Statement by the President on the Review of the 1948 Budget.

CONTINUING the practice of former years, I submit at this time my annual midyear review of the Budget. Since the 1948 Budget has aroused unusual public interest, I am presenting this year a detailed analysis of how the changes in it came about.

The revisions in this statement bring up to date the initial Budget estimates for the fiscal year 1948 which were transmitted to the Congress in January. They take account of Budget amendments submitted to the Congress, the action of the Congress on appropriations and other legislation, and numerous developments which have affected the outlook for Government programs.

1 Summary: Budget Totals and Major Revisions

The expenditures of the Federal Government during the fiscal year ending June 30, 1948, are now estimated at 37.0 billion dollars and net receipts at 41.7 billion dollars. On the basis of these estimates, a Budget surplus of 4.7 billion dollars is indicated.

Expenditures--When I transmitted the Budget last January, expenditures during this fiscal year were estimated at 37.5 billion dollars. The present Budget estimate is 37.0 billion dollars. The difference is the result of many changes. Some have tended to increase and others to reduce the total. A reduction of 1,520 million dollars is the result of congressional action. On the other hand, revisions and amendments which I have found necessary have added 638 million dollars. Changes listed later under other headings have added 354 million dollars.

In preparing this review, it has not been possible to estimate the ultimate effect on the Budget of the emergency situation overseas. The amount that may be required to enable the United States to bear its proper share in world recovery cannot be determined until a later stage in the studies of the international situation now under way. The present uncertainties must be taken into consideration in deciding our Budget policy. They emphasize the need to maintain a balanced Budget with sufficient surplus to meet emergencies.

Receipts--The new estimate of net Budget receipts is 4.0 billion dollars above the estimate of 37.7 billion dollars included in the Budget in January. Of this increase, billion dollars results from the continuation of war excise tax rates, which I recommended in the January Budget. But the greater part of this increase is due to the rise in prices and national income above the levels anticipated in January.

Surplus--In the fiscal year 1947 the Budget was balanced for the first time in seventeen years and a surplus was achieved-which in the long run is the only way to retire debt. As long as our total postwar commitments are still uncertain and as long as we are under strong inflationary pressures, it would be reckless not to include a reasonable surplus in the Budget. In the light of present conditions, the estimated surplus of 4.7 billion dollars for the fiscal year 1948 is essential to sound fiscal policy. The surplus, together with part of the present cash balance, will be devoted to retirement of the public debt.

The same prudent policy of planning for a surplus and for further debt retirement will be followed in preparing the Budget for 1949. The strictest economy consistent with the Government's obligation is imperative. I have already instructed the Executive departments and agencies to hold their 1949 Budget requests below the 1948 total. In a number of cases I have established certain definite limitations.

Appropriations and contract authorizations--In the Budget transmitted to the Congress last January, I recommended appropriations of 31.3 billion dollars and contract authorizations of 1.5 billion dollars to finance Government operations during the current fiscal year. Subsequent amendments to the Budget through July, and 1947 appropriations delayed to 1948 have raised the totals thus far recommended to the Congress to 32.3 billion dollars for appropriations and to 1.6 billion dollars for contract authorizations.¹ The 80th Congress at its first session enacted for the fiscal year 1948 appropriations and reappropriations of 29.8 billion dollars and contract authorizations of 2.0 billion dollars.²

¹ See Table 1, line for January Budget plus lines A-1 and B-1.

² See Table 2, part B.

I anticipate that at its second session it will be necessary for the 80th Congress to provide supplemental appropriations of 1.3 billion dollars and additional contract authorizations of more than 300 million dollars. The Congress itself has recognized that some of its reductions, such as those for tax funds and the Atomic Energy Commission, will have to be restored. The estimates for supplemental appropriations include 848 million dollars to restore such reductions made by the Congress. The remaining 403 million dollars of appropriations and 317 million dollars of contract authorizations relate for the most part to items on which the Congress has deferred consideration.¹ Thus, present indications are that the final total of appropriations and reappropriations will be about 200 million dollars lower than I recommended last January and the final total of contract authorizations, about 750 million dollars higher.

¹ See Table 1, lines A-2 and C-2-b.

Rescissions The Congress also rescinded wartime appropriations and other authorizations of 4.1 billion dollars. Most of this would not have been spent. The resulting reduction in expenditures during fiscal 1948 is estimated at 153 million dollars.

Major changes since January--Let us now review the three principal ways in which the January Budget estimates have been altered. Necessary amendments and revisions of my original recommendations have added 3 percent to the total of appropriations, 27 percent to contract authorizations, and less than 2 percent to expenditures. Revisions due to delays and transfers between fiscal years add 1 percent to appropriations and less than 1 percent to expenditures. Congressional action--following a vigorous and searching review of the Budget--has reduced appropriations 5 percent, increased contract authorizations 21 percent, and reduced expenditures 4 percent. In total, all these changes have reduced the expenditures side of the January Budget by 1.4 percent.

On the receipts side, there is an increase of 10.4 percent.

Table 1 shows the dollar changes since January in totals of appropriations, contract authorizations, and estimated expenditures.

TABLE 1. CHANGES IN THE 1948 BUDGET, JANUARY.-AUGUST 1947

[Millions]

Authorizations

Appropria- New contract Estimated Type of change tions 1 authorizations expenditures January Budget $31,292 $1,542 $37,528 A. Revisions due to changes in recommendations: 1. Amendments to the Budget through July (net) 645 101 300 2.. Anticipated supplemental recommendations to be considered at next session of Congress 403 317 338 Subtotal 1, 048 418 638 B. Revisions due to changes between fiscal years and in program outlook: 1. 1947 appropriations delayed to 1948 362 48 2. Transfers of expenditures between fiscal years 293 3. Changes in estimates of outlook for Government programs and revisions of related permanent appropriations -15 13 Subtotal 347 354 C. Revisions due to Congressional action: 1. Reductions in authorizations which may be regarded as final. -1,843 -3 -1, 275 2. a. Reductions in authorizations which will require offsets by deficiency appropriations -929 -888 b. Estimated offsets by deficiency appropriations 848 832 3. Reductions in Government corporation expenditures -345 4. Rescissions of authorizations of earlier years -153 5. Substitution of contract authorizations for appropriations 181 6. Increases initiated by Congress 346 149 309 Subtotal -1,578 327 -1,520 Total, August Review 31,109 2,287 37,000 ............................................................................................... 1 Includes appropriations to liquidate contract authorizations and reappropriations.

2. Appropriations and Expenditures When we come to consider the changes in the expenditure side of the Budget in detail, we must consider the differences between expenditures in a given fiscal year and the authority to incur obligations which result in expenditures. Appropriations and expenditures are by no means the same thing.

The Congress, by enacting appropriations and contract authorizations, empowers Government agencies to incur obligations. The appropriations permit expenditure of money in payment of these obligations. In the case of the contract authorizations, an "appropriation to liquidate" is required before expenditures can be made to pay off the obligations.

Expenditures occur when obligations are paid off. Thus, appropriations to permit obligations this year may not affect expenditures until next year or the year after. On the other hand, this year's expenditures in part pay off obligations incurred under earlier appropriations. In the case of Government corporations, moreover, only a small part of the expenditures is made from appropriated funds, and the receipts of the corporations are generally treated as offsets against their expenditures. For these reasons, we can expect no precise correspondence between appropriations and Budget expenditures in any one fiscal year.

The following explanatory text is arranged under headings which correspond to the lines in Table 1.

A. Revisions due to changes in recommendations

(1) Amendments to the Budget The requirements of the fiscal year 1948 made it necessary for me to recommend increases in certain programs after the Budget was transmitted. But in some instances our needs have fallen below the tentative figures used in January, and the difference has been deducted in computing the revised Budget total. Recommendations anticipated in January but not yet transmitted to the Congress have also been deducted, since a separate heading is used to cover supplemental recommendations for items to be considered at the next session of the Congress.

These increases and decreases together make up the amendments to the Budget. The net effect of such amendments has been to add 645 million dollars to recommended appropriations and 101 million dollars to recommended contract authorizations. These amendments, if adopted in full, would have increased expenditures by 300 million dollars during fiscal 1948.

The major new requirements have been as follows:

The situation in Europe made it imperative that we extend aid to Greece and Turkey. The recommended appropriation of 400 million dollars was approved and will add 320 million dollars to expenditures during fiscal 1948.

As a result of recent disastrous floods, I recommended to the Congress shortly before it adjourned a flood control program with supplemental appropriations of 250 million dollars for fiscal 1948. This included 237 million dollars for the Corps of Engineers, 10 million dollars for the Bureau of Reclamation, and 3 million dollars for the Department of Agriculture. Added expenditures during the current fiscal year would have amounted to an estimated 136 million dollars but for cuts shown under revisions due to Congressional action.

To permit the strategic stockpiling program to go forward, I recommended an additional appropriation of 150 million dollars and a contract authorization of 50 million dollars. I also requested 104 million dollars in new contract authorizations for the Army aircraft procurement program to make up for increases in costs since the January estimate. These recommendations contemplated an increase of 91 million dollars in expenditures for national defense during fiscal 1948.

Since January the requirements for the veterans' program have become clearer. Expenditures for pensions, loan guaranty programs, and construction of hospitals have been running lower than originally estimated. However, these savings have been more than offset by increases in outlays for education and training benefits and for medical care. To meet the changed needs, net increases of 75 million dollars in appropriations and 38 million dollars in contract authorizations were requested with an expenditure increase of 94 million dollars.

A supplemental appropriation of 36 million dollars was requested to pay the increased costs incident to completion of the veterans' re-use housing program. The estimated increase in expenditures during 1948 is 33 million dollars.

The outbreak of foot and mouth disease in Mexico made immediate action necessary to prevent the spread of this disease to our own herds. I therefore recommended an appropriation of 64 million dollars for this purpose. The estimated increase in expenditures during 1948 for this program will be 50 million dollars.

A supplemental appropriation of 39 million dollars and a reappropriation of 17 million dollars were recommended for the Department of Commerce, primarily to accelerate improvement of the Federal airway system and to permit greater flexibility in the grant-in-aid program for airport construction. A supplemental request of 22 million dollars was required because of an expected increase in the Post Office deficit due to a rise in the volume of mail. These and several smaller items added 92 million dollars to recommended appropriations for transportation and communication for the current fiscal year. If they had been allowed in full by the Congress, they would have added about 17 million dollars to expenditures this year.

Several large reductions have been included under the heading of amendments to the Budget. The January total included tentative estimates of anticipated supplemental appropriations of 262 million dollars and contract authorizations of 91 million dollars for military and naval public works which have not yet been transmitted to the Congress. They also included 123 million dollars in an indefinite appropriation for tax refunds which would have been payable if the Congress had not accepted my recommendation to continue war excise taxes beyond June 30, 1947. In addition, a supplemental appropriation of 74 million dollars was anticipated on the assumption that new permanent legislation to correct inequalities in State public assistance payments would be enacted, as recommended in the Budget. Deduction of these major items from the January totals reduces the expenditure estimate by 366 million dollars.

(2) Anticipated supplemental recommendations-At the next session of the Congress, in addition to supplementals to cover deficiencies in items on which the Congress has acted, it will be necessary to submit supplemental requests for items which the Congress has not yet considered. Excluding any new programs of international aid, these requests will add about 403 million dollars to appropriations and 317 million dollars to. contract authorizations. This will mean 338 million dollars of expenditures in fiscal 1948.

The main new supplemental items that I now anticipate are as follows:

Supplemental requests for 60 million dollars in appropriations and 282 million dollars in contract authorizations for military and naval public works will be sent to the Congress as soon as the necessary basic legislation is passed. The delay that has already occurred will reduce expenditures in fiscal 1948 from 169 million dollars to 19 million dollars.

Refunds of internal revenue and of customs are now estimated 129 million dollars higher than in January, apart from the war excise tax refunds then included. A supplemental appropriation will be required.

Appropriations and expenditures of 115 million dollars will be required by recently enacted legislation extending present temporary increases in matching grants to the States for public assistance. This supersedes the anticipated supplemental appropriation of 74 million dollars which was included in the January Budget for the same program. The difference in these estimates reflects higher rates of benefit payments by the States, as well as heavier case loads.

In summary, revisions due to changes in recommendations increase appropriations by 1,048 million dollars, contract authorizations by 418 million dollars, and estimated expenditures by 638 million dollars.

B. Revisions due to changes between fiscal years and in program outlook

Three types of changes in the Budget are grouped under this heading:

(1) 1947 appropriations delayed to 1948-A few appropriation items, chiefly the 350 million dollars for post-UNRRA relief, were recommended as supplementals for 1947 but were enacted by the Congress as appropriations for 1948. On the other hand, an appropriation of 20 million dollars recommended for fiscal 1948 was enacted as a 1947 supplemental. Shifts of this kind have increased appropriations for 1948 by 362 million dollars and expenditures in this year by 48 million dollars.

(2) Transfers of expenditures between fiscal years--Transfers to the Railroad Retirement trust account during fiscal 1947 were expected in earlier estimates to include 204 million dollars which was to have been available for transfer immediately upon passage of the appropriation for 1948. Delay in enactment of the appropriation postponed this transfer until fiscal 1948. Similarly, transfer of 81 million dollars to the veterans' life insurance trust funds, originally scheduled for fiscal 1947, has been delayed until 1948. On the other hand, only 25 million dollars of the Smaller War Plants Corporation capital stock, rather than the 100 million dollars estimated in January, will be retired by the Reconstruction Finance Corporation in the current fiscal year, since the major retirement has already been made.

These and other items will mean a net shift in expenditures of 293 million dollars from fiscal 1947 to 1948.

(3) Changes in the estimates of program outlook and related revisions of permanent appropriations--The expenditure estimates for several important programs have changed materially since last January because of factors other than revised recommendations or Congressional action. The estimates for some programs have increased; for others they have decreased. It is now estimated that the total of expenditures during fiscal 1948 will be increased for these reasons 13 million dollars above the January estimates. A net reduction of 15 million dollars in permanent indefinite appropriations is associated with these revisions.

The main items involved are as follows: Expenditures for national defense will be 258 million dollars lower than was anticipated in January, quite apart from changes attributable to Congressional action. This drop is due mainly to difficulties in recruiting and to lower estimates for the supply and operating services in line with recent expenditure experience.

A 500-million-dollar increase in estimated withdrawals on account of the loan to the United Kingdom is the major change accounting for an increase under this heading of 495 million dollars above the January estimate of expenditures for international affairs and finance. Net expenditures of the U.S. Commercial Company are now estimated 74 million dollars higher; those of the Export-Import Bank, 80 million dollars lower. Other smaller program changes offset each other.

For agriculture and agricultural resources the expenditure estimate now is 341 million dollars lower than in January because of program changes. This is mainly due to increased receipts of the Commodity Credit Corporation in this fiscal year from the sale of Cuban sugar which was purchased last June. These receipts will more than offset the expenditures of the Corporation during this year.

Estimated expenditures for natural resources programs will be 97 million dollars higher than was estimated in January, almost entirely because of a revised estimate for the Atomic Energy Commission.

A reduction of 160 million dollars in estimated expenditures for transportation and communication is accounted for by a slower rate of expenditures for Federal-aid highway grants than was estimated last January and a more rapid rate of repayments to the Reconstruction Finance Corporation on prewar railroad loans.

Program changes under general government since January have added 99 million dollars to estimated expenditures. More than half of this is in the War Department program for the return of our war dead.

Most of the 75-million-dollar increase in interest payments on the public debt under this heading arises from relaxation of wartime controls over short-term interest rates. Federal Reserve banks now hold most of the securities benefiting from these higher rates. Consequently, most of the added payments will come back to the Treasury through transfers of excess earnings of the Federal Reserve banks.

This increase in the permanent indefinite appropriation for interest is more than offset by reductions of 90 million dollars in the permanent indefinite appropriation (and 85 million dollars in expenditures) for transfers of receipts from the rental and sale of war housing. The reductions result from revisions in accounting procedures.

In summary, changes in timing and program outlook have increased appropriations for 1948 by 347 million dollars and expenditures by 354 million dollars.

C. Revisions due to Congressional action

Congressional action has affected the Budget in a variety of ways.

(1) Reductions which may be regarded as final--Authorizations of some departments and agencies have been cut and their activities must be reduced. Cuts under this heading amount to 1,843 million dollars in appropriations for 1948, 3 million dollars in contract authorizations, and an estimated 1,275 million dollars in expenditures during the fiscal year.

The main reductions are as follows: National defense appropriations were reduced by 566 million dollars (including 515 million dollars for the War and Navy Departments and 50 million dollars for stockpiling). The cut in expenditures is 453 million dollars. These decreases will mean substantial cuts in the number of military personnel and considerable contractions in the supply services. They are partly offset by increases totaling 234 million dollars in appropriations and in contract authorizations, which are discussed under other headings below.

Appropriations for veterans' services and benefits for 1948 were cut by 113 million dollars. The expenditure reduction due to action by the Congress is 88 million dollars during the current year. This includes a reduction of 50 million dollars in the estimate for veterans' pensions and of 17 million dollars in construction of educational facilities because of a cut in the 1947 supplemental appropriation.

The Congress has cut appropriations for international affairs and finance by 208 million dollars. This means a cut of 66 million dollars in expenditures during the current year. The largest reduction in appropriations is 125 million dollars for War Department activities in governing the occupied areas. This cut, however, does not affect expenditures during this fiscal year. The cut of 45 million dollars in the appropriations requested for the State Department includes 19 million dollars in the foreign information and cultural program--a reduction which impairs our efforts to give other peoples accurate information about the United States.

Appropriations for agriculture and agricultural resources for 1948 were cut by 198 million dollars. These changes in appropriations, together with elimination by the Congress of 100 million dollars in transfers to the conservation and use program, mean a cut of 184 million dollars in expenditures during fiscal 1948. The largest reduction in appropriations is a 73-million-dollar decrease for the Farmers' Home Administration. This will mean a 63-million-dollar reduction in expenditures, mostly for production loans and other financial aid to low-income farmers. Expenditures for the conservation and land-use program in fiscal 1948 are reduced by 74 million dollars and for other programs by smaller amounts.

Appropriations for natural resources programs were cut 225 million dollars by the Congress--excluding cuts likely to be offset by deficiency appropriations, which are discussed in the following section. The corresponding expenditure cut is 127 million dollars. Appropriations for flood control work of the Corps of Engineers were reduced by 118 million dollars and expenditures during this fiscal year by 68 million dollars. Appropriations for the natural resource programs of the Department of the Interior were cut by 90 million dollars, with a 50-million dollar reduction in expenditures during this fiscal year--mainly in the Bureau of Reclamation.

Appropriations for transportation and communication were cut 220 million dollars by the Congress. Expenditures during the fiscal year are reduced 133 million dollars on this account. The largest of these appropriation cuts is 71 million dollars for the Civil Aeronautics Administration. This will retard improvement of the Federal airways system, particularly the installation of instrument landing aids, and will delay improvement of many airports. The other major cuts in appropriations for 1948 are 49 million dollars for the Post Office Department, 46 million dollars for the Coast Guard, and 36 million dollars for Federal-aid highway grants.

The appropriation for the Labor Department has been reduced by 24 million dollars. Consequently the Department will be restricted in enforcing the minimum wage laws, in providing information desired by business and labor, and in aiding the development of fully effective State employment services.

A reduction of 145 million dollars was made in the appropriations for general government programs. The Congress made a 50-million-dollar cut in the recommended appropriation for the disposition of surplus war material by the War Assets Administration. In the Treasury Department the appropriation for the Bureau of Internal Revenue was cut 20 million dollars which, as I have previously pointed out, will make it more difficult for the Bureau to enforce the tax laws.

Many other small but nonetheless useful activities of the Government have been curtailed or eliminated.

(2) Reductions which will require offsets--In some instances, the Congress has conceded that its reductions may prove excessive by admitting that more money may have to be appropriated later in the fiscal year. A fair appraisal of Congressional action, therefore, requires that we deduct from the cuts originally made the amount of the estimated supplemental appropriations required to cover the deficiencies. Appropriation cuts of this type amounted to 929 million dollars, but it now appears that it will be necessary to restore 848 million dollars. The effect of Congressional action of this kind, therefore, will be to reduce appropriations by 81 million dollars and expenditures by 56 million dollars.

Following are the major items under this heading:

The recommended appropriations for refunds of receipts were reduced by 688 million dollars (in addition to the cut of 123 million dollars resulting from extension of war excise tax rates as requested in the Budget Message). However, it is now estimated that 680 million dollars of the 688 million-dollar cut must be restored, in addition to a new authorization of 129 million dollars referred to above.

The Congress cut the appropriation for the Post Office by 102 million dollars. The part of this cut which can be considered as not requiting restoration is included in the preceding section. However, it is anticipated that an increased volume of mail, together with higher costs, will require a supplemental appropriation for the Post Office of about 53 million dollars.

The 250-million-dollar appropriation recommended for the Atomic Energy Commission was reduced by the Congress to 175 million dollars. This action was expected to provide for part of the fiscal year until the Congress should have an opportunity to secure additional information as a basis for a full-year appropriation. I anticipate that the Atomic Energy Commission will need a supplemental appropriation of at least 25 million dollars to carry on its operations.

The Congress reduced the recommended appropriation for control of foot and mouth disease by 59 million dollars, but permitted borrowing from other funds in anticipation of a later appropriation. The required supplemental appropriation is now estimated at 55 million dollars.

The Congress has also indicated its willingness to consider deficiency appropriations to restore any necessary part of the cuts of 7 million dollars made in the appropriations for the National Labor Relations Board and the Federal Mediation and Conciliation Service. A substantial part of this may have to be restored.

(3) Reductions in Government corporation expenditures--Except for expenditures to meet earlier commitments, the Congress has revoked the authority of the Reconstruction Finance Corporation to support the market for home loans guaranteed by the Veterans Administration and to make direct real estate loans. The effect of this action is to reduce estimated net expenditures by 325 million dollars. In addition, the Congress reduced the limitations for administrative expenses of the RFC and other Government corporations by about 20 million dollars.

(4) Rescissions--Since January the Congress has rescinded appropriations and other authorizations for years prior to 1948 of 4.1 billion dollars. Of the 4.1 billion dollars rescinded, 565 million dollars was pursuant to recommendations which I submitted last January after a review, at the request of the Congress, of the unexpended balances of appropriations legally available for obligation beyond the end of the fiscal year 1947 and the unexpended balances of temporary war agencies. At that time I also indicated that through administrative action there was being carried to the Treasury surplus account over 1 billion dollars, primarily lend-lease appropriations and amounts in War Department replacing accounts.

In July I recommended that an estimated 325 million dollars in revolving funds held by the Maritime Commission for ship operation be carried to the Treasury surplus fund. In the process of changing the Maritime Commission financing from a revolving fund to an annual basis, the Congress rescinded these and other unexpended balances estimated at 550 million dollars, but provided a new appropriation of not to exceed 200 million dollars to the Secretary of the Treasury to liquidate outstanding obligations.

The Congress has rescinded nearly 3 billion dollars of additional unexpended balances, mainly military and naval appropriations. Most of these additional funds rescinded were excess wartime appropriations which had ceased to be available for obligation on June 30, 1946, or earlier, and would never have been spent.

The total actual saving in expenditures due to rescissions is 153 million dollars, all except 5 million dollars in the Navy Department.

(5) Substitution of contract authorizations--For some programs, the Congress substituted a total of 181 million dollars in contract authorizations for recommended appropriations in cases in which the money was to be expended later than fiscal 1948. Under the action taken by the Congress, appropriations will be required, mostly in later years, to pay off the obligations incurred under the contract authority. Expenditures in fiscal 1948 probably will not be affected by this Congressional action.

Contract authorizations of 81 million dollars for veterans' hospital construction were enacted to replace an equal amount of requested and rescinded appropriations. Similarly, for the grant-in-aid hospital construction program of the Public Health Service the Congress voted 75 million dollars in new contract authorizations in lieu of 50 million dollars of the recommended appropriation. In the case of stockpiling for national defense, the Congress offset half of the 50-million-dollar cut in appropriations for new procurement by a 25-million-dollar increase in contract authorizations.

(6) Increases initiated by the Congress-The Congress, on its own initiative, has increased some appropriations and expenditure requirements in fiscal 1948. Through such action, appropriations have been increased by 346 million dollars and contract authorizations by 149 million dollars. This means an estimated increase of 309 million dollars in expenditures during fiscal 1948.

The main items involved here are:

The cuts in national defense previously discussed are partly offset by increases in certain segments of the program. Thus Congress provided an additional 61 million dollars in appropriations to the War Department and 148 million dollars in contract authorizations for the War and Navy Departments. The added amounts for the War Department include 51 million dollars in appropriations and authorizations for the civilian reserves. The increases in contract authorizations include 124 million dollars for Army and Navy aircraft procurement. Expenditures will be increased by 47 million dollars during 1948 and by greater amounts in later years as the contract authorizations flow into expenditures.

The Congress has changed the arrangements for handling the finances of certain operations of the Maritime Commission and the liquidation of the former War Shipping Administration. These changes, together with the temporary extension of authority to operate ships, result in an increase in appropriations and reappropriations now estimated at about 160 million dollars. Expenditures in fiscal 1948 will be increased by 177 million dollars, but this will in the main be offset by increases in miscellaneous receipts.

The legislation to permit veterans to cash 2 billion dollars of terminal leave bonds will not directly affect Budget expenditures because the face value of these bonds was charged as an expenditure when issued. However, an estimated 50 million dollars of accrued interest will have to be paid on the bonds cashed during the fiscal year.

pensions for the veterans of the Civil, Indian, and Spanish-American wars and their dependents have been increased by 20 percent. This and other increases for veterans' programs mean 26 million dollars of additional expenditures, to be covered by corresponding supplemental appropriations.

Increases in other types of authorizations-In addition to appropriations and contract authorizations, the Congress has authorized the cancellation by the Treasury Department of 944 million dollars of notes of the Reconstruction Finance Corporation, and has provided authorizations for expenditures of 225 million dollars treated as public debt transactions. The authorizations to cancel the Reconstruction Finance Corporation notes will permit the transfer of certain assets from the Corporation to the Treasury Department. The cancellation of notes will be payment for these assets. Thus, they cause expenditures in one set of accounts and receipts in another. The 225-million dollar authorization treated as a public debt transaction represents merely a shift in the method of financing new loans of the Rural Electrification Administration. Since neither of these actions affects total Budget expenditures, they are omitted from Table 1.

In summary, the total effect of revisions due to Congressional action--aside from reductions which will require offsets by deficiency appropriations--is to reduce 1948 appropriations by 1,578 million dollars, to increase contract authorizations by 327 million dollars, and to reduce expenditures by 1,520 million dollars.

Recapitulation by functions

The effect of the various changes upon expenditures during the current fiscal year for each of the major functions of the Government (see Table 2) may be summarized briefly as follows:

National defense expenditures are now estimated at 855 million dollars less than in January. About two-thirds of this change is due to Congressional cuts. The remainder is due to changes in timing and a slower rate of operations.

The estimate of expenditures for veterans' programs has increased by 126 million dollars, largely as the result of increases in education and training benefits which are partly offset by decreases in pensions and other programs.

Expenditures for international affairs and finance are now estimated 791 million dollars higher than in January, without allowing for possible additional aid programs. This is due chiefly to greater withdrawals under the British loan and to the addition of aid to Greece and Turkey.

For social welfare, health, and security, the expenditure estimate is now 299 million dollars higher than in January. Most of this increase reflects transfers of expenditures between fiscal years, but 54 million dollars represents increases in programs.

Housing expenditures are expected to be 375 million dollars below the January estimate. This results chiefly from the elimination by the Congress of the authority of the Reconstruction Finance Corporation to purchase veterans' housing mortgages and to make real estate loans.

The estimate for agriculture and agricultural resources has been reduced by 442 million dollars since January. This is due chiefly to increased receipts of the Commodity Credit Corporation (which offset its expenditures) and to reductions made by the Congress in the program of the Farmers' Home Administration and in the conservation and land-use program.

The expenditure estimate for natural resources programs has been raised by 59 million dollars. Additions largely on account of accelerated flood control work have been offset in part by Congressional reductions in other resource programs.

For transportation and communication, the expenditure estimate has been cut by

95 million dollars since January. This is largely due to the changed outlook for the public roads program and to Congressional action on the airport and air facility programs.

Estimated expenditures for finance, commerce, and industry have been reduced by 129 million dollars, chiefly because of retirement of most of the stock of the Smaller War Plants Corporation in fiscal 1947 rather than 1948.

Interest payments will be about 125 million dollars higher than was estimated in January--due to higher short-term interest rates and payment of accrued interest on terminal leave bonds cashed by veterans.

These are the chief changes in the totals for the larger functions of the Government. As we have seen, many internal changes have occurred which the changes in the totals do not show. Some important services have been reduced or eliminated. On the other hand, some constructive readjustments of the Budget have been made and the Congress has accepted many of my recommendations on urgent domestic and international programs.

3. Revenue, Borrowing, and the Public Debt

Net Budget receipts are now estimated at 41.7 billion dollars for fiscal year 1948. The January estimate was 37.7 billion dollars without including extension of the war excise tax rates. (See Table 3.)

In my Budget Message, I requested that the war excise tax rates be continued throughout the fiscal year 1948. The Congress continued them without an expiration date. This added more than 1.1 billion dollars to the estimate of receipts, thus raising it to 38.9 billion dollars. Higher levels of national income account for the greater part of the further increase of 2.8 billion dollars in the present estimate of Budget receipts over the January estimate. The revised estimates are based on a continuance of employment, prices, and incomes dose to their present levels throughout the fiscal year.

The direct taxes on individuals, principally the individual income tax, which are most affected by the level of national income, are now estimated at 21.2 billion dollars. This is an increase of 2.1 billion dollars over the January estimate. Miscellaneous receipts now are estimated about 500 million dollars higher than in January, largely because certain surplus property and other receipts which previously went to Government corporations or the Maritime Commission will now be paid into miscellaneous receipts.

Employment taxes now are estimated about 400 million dollars lower than in January. The January Budget had assumed that the Social Security old-age payroll tax would rise to 2 1/2 percent each on employer and employee as then scheduled by law. However, as in past years, the Congress froze the rate at the present 1 percent on each. This change does not affect net receipts, since the amount transferred to the Old-Age and Survivors Insurance Trust Fund will be reduced by the same amount.

As in the case of appropriations and expenditures, the revised estimate of net receipts reflects three types of change since the January estimate. Of the estimated total increase of 3,937 million dollars, 1,130 million dollars is due to amendment of the January Budget to reflect my recommendation for continuation of war excise taxes. Changes in estimates and shifts of receipts between fiscal years account for 2,656 million dollars. The remaining 151 million dollars represents an increase arising from Congressional action to revise the financing of the Maritime Commission.

Without allowing for the contingency of additional expenditures for international aid, the Budget surplus for fiscal 1948 is estimated at 4.7 billion dollars. The surplus, together with part of the present cash balance, will be devoted to retirement of the public debt. On this basis, the debt would decline from 258 billion dollars on July 1, 1947, to 253 billion dollars at the end of the fiscal year. (See Table 6.)

4. Receipts from and Payments to the Public

Receipts from the public during the fiscal year 1948 are now estimated at 44.7 billion dollars and payments to the public, excluding additional international aid, at 39.2 billion dollars. The excess of receipts thus is 5.5 billion dollars. These totals exclude all transactions among Government agencies, Government corporations, and trust funds. They include only the actual flow of money between the Federal Government and the public. (See Table 7.)

The revised estimate of receipts from the public is 4 billion dollars higher than the January estimate, largely because of the increase in the estimate of net Budget receipts. The revised estimate of payments to the public is nearly 1.5 billion dollars higher than the January estimate, despite the lower estimate of Budget expenditures. Most of the increase in payments arises from redemption of an estimated 1.4 billion dollars of terminal leave bonds, which involves a payment to the public but no Budget expenditure--except for payment of accrued interest.

The excess of receipts from the public, apart from any additional expenditures for international aid, is now estimated 2.5 billion dollars higher than in January, but 1.2 billion dollars lower than the actual excess of receipts for the fiscal year 1947. The excess, as well as a small portion of the cash balance, will be available to repay money previously borrowed from the public. Present estimates indicate that 6.2 billion dollars of such borrowing will be repaid in the fiscal year 1948. This figure, relating to that part of the debt which is held by the public, should not be confused with the estimate for budgetary debt retirement.

Last January in my message to the Congress I pointed out that five items in the Budget--interest on the public debt, refunds of receipts, national defense, international affairs, and the veterans' programs--would require expenditures during this fiscal year of 29.2 billion dollars, or nearly four-fifths of the entire Budget.

Expenditures for these items are now estimated at 29.4 billion dollars or 79 percent of the Budget.

Expenditures for national defense, totalling 10.4 billion dollars, account for 28 percent of the Budget.

Interest on the national debt will be 5.1 billion dollars and refunds due under tax laws 2.1 billion dollars. These two items total 7.2 billion dollars, or nearly 20 percent of total expenditures.

Expenditures for veterans' services and benefits are estimated at 7.5 billion dollars, or 20 percent of the Budget.

Finally, our efforts to achieve a stable world through a program of international affairs and finance will cost 4.3 billion dollars, or nearly 12 percent of our Budget. This does not allow for possible additional international aid.

This leaves--to carry out all the remaining programs and activities of the Government-7.6 billion dollars, or 21 percent of all the money which the Federal Government will spend this year.

TABLE 2.¹ BUDGET RESUME BASED ON EXISTING AND PROPOSED LEGISLATION

FOR THE FISCAL YEARS 1947 AND 1948 [In millions] PART A. BUDGET RECEIPTS AND EXPENDITURES 1948 estimated Budget document Revision Description 1947 actual January 1947 August 1947 Budget receipts $43,259 2 $37,730 $41, 667 Budget expenditures: National defense 14,451 11, 256 10, 401 Veterans' services and benefits 7,373 7, 343 7, 469 International affairs and finance 6,669 3,510 4,301 Social welfare, health, and security 1,356 1,654 1,953 Housing and community facilities 385 539 164 Education and general research 71 88 72 Agriculture and agricultural resources 1,331 1,381 939 Natural resources not primarily agricultural 578 1,101 1,160 Transportation and communication 861 1,530 1,435 Finance, commerce, and industry 237 426 297 Labor 121 118 102 General government 1,375 1,492 1,494 Interest on the public debt 4,957 5,000 5,125 Refunds of receipts 3,056 22,065 2,063 Reserve for contingencies 25 25 Adjustment to daily Treasury statement basis -316 Total Budget expenditures 42,505 37,528 37,000 General and special accounts 42,819 36,699 37,193 Corporation checking accounts -314 829 -193 Total Budget expenditures 42,505 37,528 37,000 Excess of Budget receipts over expenditures 754 202 4, 667 ............................................................................................... 1 This table is a revision of the Budget Resume, p. M63, of the 1948 Budget.

² On the basis of the law then in effect, the January estimates assumed that the war excise tax rates would terminate on June 30, 1947. However, these higher wartime rates were continued by subsequent legislation as recommended in the January Budget Message, and are reflected in the August estimates. If the continuation of the higher rates had been assumed in the January estimates, the estimated receipts from excise taxes would have been $1,130 million more and the estimated expenditures for refunds of taxes would have been $123 million less.

TABLE 2. BUDGET RESUME BASED ON EXISTING AND PROPOSED LEGISLATION

FOR THE FISCAL YEARS 1947 AND 1948--Continued

PART B. APPROPRATIONS AND OTHER AUTHORIZATIONS 3 [General and special accounts] 1948 recommended Budget document Revision 1948 1947 January August enacted or Description enacted 1947 1947 anticipated Appropriations $36,907 $31,276 $32,304 $29,696 Deduct: Appropriations to liquidate contract authoriza- tions -530 -342 -306 -267 Anticipated supplemental appropriations (estimated): To cover Congressional reductions which were made with recognition that additional appropriations might be required 833 To cover items to be considered at next session of Congress 429 429 New contract authorizations -401 1,542 1,643 1,970 Anticipated supplemental contract authorizations (esti- mated) 317 317 Authorizations treated as public debt transactions 225 Authorizations to borrow from Reconstruction Finance Corp 370 225 225 Reappropriations 350 16 37 136 Total appropriations and other authorizations 3 36,696 32,717 34,649 33,339 ....................................................................................................... 3 Excludes cancellation of corporation notes, which do not affect Budget expenditures; see "memorandum" at end of Table 4.

TABLE 3.1 BUDGET RECEIPTS AND EXPENDITURES BY FUNCTION FOR THE FISCAL YEARS 1947 AND 1948

[In millions] 1948 estimated Budget document Revision Description 1947 actual January 1947 August 1947 Budget receipts: General and special accounts: Direct taxes on individuals $20,408 $19,120 $21,195 Direct taxes on corporations 9,678 8,270 8,499 Excise taxes 7,269 26,118 27,246 Employment taxes 2,039 32,694 32,271 Customs 494 517 463 Miscellaneous receipts 4,815 2,998 3,519 Deduct: Net appropriation to Federal old-age and survivors' insurance trust fund -1,444 -1,987 -1,526 Net Budget receipts 43,259 37,730 41,667 Budget expenditures: General and special accounts: National defense: War Department 7,087 6,658 6,061 Navy Department 5,016 4,415 4,037 Terminal leave for enlisted military personnel 1,992 250 191 Stockpiling of strategic materials 11 243 397 Other 372 21 90 Total national defense 14,478 11,587 10, 776 Veterans' services and benefits: Pensions 1,932 2,492 2,235 Insurance 840 73 150 Readjustment benefits 3,637 3,463 3,979 Hospitals, other services, and administration 964 1,315 1,105 Total veterans' services and benefits 7,373 7,343 7,469 International affairs and finance: Treasury loan to United Kingdom 2,050 1,200 1,700 Subscription to International Bank and Fund 1,426 Subscription to capital stock of Export-Import Bank 325 Greek-Turkish aid 320 Foreign relief 1,529 1,197 1,168 Other 692 423 429 Total international affairs and finance 6,022 2,820 3,617 See footnotes at end of table.

TABLE 3.¹ BUDGET RECEIPTS AND EXPENDITURES BY FUNCTION FOR THE FISCAL YEARS 1947 AND 1948--Con.

[In millions] 1948 estimated Budget document Revision Description 1947 actual January 1947 August 1947 Budget expenditures--Continued Social welfare, health, and security 1,356 1,654 1,953 Housing and community facilities 520 225 312 Education and general research 71 88 72 Agriculture and agricultural resources 2,209 1,603 1,517 Natural resources not primarily agricultural 583 1,099 11,154 Transportation and communication 890 1,533 1,518 Finance, commerce, and industry 164 112 61 Labor 121 118 102 General government 1,303 1,427 1,429 Interest on the public debt 4,957 5,000 5,125 Refunds of receipts 3,056 22,065 22,063 Reserve for contingencies 25 25 Adjustment to daily Treasury statement basis -284 Total expenditures, general and special accounts 42,819 36,699 37,193 Checking accounts of wholly owned Government cor- porations and credit agencies with U.S. Treasury (net):4 National defense: Reconstruction Finance Corporation -27 -331 -375 International affairs and finance 647 690 684 Housing and community facilities -135 314 -148 Agriculture and agricultural resources -878 -222 -578 Natural resources not primarily agricultural -5 2 6 Transportation and communication -29 -3 -83 Finance, commerce, and industry 73 314 236 General government 72 65 65 Adjustment to daily Treasury statement basis -32 Net expenditures, corporation checking ac- counts 4 -314 829 -193 Total Budget expenditures 42,505 37,528 37,000 Excess of Budget receipts over expenditures 754 202 4, 667 ......................................................................................... 1 This table is a revision of Table 1, p. A4, of the 1948 Budget.

² On the basis of the law then in effect, the January estimates assumed that the war excise tax rates would terminate on June 30, 1947. However, these higher wartime rates were continued by subsequent legislation as recommended in the January Budget Message, and are reflected in the August estimates. If the continuation of the higher rates had been assumed in the January estimates, the estimated receipts from excise taxes would have been $1,130 million more and the estimated expenditures for refunds of taxes would have been $123 million less.

³ On the basis of the law then in effect, the January estimates assumed that the social security old-age tax rate would rise to 2 1/2% each on employers and employees on January 1, 1948. Because of later legislation, the August estimates are based on continuation of the 1% rate on each.

⁴ Sales and redemptions of obligations of Government corporations and credit agencies are shown in Table 5.

TABLE 4.¹ GENERAL AND SPECIAL ACCOUNT APPROPRIATIONS AND AUTHORIZATIONS BY FUNCTION, FOR THE

FISCAL YEARS 1947 AND 1948 [In millions] 1948 recommended Budget document Revision 1948 1947 January, August, enacted or Description enacted 1947 1947 anticipated Appropriations: National defense: War Department $7,308 $5,942 $5,717 $5,508 Navy Department 2 4,140 3,541 3,512 3,268 Terminal leave for enlisted military personnel 2,432 Stockpiling of strategic materials 100 150 100 Other 32 10 7 5 Total national defense 14,012 9,493 9,386 8,881 Veterans' services and benefits: Pensions 2,147 2,492 2,222 2,172 Insurance 711 73 73 73 Readjustment benefits 4,365 3,484 3,806 3,806 Hospitals, other services, and administration 1,209 960 983 920 Total veterans' services and benefits 8,432 7,009 7,084 6,971 International affairs and finance: Greek-Turkish aid 400 400 Foreign relief 725 725 1,075 932 Other 190 444 440 375 Total international affairs and finance 915 1,169 1,915 1,707 Social welfare, health, and security 1,287 1,877 1,824 1,746 Housing and community facilities 82 179 114 106 Education and general research 66 85 100 67 Agriculture and agricultural resources 695 824 882 652 Natural resources not primarily agricultural 538 779 1,015 719 Transportation and communication 1,012 1,196 1,279 1,073 Finance, commerce, and industry 168 116 90 59 Labor 119 118 127 96 General government 1,500 1,341 1,421 1,240 Interest on the public debt 4,957 5,000 5,125 5,125 Refunds of receipts 3,124 2,065 1,942 1,254 Reserve for contingencies 25 Total appropriations 36,907 31,276 32,304 29,696 ............................................................................. See footnotes at end of table.

TABLE 4.¹ GENERAL AND SPECIAL ACCOUNT APPROPRIATIONS AND AUTHORIZATIONS BY

FUNCTION, FOR THE FISCAL YEARS 1947 AND 1948--Continued

[In millions] 1948 recommended Budget document Revision 1948 1947 January, August, enacted or Description enacted 1947 1947 anticipated Deduct appropriations to liquidate contract authorizations: National defense 250 37 International affairs and finance 4 8 8 8 Education and general research 2 2 Natural resources not primarily agricultural 5 2 2 Transportation and communication 268 292 192 256 General government 3 3 2 1 Total appropriations to liquidate contract authori- zations 530 342 306 267 Total appropriations, excluding appropriations to liquidate contract authorizations 36,377 30,934 31,998 29,429 Anticipated supplemental appropriations (estimated): To cover Congressional reductions which were made with recognition that additional appropriations might be required: Refunds of receipts 680 Post Office Department (general fund) 53 Atomic Energy Commission 25 Department of Agriculture 55 Other 3 20 Total to cover Congressional reductions which were made with recognition that additional appropriations might be required 3 833 To cover items not yet considered by Congress: Refunds of receipts 129 129 Army and Navy public works programs 60 60 Grants to States for increased public assistance 115 115 Veterans' pensions 26 26 Other 74 74 Reserve for contingencies 25 25 Total to cover items not yet considered by Congress 429 429 Total anticipated supplemental appropriations (estimated) 429 3 1,262 ............................................................................. See footnotes at end of table.

TABLE 4.¹ GENERAL AND SPECIAL ACCOUNT APPROPRIATIONS AND AUTHORIZATIONS BY

FUNCTION, FOR THE FISCAL YEARS 1947 AND 1948--Continued

[In millions] 1948 recommended Budget document Revision 1948 1947 January, August, enacted or Description enacted 1947 1947 anticipated New contract authorizations: National defense 4 -1,352 541 603 777 Vetcrans' services and benefits 441 219 258 338 Social welfare, health, and security 75 Housing and community facilities 2 Education and general research 5 5 4 Natural resources not primarily agricultural 256 256 257 Transportation and communication 510 517 519 519 General government 2 2 Total new contract authorizations -401 1,542 1,643 1,970 Anticipated supplemental contract authorizations (esti- mated): Army and Navy public works programs 283 283 Other 34 34 Total anticipated supplemental contract authoriza- tions (estimated) 317 317 Authorizations treated as public debt transactions: Rural Electrification Administration 225 Authorizations to borrow from Reconstruction Finance Corp.: Rural Electrification Administration 250 225 225 Farmers' Home Administration 120 Total authorizations to borrow from Reconstruction Finance Corporation 370 225 225 Reappropriations: National defense 193 Social welfare, health, and security 2 1 1 Housing and community facilities 4 1 1 Education and general research 7 Agriculture and agricultural resources 115 Natural resources not primarily agricultural 11 14 18 18 Transportation and communication 18 1 17 117 General government Total reappropriations 350 16 37 136 Total appropriations and other authorizations 36,696 32,717 34,649 33,339 ............................................................................. See footnotes on following page.

TABLE 4.¹ GENERAL AND SPECIAL ACCOUNT APPROPRIATIONS AND AUTHORIZATIONS BY FUNCTION, FOR THE

FISCAL YEARS 1947 AND 1948--Continued

FOOTNOTES

¹ This table is a revision of Table 2, p. A5, of the 1948 Budget.

² Excludes funds made available by transfer from unexpended prior year appropriations as follows: 1947, Enacted, $500 million; 1948, Recommended, Budget Document, January 1947, $180 million; 1948, Recommended, Revision, August 1947, $180 million; and 1948, Enacted or Anticipated, $100 million.

³ Net of anticipated supplemental appropriations of $15 million to liquidate contract authorizations for the Public Health Service, hospital construction program.

⁴ Represents rescissions of prior-year contract authorizations and reductions in the estimated cost of uncompleted tonnage authorized in prior authorizations.

MEMORANDUM

[In millions] 1948 recommended Budget document Revision 1948 1947 January, August, enacted or enacted 1947 1947 anticipated Cancellation of notes payable to the United States Treasury: Commodity Credit Corporation: Restoration of capital impairment 1,563 830 Reconstruction Finance Corporation: Reimbursement for strategic materials transferred to military stockpile 210 260 260 Reimbursement for loans to Rural Electrification Ad- ministration 511 Reimbursement to Secretary of Agriculture for farm tenancy loans 40 Reimbursement for capital stock of Federal home loan banks 123 Reimbursement for transfer of office buildings 10 Total cancellations of notes payable to United States Treasury 1,563 1,040 260 944