Statement by the President: The Midyear Review of the Budget.

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

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