly because the Revenue Act of 1948 will require refund payments of nearly $700 million. The 1948 experience indicates that corporation tax refunds also will run above the levels previously expected.
PART III. RECEIPTS FROM AND PAYMENTS TO
THE PUBLIC
Receipts from the public during the fiscal year 1949 are now estimated at $44.1 billion and payments to the public at $42.7 billion. These totals include trust accounts as well as Budget accounts, but exclude all intragovernmental transactions. Accordingly, they show the flow of money between the Federal Government and the public.
The excess of cash receipts over cash payments in the fiscal year 1949 is now expected to be only $1.4 billion, compared with $7.1 billion estimated in the January Budget. This change reflects a combination of a decline of $4.2 billion in receipts and an increase of $1.5 billion in payments.
The excess of cash receipts arises largely from the accumulation of funds in the social security trust accounts during a period of full employment. This accumulation represents a reserve for future payments of old-age, unemployment, and similar benefits.
NOTE: Appended to the President's statement are tables revising tables 1, 3, 5, 11, and 14 of the Summary and Supporting Tables in the 1949 budget document.