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Harry S. Truman: Annual Budget Message to the Congress: Fiscal Year 1952
Harry
Harry S. Truman
13 - Annual Budget Message to the Congress: Fiscal Year 1952
January 15, 1951
Public Papers of the Presidents
Harry S. Truman<br>1951
Harry S. Truman
1951
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To the Congress of the United States:

I transmit herewith my recommendations for the Budget of the United States Government for the fiscal year ending June 30, 1952.

This is a Budget for our national security in a period of grave danger.

It calls for expenditures of 71.6 billion dollars in the fiscal year 1952--a total 78 percent above expenditures for the year which ended last June 30. That increase is one measure of the vast new responsibilities thrust upon the American people by the communist assaults upon freedom in Asia and the threats to freedom in other parts of the world.

The new emphasis on military preparedness reflects the necessities of the world situation today. It reflects no shift of purpose. Our purpose remains to secure and strengthen peace. We are determined to seek peace by every honorable means-mindful of our responsibility to ourselves, to our friends and allies, and to humanity everywhere to spare the world the tragedy of another world war. We are likewise determined to spare ourselves and the world the even deeper tragedy of the surrender of justice and freedom.

BUDGET TOTALS
[ Fiscal years. In billions ]

1950 1951 1952
actual estimated estimated

Receipts (excluding proposed new tax legislation) $37.0 $44.5 $55.1
Expenditures 40.1 47.2 71.6

Deficit --3.1 -- 2.7 -- 16.5

Another system--powerful in resources, hostile in intent, and ruthless in method-is seeking the destruction of all the values we would preserve. That system is under the mastery of men unrestrained by considerations of responsibility to their people and guided by twisted dogma. They can be restrained only if defensive strength is arrayed against them. Our best hope now is to build our strength to the point necessary to bring them to caution, if not to wisdom. We are compelled to make the creation of strength a paramount aim.

In our drive to build up our defenses, we and the countries associated with us have a twofold goal--first, military forces strong enough to provide a powerful deterrent to those who may be contemplating new aggression; second, readiness for immediate mobilization of all our power if that becomes necessary.
This Budget reflects our determination.

First, it incorporates our expenditures for military purposes--to build swiftly an active force of highly trained men, equipped with the most modern weapons, and supported by ready reserves of men, supplies, and equipment.

Second, it includes our expenditures to help other threatened nations rebuild their strength and to participate with them in a program of mutual aid and common defense.

Third, it embodies our Government programs for the expansion of productive capacity and the concentration of needed capacity on defense requirements--at the expense where necessary of normal civilian purposes.

Fourth, it contains expenditures for programs which will maintain and develop our national strength over the long run, keeping in mind that the present emergency may be of long duration and we must therefore be prepared for crises in the more distant as well as in the immediate future.

Fifth, it reflects reductions in other expenditures, in order to divert a maximum of resources to the overriding requirements of national security.

As a sixth budgetary measure, I shall shortly recommend an increase in tax revenues in the conviction that we must attain a balanced budget to provide a sound financial basis for what may be an extended period of very high defense expenditures.

CONTENTS OF THE BUDGET

The accompanying comparative table shows projected expenditures for the major programs or functions of the Government for the fiscal year 1952, revised estimates for the current year, and actual expenditures for the year which ended last June 30. Estimated appropriations and other new obligational authority for 1952 are also shown. Differences between obligational authority and expenditures are accounted for by the fact that obligational authority granted in one fiscal year may be spent in part in subsequent fiscal years.

The table covers expenditures from general and special funds of the Treasury, plus net expenditures of wholly owned Government corporations. The estimates include requirements under proposed as well as existing legislation. Expenditures from trust funds are excluded from this table, but operations of the major trust funds are discussed in subsequent sections of the Budget Message.

The requirements of national security are reflected in every major function of the Budget. The entire Government is being redirected to meet the compelling demands of national security, and each functional category includes activities which support, directly or indirectly, the defense effort.

BUDGET EXPENDITURES AND AUTHORIZATIONS BY MAJOR FUNCTIONS

[ Fiscal years. In millions ]

Expenditures
_________________________ Recommended
new obliga-
1950 1951 1952 tional authority
Function actual estimated estimated for 19521

Military services $12, 303 $20, 994 $41,42 $60, 971
International security and foreign relations 4, 803 4, 726 7, 461 10, 956
Finance, commerce, and industry 227 368 1, 524 1, 568
Labor 263 212 215 225
Transportation and communication 1, 752 1,970 1, 685 1, 414
Natural resources 1, 554 2,117 2, 519 2, 111
Agriculture and agricultural resources 2, 784 986 1, 429 1, 483
Housing and community development 261 409 2--102 1, 018
Education and general research 114 143 483 468
Social security, welfare, and health 2, 213 2, 520 2, 625 2, 552
Veterans' services and benefits 6, 627 5, 746 4, 911 4, 426
General government 1, 108 1, 252 1, 351 1, 140
Interest 5, 81 5, 722 5,897 5, 897
Reserve for contingencies ......... 45 175 200
Adjustment to daily Treasury statement +330 .......... .......... ..........

Total 40,156 47, 210 71, 594 94, 429

1 This column excludes 4,075 million dollars of recommended appropriations to liquidate prior year contract authorizations.

2 Excess of receipts over expenditures

The two largest categories--military services and international security and foreign relations--are devoted in their entirety to the broad objectives of national security. The military services category includes the costs of the Armed Forces and certain additional programs closely related to the military, particularly the stockpiling of strategic and critical materials and the activities of the National Advisory Committee for Aeronautics. Under the international security and foreign relations heading are the costs of weapons provided to our North Atlantic Treaty allies and to other free nations, as well as expenditures for economic assistance and for the expanded international information program.

The military and international categories account for expenditures of 41.4 and 7.5 billion dollars, respectively, in the fiscal year 1952. Together they total 48.9 billions, or nearly 69 percent of the total Budget.

This total is an increase of 90 percent over the 25.7 billion dollars estimated as expenditures for these purposes during the current year--accounted for almost wholly by the great expansion of the military procurement program.

Our military requirements are of several kinds. We must maintain and supply our forces fighting in Korea. We must provide modern equipment for the expansion of our Army, Navy, and Air Force to the present combined goal of nearly three and a half million men. We must provide equipment for training purposes and for the civilian components not on active duty. We must provide military items to our allies as an essential part of our own defense. We must build a production base and materiel reserves against the contingency of full-scale war.

These demands do not press evenly on all sectors of defense production. In some areas, large supplies of military items remain from the recent war and reduce the need for new large-scale production. Our reserve naval fleet, for example, is an asset which reduces sharply the need for mass construction of new warships. In some cases, the record-breaking military production of the war years has left us with reserves of productive capacity. In other cases present capacity is far from adequate. The economic mobilization program will therefore be selective in character--in some areas, an all-out drive, with extensive conversion of civilian capacity; in other areas, a comparatively small expansion of present production rates.

At the same time that we sharply increase our own military production, Canada and the Western European nations with whom we are allied under the North Atlantic Treaty will be making comparable efforts. Nations outside the North Atlantic organization, including our neighbors in Latin America, are also making important contributions to the common security. Our international programs recognize that this Nation's own security is directly related to the security and defensive strength of our allies and that equipment and materials supplied to help arm their forces or to support their military production are, in fact, additions to our own defensive strength.

Figures shown in this Budget for both the military and the international security programs may be subject to substantial adjustment as the defense program progresses. Detailed estimates of new obligational authority for these categories are not included in the Budget at this time, in order to permit more thorough programing of specific requirements. Actual expenditures will depend on how rapidly we are able to produce the military items for which funds are made available.

A defense program of the size now being undertaken must be supported by a strong and expanding economic base. Five major categories of Federal programs contribute directly to this economic base. These are: (1) finance, commerce, and industry; (2) labor; (3) transportation and communication; (4) natural resources; and (5) agriculture and agricultural resources. Together these categories make up 7.4 billion dollars of expenditures in the fiscal year 1952, or 10 percent of the Budget.

This total compares to 5.7 billion dollars estimated as expenditures for these purposes in the current fiscal year. The increase reflects primarily our programs to expand private production facilities through Federal action, to administer economic controls, and to add capacity for atomic energy activities.

Four other categories of Budget expenditures include programs which contribute to national strength through protecting and improving the health, education, and well-being of the individuals and families who make up the Nation. These classifications are: (1) housing and community development; (2) education and general research; (3) social security, welfare, and health; and (4) veterans' services and benefits.

These four categories account for a total of 7.9 billion dollars, or 11 percent of Budget expenditures in the fiscal year 1952. This represents a reduction of nearly a billion dollars from the current year's anticipated expenditures. If it were not for the major new programs of civil defense and defense housing, community facilities, and services, the total reduction would be even greater

The general operations of Government including the legislative and judicial branches and such general activities of the executive branch as tax collection, civil service retirement payments, and central supply, records, and buildings services-amount to 1.4 billion dollars, or 2 percent of the 1952 Budget. Apart from the expected costs of dispersal of Government agencies, this group of expenditures is also scheduled to decline from the 1951 level.

Interest payments will amount to an estimated 5.9 billion dollars in the fiscal year 1952, or 8 percent of the total Budget.

In order that our resources can be diverted to meet the demands of national security, strict economy in nondefense spending is required. Such a policy is incorporated in this Budget. For example, the only major new public works projects included in the Budget are those directly necessary to the defense effort. Construction on many public works projects now under way has been substantially curtailed. Many other activities are being contracted. Expenditures for the maintenance of Government property have been held to a minimum consistent with protection of Government investments. Cost increases, such as the rise that has already taken place in the prices of what the Government buys, are in many instances being absorbed by the agencies through compensating economies. Increases have been allowed where increasing workloads must be met or where further accumulation of backlogs of work cannot be tolerated, but only to the extent that the work cannot be taken care of through increased efficiency or reductions in service standards.

MANAGEMENT OF THE GOVERNMENT'S PROGRAM

Direction of the Nation's security program in this critical period will require the highest degree of administrative effectiveness in the Federal Government. Concerted efforts are being made to strengthen the organization and management of the executive branch for the extraordinarily difficult tasks that lie ahead. During the coming period, we must be able to make quickly such changes in the assignment of governmental functions as are needed to carry out national security programs. Under the Defense Production Act, I have by Executive order created the Office of Defense Mobilization, the Defense Production Administration, the Economic Stabilization Agency, and other emergency agencies with extensive delegation of authority. However, authority under that act covers only a part of the range of defense functions. During World Wars I and II the President was given emergency reorganization powers. These powers were extensively used to keep Government organization continuously in line with mobilization needs. Such authority for temporary changes is needed in the current emergency and should be one of the early measures considered by the Congress.

In addition to concentrating on the organization and management of the defense program, I shall continue to emphasize throughout the Government the management improvement program, instituted in 1949 to achieve greater efficiency in all Federal activities.

The last Congress took many important legislative actions aimed at improving governmental administration. Other actions are, however, still required. Some of these measures I shall incorporate in reorganization plans to be submitted to the Congress under the Reorganization Act of 1949. Others require legislation, including such important matters as improvements in the civil-service system and in the administration of the postal service.

The actions in the field of organization and management which we have taken in the past years have increased the ability of the Government to deal with a major defense effort. We must continue to make progress in this field.

PAYING THE COSTS OF DEFENSE

When the American people resolved to undertake the defense program now under way, they accepted also the necessity for the increases in their taxes that the new level of expenditures requires. National security in the present world can be attained only with direct and heavy cost to each one of us.

High taxes are indispensable to our successful mobilization. They are required to preserve confidence in the integrity of the Government's finances, to distribute the heavy financial costs of defense fairly among all the people, to reduce excessive demand for raw materials and industrial products required for national defense, and to choke off inflationary pressures. We cannot as a Nation buy a defense establishment of the size that is now being constructed and still as individuals expect to spend our money to the same degree as before for normal peacetime purposes. Unless positive action is taken on the tax front, our defense effort will be in continuous jeopardy.

The tax legislation passed last year substantially increased our revenues. The Revenue Act of 1950, approved within 3 months after the invasion of the Republic of Korea, increased income taxes on individuals and corporations and closed some loopholes in the income tax laws. The corporation excess profits tax, passed in the final week of the Eighty-first Congress, also increased our revenues while at the same time placing the higher levies upon those businesses which can best afford to pay increased taxes.

In spite of these new tax measures, a deficit of 56.5 billion dollars is estimated for the fiscal year 1952 if no further tax legislation is enacted. At this time, sound public finance and fiscal policy require that we balance the Budget. I shall shortly transmit to the Congress recommendations for new revenue legislation.

Even a balanced budget will not of itself serve to keep our economy stable during a period of rapidly rising defense expenditures. The full amount of inflationary pressure is not measured by the budget deficit alone, since this reflects only payments actually made. The Department of Defense alone will have been granted for the fiscal years 1951 and 1952 an estimated 112 billion dollars of obligational authority for its military functions, and additional amounts will have been made available for foreign military-aid programs. Bidding for manpower and materials, which pushes prices upward, begins as soon as procurement contracts to be paid from these authorizations are signed, even though expenditures may not take place for a year or more. Other positive stabilization measures, including allocations, and credit, price and wage controls, are essential to offset the inflationary pressures which are not reflected in the single figure of the budget deficit.

The following table provides a breakdown of anticipated budget receipts during the fiscal year 1952, based on existing legislation, compared with actual receipts during the fiscal year 1950 and revised estimated receipts for the current year.

Under existing legislation, including the recently enacted tax measures, budget receipts for the fiscal year 1952 are estimated at 55.1 billion dollars. This is 10.6 billion dollars higher than the estimate for the current year. Receipts from direct taxes on corporations show the greatest increase, 6.4 billion dollars over corresponding receipts for the current fiscal year. The combined effects of the Revenue Act of 1950, the Excess Profits Tax Act, and peak levels of corporate profits are reflected in this estimate. Direct taxes on individuals increase 4.4 billion dollars as a result of the high levels of income anticipated and a full year of operation under the Revenue Act of 1950. Although the collections from certain excise taxes will decline as production of some manufactured goods is affected by shortages of materials, receipts from other excises and all other major sources will increase.

BUDGET RECEIPTS
[ Fiscal years. In millions ]

1950 1951 1952
Source actual estimated estimated

Direct taxes on individuals:
Individual income taxes $17, 409 $21, 599 $26, 025
Estate and gift taxes 706 710 755
Direct taxes on corporations:
Income and excess profits taxes 10, 854 13, 560 20, 000
Excises 7, 597 8, 240 8, 222
Customs 423 600 620
Employment taxes:
Federal Insurance Contributions Act 2, 106 2, 960 3, 823
Federal Unemployment Tax Act 226 239 263
Railroad Retirement Tax Act 551 565 613
Railroad Unemployment Insurance Act 9 10 10
Miscellaneous receipts 1, 430 1, 325 1, 333
Deduct:
Appropriation to social security trust fund --2, 106 --2, 960 --3, 823
Refunds of receipts --2, 160 --2, 336 --2, 703

Budget receipts 37, 045 44, 512 55, 138

NOTE.--Includes only receipts under existing legislation.

BORROWING AND PUBLIC DEBT

At the beginning of the current fiscal year the public debt stood at 257.4 billion dollars. The debt will rise to approximately 260 billion dollars by June 30, 1951, as a reflection of the financing of the budget deficit for the current fiscal year. The amount of the increase in debt beyond June 30, 1951, depends upon the extent to which the projected deficit for the fiscal year 1952 is reduced through the enactment of additional tax legislation.

PROGRAMS

The following sections outline in more detail the character and extent of the programs which are to be financed from this Budget. Further detailed descriptions of the programs of the Government, as well as certain special analyses covering public works, grants to State and local governments, investment and operating expenditures, and Federal credit programs, are included elsewhere in the Budget.

MILITARY SERVICES

The free nations of the world will continue to seek settlement of international disagreements peaceably and honorably within the framework of the United Nations--but they will rebuild their defenses rapidly. The communist attacks in Korea have served notice upon us all that the Soviet rulers are willing to risk the peace of the world to carry out their ambitions.

In response to the grave common peril, the free world is now moving forward, with increasing speed, determination, and unity, to build powerful defenses. This mutual effort is required both to deter further communist aggression and to insure that we shall emerge victorious if war is thrust upon us.

This Nation, as the strongest member of the free world, must provide the leadership in this great undertaking by developing its own military forces and, at the same time, assisting the other free nations on a large scale, in order to quickly achieve adequate mutual defenses.

The recommended program for building our own military strength is discussed in this section. The program for assisting other free nations in developing their strength is discussed under international security and foreign relations.

Department of Defense.--One year ago, I proposed a military program for the fiscal year 1951 based on active forces totaling about 1.5 million men and women, in a state of relative readiness, and backed by a moderate rate of military production and a substantial level of research and development.

The communist attacks in Korea and the imminent possibility of further attacks elsewhere have already caused us to quadruple the budget for the Department of Defense. To the initial enactment of 13.3 billion dollars in new obligational authority for the fiscal year 1951, including nearly a billion dollars of prior year authorizations made available, the Congress has in the past 6 months added 28.7 billion dollars. In this Budget I am tentatively including an additional 10 billion dollars of obligational authority. This will make a total of 52 billion dollars for the fiscal year 1951.

Because of the extensive planning involved, I am not submitting detailed 1952 estimates for the Department of Defense at this time. The Budget includes, however, an over-all estimate of 60 billion dollars, which is expected to be the approximate total of new obligational authority requested this spring for the fiscal year 1952.

The expenditure estimates for the military functions of the Department of Defense are also tentative. At the present time expenditures of 20 billion dollars are estimated for the fiscal year 1951 and 40 billion dollars for 1952.

The increased funds for fiscal years 1951 and 1952 will serve four major interrelated purposes. First, they will support the current increase in the strength of our active forces; second, they will finance the military production program designed to produce rapidly the modern equipment needed to supply our forces; third, they will provide reserves of equipment for still larger United States forces should these become necessary; and, fourth, they will help us to develop the production capacity of the country to the point where we could move rapidly to full mobilization should the need arise.

Six months ago our active military forces numbered less than one and a half million men and women. They have already been increased by about a million and this Budget includes funds to reach and maintain our present goal of nearly a million more.

We also have now available for rapid mobilization more than two million men and women in the National Guard and the Reserves of the Army, Navy, and Air Force. The Budget provides funds to increase the strength and degree of readiness of these Reserve organizations.

While the exact size and disposition of our active forces by units and geographic location must be kept secret in times like the present, in general we are increasing rapidly the number of active units. In the Army, we have called to active duty several National Guard divisions and reactivated certain regular divisions. We shall soon have a force more than twice as strong as our pre-Korea Army. In the Navy, by continuing to reactivate ships from the "mothball" fleet, we shall soon raise the active fleet to a strength more than 50 percent above that of a year ago. This Budget provides for maintaining two full Marine divisions plus additional separate units. In the Air Force, we are expanding the structure from 48 to 84 air wings; these will be rapidly brought up to full strength in trained men, and additional wings will be added.

MILITARY SERVICES
[ Fiscal years. In millions ]

Expenditures
_____________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 19521

Department of Defense--military functions $11, 889 $20, 000 $40, 000 $60, 000
Activities supporting military services:
Stockpiling of strategic and critical materials 438 900 1, 300 820
Selective Service System:
Present program 9 37 ........... ............
Proposed legislation ............ .............. 45 50
National Advisory Committee
for Aeronautics 54 62 78 68
Reconstruction Finance Corporation
(net receipts) --107 --40 --43 ...........
Other 20 35 41 33

Total 12, 303 20, 994 41, 421 60, 971

1 This column excludes 2,702 million dollars of recommended appropriations to liquidate prior year contract authority.

The expansion of the active forces is reflected in the Budget not only in larger total amounts for pay and allowances, but also in increased funds for housing, training, and maintaining such forces.

We are now establishing training centers, bases, and camps for the enlarged forces. Furthermore, in order to prepare for the possibility of further mobilization, we shall be opening facilities with sufficient capacity to handle larger active forces than our immediate goals require. This Budget will provide, therefore, for a considerable increase in military public works expenditures--primarily to expand and improve troop training centers and air bases.

By far the largest part of the funds requested for the military services will be used to procure modern equipment. We have large stocks of some types of equipment, such as rifles and naval ships, which need only to be taken from storage and, in some cases, modernized. But in many other types, such as planes, tanks, electronic equipment, recoilless weapons, and rockets, we need to put into rapid production new models incorporating basic improvements that have been made since the end of World War II. This means a major production effort in order to obtain the best and most modern equipment for our enlarged active forces and for large reserve stocks.

This effort will require prompt and accurate planning and scheduling of military procurement and production in order to anticipate and forestall potential bottlenecks in materials, manpower, or facilities. For example, schedules must be laid out for producing the many complicated components of modern military airplanes, such as jet engines and electronic fire-control equipment, so that the components can be brought together as smoothly and efficiently as possible into finished aircraft. Some delays and frictions will inevitably occur in a production program as large and urgent as that upon which we are now embarked. But the experience and teamwork of military and civilian officials, of private businessmen and workers, will produce results very rapidly.

At the same time that the output of military equipment is stepped up, a base is being developed for moving to full-scale mobilization if the need should arise. For this reason, military orders are being spread among suppliers, instead of being concentrated in a few large firms. Production lines will be set up and manufacturers will be made familiar with our production needs over and above the immediate necessities of our present procurement plans. In this way, military production can be increased still further on short notice if that becomes necessary.

For example, we expect to develop an aircraft industry that will be capable of turning out 50,000 planes in a year, even though we will not be actually procuring that many. These planes, on the average, will be approximately 50 percent heavier than those used in World War II. Similarly, we shall organize to produce 35,000 tanks in a year, although we are not ordering that many now. This means, of course, planning for the readiness of basic materials, manpower, and components, as well as final assembly lines.

The process of putting military equipment into production will not stop or retard our research and development work. On the contrary, we shall increase our efforts to maintain superiority in all kinds of weapons and equipment. Expenditures for the military research and development program will amount to nearly a billion dollars in the current fiscal year. The developmental work and the production program will be planned so that our troops will be supplied with the best weapons in the world.

Stockpiling.--If full mobilization becomes necessary, larger quantities of scarce materials such as copper, chromium, cobalt, and nickel will be required immediately. Many of these scarce materials are not produced in the United States, and others cannot be produced at a rate sufficient to meet all-out military needs. We are consequently acquiring and storing large reserve stocks of these materials.

This program will be expanded and developed in accordance with our total defense needs. The controls which have been established over the use of certain of these materials will assist us in meeting our stockpile requirements. We are also participating in the development of international controls. In addition, vigorous steps are being taken, by ourselves and our allies, to expand the production of strategic and critical materials both at home and abroad.

A total of 2.9 billion dollars of new obligational authority has been made available for the stockpile program during the current fiscal year and I am requesting an additional 820 million dollars of obligational authority for fiscal year 1952. Expenditures for fiscal year 1951 are estimated at 900 million dollars and for fiscal year 1952 at 1.3 billion dollars. These estimates must be considered tentative since the stockpiling program is constantly changing in response to new developments in both requirements and supply.

Selective service.--To provide the personnel needed for the expansion and maintenance of our military strength it will be necessary to rely heavily upon continued inductions through the Selective Service System. I shall therefore shortly request the Congress to enact the necessary legislation.

National Advisory Committee for Aeronautics.--The basic and applied research of the National Advisory Committee for Aeronautics is an essential part of our total military research program for maintaining and increasing our lead in the design of military aircraft. The spending authority recommended for this agency will provide for substantial expansion during fiscal year 1952.

INTERNATIONAL SECURITY AND FOREIGN
RELATIONS

The combined strength of the free world, in people, in industrial capacity, and in natural resources, greatly exceeds that of the Soviet Union and its satellites. This great strength must be mobilized and organized. Most of all, it must be united in purpose. The Soviet rulers are doing their best to split apart the free nations. If the free world let that happen, we would be handing the Soviet Union a victory without a struggle.

The Soviet rulers since the last war have been devoting a very large percentage of their resources to building military forces greatly in excess of any justifiable defense requirements. If these forces should be unleashed and succeed in conquering Western Europe, the Soviet rulers would more than double the industrial power now in their hands. If the communist forces should seize other major areas of the world, the Soviet rulers would control vastly increased reservoirs of manpower and raw materials. In either case they would win new strategic bases for further aggression. The key to United States security is to join in building the free world's defenses.

In the joint effort, the citizens of other free countries, like our own citizens, will be making personal sacrifices. Each free nation must make the largest contribution it can to the mutual defense. This Nation has greater industrial strength than the rest of the free world combined, and must therefore provide assistance on a large scale to other nations working with us in the joint defense drive. This assistance will permit the other free nations to accelerate the efforts they are already making with their own resources and their own energies.

I estimate that expenditures of 7.5 billion dollars will be required for all of our international programs in the fiscal year 1952. This total will be 2.7 billion dollars more than the expenditure for international programs in each of the fiscal years 1951 and 1950. In 1952, the great preponderance of total expenditures for military and economic aid will go directly for the rapid buildup of mutual defense forces. More than one-half of total expenditures will be for procurement of military equipment to be shipped from this country to our allies. I shall request appropriations of 9.7 billion dollars for these mutual security programs, in addition to an increase of 1 billion dollars now requested

INTERNATIONAL SECURITY AND FOREIGN RELATIONS

[ Fiscal years. In millions ]

Expenditures
_____________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 19521

Military and economic assistance
(present programs, and
proposed legislation) $4, 572 $4, 466 $7, 112 2 $10, 664
Conduct of foreign affairs:
Overseas information and education 34 57 166 115
Participation in international organizations 55 53 35 32
Other State Department activities 142 150 148 145

Total 4, 803 4, 726 7, 461 2 10, 956

1This column excludes 47 million dollars of recommended appropriations to liquidate prior year contract authority.
2Includes 1 billion dollars in new lending authority for the Export-Import Bank in the lending ceiling of the Export-Import Bank. Actual expenditures by the Bank in the fiscal year 1952 will, of course, be only a fraction of the increase in lending authority.

The complete request for appropriations will be presented to the Congress as soon as remaining details of the program are worked out.

In general, our assistance programs will continue to take two forms--provision of military equipment and provision of economic assistance. But the balance between these two forms of aid will shift very sharply, and will differ according to the strategic, political, and economic situation in each free world area requiring assistance.

Military and economic assistance to Europe.--The heart of our foreign policy in Europe is the North Atlantic Treaty, which was ratified by the Senate on July 21, 1949. Like all international undertakings which endure, this treaty is founded upon mutual interest. Americans know that the survival of this Nation would be gravely imperiled if the free peoples and industrial power of Western Europe were to fall under communist subjugation. Correspondingly, the majority of Europeans are fully aware of the interdependence of their security and ours. Over the coming months, the nations of Western Europe will be calling up increasing numbers of their young men for military service. They will be diverting their resources to production of military weapons. They will be imposing additional controls on their civilian economies, particularly on civilian consumption. They will be joining with us, through the joint staff organizations which already exist, in standardizing equipment and training and in strategic and tactical planning. They are placing major elements of their forces under the unified command of the Supreme Headquarters of the Allied Powers in Europe.

The North Atlantic Treaty Organization is now a going concern. It is backed by an impressive reservoir of skilled people and industrial power. It includes not only the military potential of this country and Canada, but also the combined strength of the nine European members of the North Atlantic Treaty--Great Britain, France, Italy, Belgium, Holland, Luxembourg, Norway, Denmark, and Portugal. These nine nations alone number altogether 175 million people, or almost as many as the Soviet Union. Iceland is also a full participant. Greece and Turkey, which within the past few years have proved their steadfastness under the threat of aggression, are closely associated with the mutual effort.

The power of all these nations, pursuing a common course under the United Nations, is being directed to the creation of highly trained and well equipped forces-in-being, and a much larger mobilization base. The combined European and American forces will serve as a powerful deterrent to communist aggression in Europe. There is genuine hope, moreover, that arrangements can soon be completed for German participation in the common defense.

In order to reach the required level of combined strength in the shortest possible time, it will be necessary for the United States to give our European partners considerable assistance. The bulk of this assistance will be in the form of military equipment and supplies. We and our allies are determined that the mutual defense forces shall be equipped with modern and effective weapons. Although the European countries are undertaking to convert a substantial portion of their industries to arms production, they cannot by themselves produce rapidly enough all the complex and expensive weapons needed to arm their forces. Our tremendously productive economy must turn out many of the weapons needed to arm the European forces.

To achieve the rapid increase in European defenses that is necessary, our program of economic aid to Europe must, with a few exceptions--notably the aid program in Austria--be directed to support of the European military build-up, rather than to promoting further general economic expansion. The progress made to date under the recovery program is standing us and the entire free world in good stead in the present situation. In most European countries industry is now producing at well above prewar peaks, and this enlarged industrial strength can in substantial part be converted to military production. Moreover, the improved lot of the ordinary citizen, made possible in part by the European recovery program, has resulted in a higher degree of political cohesion and a firmer resolve to defend democracy and free institutions against aggression.

Western Europe's requirements for economic aid to support her program for building defensive forces arise directly from the disparity between her requirements for essential imports from the dollar area and her ability to earn dollars. In order to move ahead rapidly with defense plans, European countries will require materials and equipment of certain types which they can obtain only from the United States. These supplies include items essential directly in their armament factories, materials for essential consumer goods, foodstuffs, and materials for their most vital export industries. But because these countries will be diverting to rearmament a large proportion of the resources which would otherwise be engaged in producing for export, they cannot for the time being obtain, without help from us, all the dollars needed to pay for these essential dollar imports.

Much remains to be done in the mutual effort to achieve rapid strengthening of European defenses. In general, the commitments made by the European countries to the North Atlantic Treaty Organization have not been large enough up to this time. But these countries share the deep new sense of urgency which recent events have given us, and these difficulties will be rapidly overcome. It must be clearly understood that the military and economic aid which I am recommending to assist European nations to rearm will be conditioned upon their carrying out their full responsibilities for building the defensive strength of the North Atlantic Treaty community. The entire free world is in grave peril. This peril can only be surmounted by arduous joint efforts, in which each nation carries out to the full its allotted responsibilities.

Assistance to other areas of the free world.--The heightened communist pressures in Asia, the Near East, and other non-European areas require that we accelerate our existing programs of military assistance, which now provide military equipment to certain countries which can use it effectively and are faced by internal and external communist pressures. However, in comparison with our assistance to Europe, which will be predominantly in the form of military equipment, our total program of assistance to the non-European areas of the free world must place proportionately more emphasis upon building security through helping the people and governments of these areas to solve pressing economic problems.

To varying degrees, in different parts of the non-European free world, the crucial problem in resistance to communism is the attitudes and aspirations of the people. In some of these areas, millions of people live in desperate conditions of poverty, insecurity, ill health, and illiteracy. To them communism may appear as a possible escape from unendurable conditions of life. These people must be given real faith in their future within the free world through concrete evidence that their age-old problems have been recognized and that effective steps are being taken to solve them.

In many of these countries the governments are increasingly aware of the real problem presented by the low living standards of their people and are taking such steps as they can to deal with this problem. But many of these governments do not yet have adequate numbers of trained administrators and technical and professional personnel, and lack the capital funds necessary to carry out critical developmental projects. The United States cannot close the gap between reality and aspirations with generalized economic aid, especially in the present period of extreme pressure on our economy. What we can do is to work with these people and their governments to help them solve their problems. By making available to them knowledge and skills to supplement their own, together with modest amounts of loan capital and assistance grants, we can help these governments to bring tangible benefits to their people, and achieve an increase in the unity and resource strength of the free world.

In certain other non-European areas many of the countries have more experienced governments and a better start toward economic development. In these instances, economic and technical assistance can make an important contribution by breaking economic bottlenecks. Often the necessary projects in these areas are suitable for financing through loans.

We do not propose to assist countries where the governments are not sincerely trying to improve the economic conditions of their people. Our economic and technical assistance will be granted only where it is asked for by national governments which adopt in good faith the policies necessary to make the aid effective, and to make full use of their own resources.

Our total program of economic assistance to non-European areas of the free world will make a major contribution to increasing productivity in agricultural, industrial, and extractive industries. Part of the increased output must go directly to improving living standards and public services. Another part, including raw materials and particularly strategic materials needed for the mutual defense of the free world, can be traded with the more industrialized nations for capital goods needed for further economic development.

In Asia, we are now supplying military equipment to certain nations faced by communist threats against their independence. We are also providing economic assistance to help meet urgent problems in various parts of Southeast Asia, including Indonesia, Indo-China, Burma, Thailand, and Formosa, and a developmental program in the Philippines is being inaugurated. Both military and economic aid may have to be extended to additional Asian countries, and certain present programs will have to be accelerated. In addition, we are continuing our economic assistance to Japan, which is progressing steadily toward self-support.

In the crucial Near East, we are providing military assistance, loan capital, and technical assistance. We are continuing our support of the United Nations effort to reintegrate the refugees from Palestine. Our assistance to the Near East nations is essential to build up their strength against communist pressures.

In Africa, developmental and technical assistance programs are being carried out in the overseas territories of the Western European countries, in large part through the use of European recovery program counterpart funds. These programs, by improving living standards, will help to curb the growth of communist pressures and will bring about expanded output of vitally needed strategic materials.

In the Western Hemisphere we are joined with our Latin-American neighbors in a mutual effort to strengthen our combined defenses and to build increased economic strength. The balanced economic development of Latin America has been, and continues to be, an essential objective of American foreign policy. This policy is being supported by the public lending agencies which are providing capital for essential projects for which private financing is not available. The activities of the Institute of Inter-American Affairs in the field of technical cooperation are a demonstration of the practical value of the Point IV concept. It is essential that our lending and technical assistance activities be continued, with a special concentration of effort on projects to develop further the economic base of the Latin-American countries and to facilitate and expand the production of strategic materials vital to the free world in this emergency period.

In many of these areas, extremely important contributions to the total effort are being made by American private capital and nonprofit institutions.

The technical assistance program, administered in part by United Nations agencies, is gaining momentum in many areas, and through small expenditures is making an important contribution to productivity.

A steady outflow of loan capital for critical projects is being maintained by the International Bank for Reconstruction and Development and the Export-Import Bank. The increased need for undertakings to expand output of defense materials adds to the importance of the functions of the Export-Import Bank at this time. The Bank now has only about 500 million dollars of uncommitted lending authority. I recommend that the lending authority of the Bank be increased at this time by 1 billion dollars.

Our total program of assistance to non-European areas of the free world is making a major contribution to the ability of these areas to withstand internal and external communist pressures. The recommendations to be sent to the Congress will in part represent a continuation of these going programs, modified to take account of physical limitations of supply in this country, the increased dollar earnings of some of the areas, and the general sharpening of communist pressures.

Conduct of foreign affairs.--Effective conduct of our foreign relations takes on increasing importance in the critical world situation. The role of the diplomatic forces of the Government is of highest importance in organizing and making effective the mutual defense program. The need for a continuous flow of political and economic intelligence and the heightened tempo of activity in all aspects of international relations places a heavy burden upon the existing facilities of the Government.

This Government in cooperation with others is now organizing international machinery for dealing with world shortages of materials. In order to insure that scarce materials are used in the manner which will best serve the common defense, application of controls over international movements of certain commodities will be required. A substantial proportion of world trade will continue, however, through normal markets. In order to carry forward our long run policy of developing among the free nations workable trade patterns and a greater volume of world trade, I urge the Congress to extend the Reciprocal Trade Agreements Act.

Through the international information and education program, we are carrying to the rest of the world the truth about our own objectives, and exposing the evil objectives of the communist conspiracy. During the fiscal year 1951, I requested, and Congress approved, a considerable expansion in this activity, including construction of additional overseas radio broadcast facilities in the United States and abroad. I intend to request from the Congress an additional appropriation of 100 million dollars for this purpose during the current fiscal year. The expanded program will result in expenditures of 57 million dollars in fiscal year 1951 and 166 million dollars in fiscal year 1952.

In order that our political, economic, and military efforts may have their maximum effect, our purposes and objectives must be made clear to all. We must promote understanding and unity among the free peoples of the world and instill hope in the hearts and minds of those who have already fallen victim to aggression. Truth is on the side of the free nations of the world. We must make full use of this advantage.

FINANCE, COMMERCE, AND INDUSTRY

In the modern world, more than ever, military strength depends on economic strength. Since World War II, the Government's programs have been directed toward achieving a strong and growing economy. The strength of our economy is now one of our greatest assets in deterring communist imperialism and in enabling us to meet military emergencies.

In the last 6 months, we have moved rapidly both to meet immediate defense requirements and to expand our capacity to produce airplanes, tanks, and other defense necessities. This has meant action by private initiative and by Government along a broad economic front. We are reopening all our reserve synthetic rubber plants. A substantial increase in steel and aluminum capacity is already well under way, and we will soon take measures to increase production of other key materials. Freight car production is being sharply increased. Expansion of both private and public power capacity is being accelerated. Mineral resources are being explored and developed both at home and abroad.

The broad authority provided .under the Defense Production Act has been a major factor both in increasing the output of defense equipment and materials and in guarding against inflation and disruption of our economy. While expenditures under this authority help to finance defense-supporting programs in other functional categories, they are all shown under the finance, commerce, and industry category of the Budget. They comprise over 90 percent of the 1.5 billion dollars in expenditures estimated for this category in the fiscal year 1952.

Major provisions of the Defense Production Act expire next June 30. It is already clear that they should be not only extended but broadened in several important respects. After the Director of Defense Mobilization completes his review of the legislation that is needed, I shall transmit specific recommendations to the Congress.

Expansion of production.--The most immediate and direct stimulants to defense production are the procurement contracts of the armed services. The Department of Defense is spreading contracts among as many contractors as practicable in order to develop the broad industrial base necessary for rapid mobilization. Where necessary, financial assistance is provided through advance payments and through Federal guarantees of private loans to defense contractors and subcontractors. In addition, the Department of Defense is constructing additional plants and facilities to produce military items not ordinarily produced by private firms for the civilian market.

Rapid expansion in output of defense equipment and supplies also depends on an adequate supply of raw materials and components. To encourage private businessmen to expand capacity in these areas, the tax laws now permit the portion of new investment attributable to defense requirements to be written off in 5 years for income tax purposes. Where the need is greater than private lenders can finance or the risk more than they can properly take, the Government is making direct loans or participating with private lenders. In other cases, the Government is entering into long-term procurement contracts, or is purchasing and installing Government-owned equipment in defense plants. Even with these liberal incentives, however, private enterprise cannot be expected to construct certain urgently needed, specialized productive facilities. For this reason, new legislation should include additional authority to construct Government-owned plants and facilities.

FINANCE, COMMERCE, AND INDUSTRY
[Fiscal years. In millions]

Expenditures
_________________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 1952

Defense production and economic stabilization:
Expansion of production (net):
Present programs ....... $260 $400 .......
Proposed legislation ....... ....... 700 $1,200
Allocations, price and wage controls:
Present programs ....... 36 3
Proposed legislation ....... ........ 273
Rent control:
Present program $22 13 1
Proposed legislation ....... ....... 23
Export control:
Present program 4 3 ( 1 )
Proposed legislation ....... ........ 4

Total of six above 330

Business loans and guarantees:
Reconstruction Finance Corporation
(net expenditures) 166 26 90 .......
Business promotion and regulation:
Department of Commerce 26 19 17 17
Antimonopoly programs 8 8 8 8
Other 6 6 6 6
Promotion and regulation of financial
institutions:
Reconstruction Finance Corporation
(net receipts) -- 12 --10 -- 8 .......
Other (mainly Securities and Exchange
Commission) 7 7 7 7

Total 227 368 1,524 1,568

1 Less than one-half million dollars.

Production and distribution controls.--In order to build our defenses rapidly and efficiently, we must resort to direct governmental allocation to assure the proper use of our industrial facilities and materials. This means reimposing many of the production and distribution controls which were so successfully employed in the recent war years. Already steps have been taken to prevent excessive inventories, to cut back the amounts of critical materials going into nondefense uses, and to limit the production of certain nondefense goods using critical materials.

These controls must be augmented to keep pace with our rising production program. When the full impact of defense procurement is felt this spring and in the fiscal year 1952, even more comprehensive controls over the use of materials will become essential.

Price and wage controls.--While expansion in productive capacity will eventually mean a larger total output, its immediate effect is to add to inflationary pressures by absorbing manpower and materials which otherwise could be used to produce consumer goods. Vigorous use of credit controls and increased taxes, together with voluntary restraint by business and labor, have made it possible until recently to avoid direct controls over prices or wages.

At the present time, we are beginning to impose price and wage controls. Extension of such controls now appears inescapable. To administer such controls, as well as to promote effective voluntary cooperation, price and wage specialists are being recruited and offices are being opened in various cities as rapidly as they can be manned.

Rent control.--The developments in our defense program clearly require a further extension of rent control. Excessive rent increases will inevitably occur in many decontrolled communities where military installations are reopened or defense production expanded. The Congress has already recognized the changed situation by providing a temporary extension of controls beyond December 31, 1950, for all cases where communities have not taken affirmative decontrol action. I am recommending a further extension of rent control authority with provision for recontrol where necessary to protect tenants in defense areas against exorbitant rent increases.

Export controls.--Continuation of export controls is necessary to prevent undue drain from our economy of materials necessary for defense and essential civilian consumption and to make sure that the supplies made available for export make the maximum contribution to our international security objectives. These controls also help to prevent inflationary price increases. I recommend that export control authority be extended beyond the present expiration date of June 30, 1951.

Business loans and guarantees.--As part of the realignment of credit programs last summer, the Reconstruction Finance Corporation sharply curtailed nondefense loans involving substantial amounts of materials and other resources important for defense requirements. Within these limits, loans to small business production have been emphasized.

Under this policy, new loan authorizations this year have been reduced to less than half the level for the same period last year. Net expenditures for the fiscal year 1952 are estimated to decline by 76 million dollars from the fiscal year 1950. Estimated net expenditures for the fiscal year 1951 are even lower, but this reflects repayment last September of the 92-million-dollar Kaiser Steel Company loan.

The Corporation will continue to make loans for defense purposes, wherever borrowers are unable to obtain adequate credit elsewhere on reasonable terms but can meet the usual credit standards under the Corporation's statutory authority. Only if borrowers cannot qualify for loans under these standards are they eligible for loans from Defense Production Act funds.

LABOR

A sustained defense program calls for a highly productive and mobile working force--well-trained, with skills fully utilized, and with good working conditions and labor relations. Mobilizing our strength requires changes in the numbers, location, and use of workers. We must make the most effective use of the technical ability, energy, and resourcefulness which have always characterized America at work.

Already, as defense production begins to rise, shortages of skilled workers such as machinists, tool and die makers, and draftsmen are occurring. Although there are still more than 2 million unemployed, in most of the 150 major labor market areas the number of idle workers has been decreasing, and in more than a third of the areas unemployment has practically disappeared.

In the next few months, nearly a million more men and women will be called into the Armed Forces. At the same time, more workers will be needed for defense industries. This means that hundreds of thousands of new workers--primarily women, but also older men and physically handicapped persons--must join the working force and that many people already employed must move to more essential activities.

To assure full utilization of manpower, we must quickly train new workers. We must increase our efforts to avoid losses of production caused by accidents, disputes, or poor working conditions. Production will be scheduled, materials allocated, and new plants located with careful consideration of labor supply. Where migration cannot be avoided, the Federal Government will assist localities to the extent necessary in getting adequate housing and other community facilities and services.

Although the Federal Government can assist in many ways, solving our manpower problems calls primarily for initiative and cooperation by management and labor. Agreements on seniority and welfare provisions will be needed to facilitate transfers of workers to essential activities. Training, upgrading, and other improvements in manpower utilization must be accomplished in the plant and the community. Labor management committees are being set up in major labor market areas to promote all possible voluntary adjustments.

Because existing Federal labor programs are being redirected, most expenditures for defense activities in the manpower field will be made under regular appropriations. For additional defense activities which may bee come necessary, Defense Production Act funds will be used. Total expenditures under regular appropriations for the fiscal year 1952 are estimated at 215 million dollars. Three-fourths of this total is for grants-in-aid
to pay all costs of administering the Federal-State system of public employment offices and unemployment insurance.

LABOR
[ Fiscal years. In millions ]

Expenditures
____________________ Recommended
new obliga-
1950 1951 1952 tional authority
Function actual estimated estimated for 19521

Placement and unemployment
insurance activities:
Department of Labor $214 $165 $165 $174
Railroad Retirement Board 13 7 10 10
Labor standards and training:
Department of Labor 11 14 14 14
Department of the Interior: Mine safety 4 4 4 4
Labor relations 13 13 13 13
Labor information, statistics, and
general administration 8 9 9 9

Total 263 212 215 225

Placement and unemployment insurance activities.--The State employment services will have greatly increased responsibilities for recruitment, transfer, and placement of workers for defense industry and for our basic civilian economy. To minimize labor pirating and unnecessary migration, I urge that employers hire through their local employment services to the greatest extent possible. The employment services will try to place local workers, including women, older workers, minority groups, and the physically handicapped, before recruiting from other areas. I also urge industry to use each individual's skill to the utmost and to adopt hiring specifications which do not exaggerate the strength and skills required.

In contrast to the expansion in employment service activities, the work of handling unemployment insurance claims will decrease because of high employment stimulated by defense production.

Labor standards and training.--In recent years, Federal programs of on-the-job training have emphasized the promotion of better apprenticeship standards. At the end of the fiscal year 1950, registered training programs employed 215,000 apprentices. A drive to increase the number of apprentices in key defense industries such as machine tools, metal working, and aircraft manufacture is now being launched. Further, a program to encourage on-the-job training of production workers and supervisors is king started with funds allocated to the Department of Labor.

World War II experience indicates that unless we intensify our preventive efforts, accidents will increase during a period of defense build-up, because of new kinds of production and new workers. To prevent loss of workers and loss of production, Defense Production Act funds will be used to help States plan special industrial safety campaigns and to train industrial supervisors and State safety inspectors.

To produce enough for defense, we must use wisely all our available labor resources. Even less than in other times can we now afford to discriminate in employment against the millions of workers in our labor force who are members of minority groups. Following the Federal experience with a Committee on Fair Employment Practice in World War II, eight States and a number of cities have established successful regulatory commissions to deal with employment practices. I again recommend that the Congress enact legislation to establish a Federal Fair Employment Practice Commission to prevent discrimination in interstate industries.

Labor relations.--Prompt handling of disputes in the sensitive field of labor relations is imperative if we are to avoid interruptions in defense production. A 25-percent increase is being recommended in the Federal Mediation and Conciliation Service's mediation staff to enable it to act in any dispute affecting defense production.

Trust accounts and unemployment insurance legislation.--The receipts from payroll taxes on employers and the benefit payments for unemployment insurance go into and come out of the State and railroad accounts of the unemployment trust fund and are not included in Budget totals. For the fiscal years 1949 and 1950, unemployment insurance benefit payments exceeded the tax collections because of the temporary rise in unemployment. This year and next, the reserves in the trust fund will build up as unemployment continues to drop.

In this high employment period, we should take steps to bring the self-supporting unemployment insurance system up to date. After the Congress enacts improved Federal standards, time will be required for the States to bring their laws into conformity. Recommendations are now before the Congress to raise benefits, which now average less than a third of previously earned weekly wages, and to extend coverage, which has not kept up with that of other social insurance programs. The revision of unemployment insurance should also repeal last year's amendment which places a premium on court litigation as a means of determining claims for benefits.

UNEMPLOYMENT TRUST FUND
[ Fiscal years. In millions ]

1950 1951 1952
Item actual estimated estimated

Receipts:
Deposits by States and railroad
unemployment taxes $1,113 $1,215 $1,296
Interest 167 175 183

Payments:
State and railroad unemployment
withdrawals --2,013 --962 --715

Net accumulation --733 428 764

Balance in fund at close of year 7,425 7,853 8,617

TRANSPORTATION AND COMMUNICATION

Our transportation and communication systems, already handling a high level of traffic, must be prepared for the even greater loads that would result from the full impact of mobilization.

New freight cars, ore boats, and other equipment recently ordered by the carriers will increase their capacity for meeting these larger needs. Equally important, however, will be the steps that must be taken to obtain the maximum utilization of existing capacity. Such action depends principally upon the cooperative efforts of carriers and shippers, but the Federal Government will provide leadership for these efforts and, where necessary, will impose controls to assure that all appropriate conservation measures are put into effect.

The Government must also continue to carry out its responsibilities for regulating the economic and safety aspects of transport and communication, for providing basic facilities and services, and for furnishing necessary financial aid. Federal programs have contributed to the growth of well-developed transport and communication systems; they must now assist these systems to adjust to the new demands placed upon them.

To carry out its many responsibilities in these fields, the Government will spend an estimated 1.7 billion dollars in the fiscal year 1952, or 285 million dollars less than in the fiscal year 1951. This expenditure decline depends, however, upon legislation which I am recommending to increase postal rates and thereby reduce the postal deficit.

Merchant marine.--Recent experience demonstrates again the large shipping demands imposed by an overseas military operation. To transport and supply our troops in Korea, more than 150 vessels of the Maritime Administration reserve fleet have been placed in operation to augment the merchant ships already operating in the Pacific and those which could be transferred from other areas. Our ability to meet rapidly this emergency need can be credited largely to the Government's long-range programs for supporting an active merchant marine and for preserving the surplus vessels of World War II.

Substantial assistance to our active merchant fleet is now provided through direct subsidies, tax benefits, long-term construction loans at low interest rates, and various other aids. Most important among these measures are the construction and operating subsidies, designed to offset lower foreign costs on essential trade routes. In fundamental scope and concept, this subsidy program continues to provide the most workable means for assuring an adequate base of vessels and shipyards, labor and management, for possible future expansion.

TRANSPORTATION AND COMMUNICATION
[ Fiscal years. In millions ]

Expenditures
_________________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 19521

Promotion of merchant marine:
Maritime Administration and other $100 $190 $354 $57
Provision of navigation aids and facilities:
Panama Canal and Panama Canal
Company 8 18 8 ........
Corps of Engineers:
Present programs 19 193 202 221
Proposed legislation:
St. Lawrence project ....... ........ 15 20
Coast Guard 149 189 200 197
Promotion of aviation:
Civil Aeronautics Administration 159 182 199 166
Provision of highways:
Bureau of Public Roads 472 466 468 2524
Alaska roads (Interior), and other 25 30 28 17
Regulation of transportation 16 15 15 16
Other services to transportation:
Reconstruction Finance Corporation -- 11 --3 --5 ........
Coast and Geodetic Survey 12 11 12 12
Alaska Railroad 32 40 22 17
Postal service (deficit):
Present programs 593 632 521 521
Proposed legislation: Postal rate increase ....... ........ --361 --361
Regulation of communication 7 7 7 7

Total 1,752 1,970 1,685 1,414

1 This column excludes 748 million dollars of recommended appropriations to liquidate prior year contract authorizations.
2 Includes 500 million dollars in obligational authority already provided by Federal-Aid Highway Act of 1950.

We are, however, supplementing this program with certain emergency measures, directed toward specific mobilization needs. Funds appropriated a few days ago will permit an immediate start on the construction of new and faster cargo ships better able to avoid attack by modern submarines. The desirable level of construction in future years is now under study. As a further measure, the Secretary of Commerce is establishing a National Shipping Authority within the Maritime Administration to handle existing functions related to shipping operations and to serve as the nucleus for future expansion of operations if circumstances require. Among other functions, this Authority will be prepared to provide marine war-risk insurance for private operators, should the need arise.

Navigation aids and facilities.--The defense program has attached a new and special urgency to the construction of the St. Lawrence seaway and power project. Besides the large amounts of additional electric power which the project would make available, it would also provide economical and safe access, through the seaway, to the large deposits of iron ore in Labrador and Quebec. As expanding requirements for steel bring us closer to the depletion of our high-grade domestic ore reserves, the importance of these nearby deposits will correspondingly increase. Construction of the St. Lawrence project should be started at the earliest possible date, and I urge the Congress to authorize this program without delay.

The river and harbor program of the Corps of Engineers includes three other new power development projects, with estimated expenditures of 28 million dollars in the fiscal year 1952. These projects are discussed below under natural resources. Except for these and other projects involving power generation, construction and maintenance in this program have been substantially curtailed.

In addition to its normal functions of promoting the safety of life at sea and enforcing the maritime laws, the Coast Guard has recently been assigned responsibility for protecting our ports against sabotage. In the fiscal year 1952, the port security program will account for 23 million dollars of the total Coast Guard expenditures of 200 million dollars.

Aviation.--Facilities and services provided by the Civil Aeronautics Administration are essential for the safe operation of both civil and military aircraft. The present program for modernizing the Federal airways system has been expressly designed to meet the common needs of both groups, and the new facilities now being installed will permit the efficient handling of increased military traffic in the present emergency.

Some adjustments in aviation programs are being made in order to meet special military needs. Air navigation services in the Pacific have been expanded because of the airlift to Korea. The air traffic control system, normally concerned only with safety in flight, is now taking on the new function of identifying and controlling civil aircraft movements as a part of our air defense.

In keeping with the general public works policy of this Budget, construction of new facilities in the fiscal year 1952 will be limited to those projects which are most closely related to national security, or to civilian needs of an urgent nature. The same standards will be applied to grants for State and local airport construction.

In addition to the nearly 200 million dollars that will be spent in 1952 for aviation facilities and services, the Government will spend a substantial amount in subsidies to the airlines through mail payments. Federal financial assistance has been a major factor in the industry's rapid growth, and should be continued to the extent necessary for the sound development of civil aviation. The method of paying this subsidy should be changed, however, in order to provide the public with full information as to its cost. At present, the airline subsidy is merged with compensation for the cost of handling mail and included in postal expenditures. These two elements should be separated, and the subsidy portion paid by the Civil Aeronautics Board from funds appropriated specifically for that purpose. I again urge the Congress to enact legislation providing for this separation.

Highways.--Partly as a result of reduced construction and maintenance during World War II, our highway system is not yet fully prepared to handle the current peak levels of motor traffic. While long-range improvement is needed in all classes of roads, we must concentrate in the present emergency upon overcoming those road deficiencies which are most serious from the standpoint of national defense or essential civilian traffic. The impact of defense traffic will be especially heavy upon the National System of Interstate Highways, a limited network of roads selected because of their special importance to both peacetime and defense needs. Substantial relocation and reconstruction are required in order to provide the width, strength, and other characteristics needed to handle anticipated traffic. In reviewing State and local requests for Federal aid, the Bureau of Public Roads will give primary emphasis to projects on this system, and to the principal urban roads which connect with it.

Construction will be started in the fiscal year 1951 on a small number of access roads immediately required to serve defense installations. As additional factories and military camps are activated for the defense program, the need for new or improved access roads will correspondingly increase. So far as possible, these and other emergency needs should be met by diversion of funds from roads of less urgency.

Postal service.--On the basis of existing postal rates, the postal deficit for the fiscal year 1952 is estimated at 521 million dollars. This actually represents a higher level than that shown for 1951, since the 1951 estimate of 632 million dollars includes a nonrecurring expenditure of 152 million dollars, for retroactive adjustment of railway mail rates. No allowance is made in these estimates for possible future increases in mail transportation rates which may result from regulatory proceedings now pending before the Interstate Commerce Commission and the Civil Aeronautics Board.

The Postmaster General is taking many steps to reduce the cost of postal operations. Significant economies have already been realized through recent reductions in service. Experiments in the mechanized sorting of mail are being conducted. A streamlined money-order system will be established by July 1951. These and other similar measures will permit reductions in postal expenditures, some of which will be realized in the fiscal year 1952. At best, however, the total potential savings from improved efficiency are relatively small in relation to the present size of the postal deficit.

Since the end of the war, the productivity of postal employees per man-hour worked has increased by over 10 percent, and the steps now being taken will permit further gains in the future. Despite this improved productivity, however, the average cost per postal transaction has increased by nearly 60 percent during the same period, mainly as a result of employee pay raises and transportation rate increases. In the absence of adequate postal rate increases, the average revenue per transaction has increased by less than 10 percent. The resulting deficit of over one-half billion dollars would be unsound at any time, but it is especially untimely in a period when the Federal Budget must sustain extremely heavy defense expenditures. I therefore repeat, most emphatically, my many previous recommendations for rate legislation which will bring postal revenues into line with present costs, reducing the deficit to the cost of handling Government mail and other costs which are not properly chargeable to the general users of the postal service.

NATURAL RESOURCES

The economic and military strength of this country is dependent upon the availability and wise use of our basic natural resources. These resources, while extensive, are not unlimited. Our land, forest, water, mineral, power, atomic, and other resources made a vital contribution toward winning World War II and are now called upon to support the present military expansion. The Federal Government has a large responsibility for assuring the use of these resources to maximum advantage.

Our natural resources programs are being modified in order to make the greatest immediate contribution to our national security. In some cases, it is necessary to postpone desirable long-range developments in order to accomplish urgent immediate objectives. Maintenance and rehabilitation on all programs are limited to those expenditures necessary to prevent deterioration of the vitally important resources which are basic to our continued economic expansion. The resource programs of the various agencies emphasize the development of Alaska for economic security and national defense.

Expenditures for natural resources are estimated at 2.5 billion dollars for fiscal year 1952, half of which will be spent on the atomic energy program. Other large expenditures are those for flood control and reclamation, including hydroelectric power generation, and for the Tennessee Valley Authority program.

Estimated expenditures for the fiscal year 1952 exceed those for 1951 by over 400 million dollars. This net expansion reflects increases of 459 million dollars for atomic energy and 65 million dollars for the Tennessee Valley Authority, a combined decrease of 141 million dollars for the flood control and reclamation programs, and small changes for other programs.

Atomic energy.--At the same time that we are actively pursuing industrial and other peacetime applications of atomic energy, present world developments demand intensification of the national security aspects of the program. The very substantial increases appropriated for the atomic energy program in fiscal year 1951 will provide for enlargement of production capacity for atomic materials and weapons. A portion of the funds recommended for 1952 provides for certain construction projects under this expansion program.

The Budget recommends increases also for the procurement and processing of raw materials, the production in existing plants of fissionable materials and weapons, and the investigation and development of new and improved weapons. The 1952 funds also allow for continuing development of new designs of nuclear reactors, including those for the production of fissionable material, the generation of power, and the propulsion of ships and aircraft. The Atomic Energy Commission will continue its vigorous program in basic and applied research in the physical sciences and in biology and medicine.

Land and water resources.--A year ago I appointed a Water Resources Policy Commission to recommend policies to guide Federal participation in the development, conservation, and use of water resources. This Commission has now submitted the first volume of its report and will submit two additional volumes. The Commission's report will be reviewed to determine what administrative actions and legislative recommendations may be needed to improve the Government's water and related land-use programs.

Although long-range improvement of our river basins is essential for the continued economic strength of the country, in the fiscal year 1952 we must emphasize those aspects of the programs which primarily support the national defense. Immediately after the first attack in Korea, all Government agencies were directed to review their programs and to adjust them to meet urgent needs. Many of the river basin projects contribute to defense as well as civilian industrial requirements through providing low-cost electric power in shortage areas. These projects are being pushed forward. Other projects, though desirable from a long-range standpoint, are being curtailed or deferred. As a result of these actions, combined expenditures required in the fiscal year 1952 for continuation of projects of the Bureau of Reclamation and the Corps of Engineers now under way--involving dams, power facilities, canals, channels, and levees--are estimated to decrease by nearly 150 million dollars from the 1951 level.

NATURAL RESOURCES
[ Fiscal years. In millions ]

Expenditures
_______________________ Recommended
new obliga-
1950 1951 1952 tional authority
Function actual estimated estimated for 19521

Atomic energy:
Atomic Energy Commission $550 $818 $1,277 $870
Land and water resources:
Corps of Engineers: Flood control 438 469 412 404
Department of the Interior:
Bureau of Reclamation 298 349 259 257
Hells Canyon project
(proposed legislation) ...... ...... 6 8
Power transmission
(Bonneville, Southwestern, and
Southeastern Power Administrations) 36 54 65 63
Indian land resources 26 41 25 22
Bureau of Land Management and other
(Interior) 10 9 9 10
Tennessee Valley Authority (net) 19 171 236 249
International Boundary and Water
Commission, and other 4 7 14 17
Forest resources:
Forest Service and other Agriculture 75 86 93 92
Department of the Interior 3 2 4 5
Mineral resources:
Bureau of Mines and other (Interior) 34 19 33 36
General resources surveys:
Geological Survey 16 18 22 23
Fish and wildlife resources:
Fish and Wildlife Service and other 23 28 31 30
Recreational use of resources:
National Park Service 22 36 33 25

Total 1, 554 2,117 2, 519 2,111

1This column excludes 370 million dollars of recommended appropriations to liquidate prior year contract authorizations.

Following a careful review of power requirements for the defense program, seven new projects, all of which will provide substantial power benefits, are included in this budget. These new projects, together with the installation of additional power units in projects already under way and the related facilities required to transmit the power, are estimated to cost in total 1.5 billion dollars and to provide 3.9 million kilowatts of installed capacity. The projects are Hells Canyon, The Dalles and Ice Harbor in the Columbia Basin, Old Hickory on the Cumberland River, a steam plant in the Tennessee Valley, Gavins Point on the Missouri River, and the St. Lawrence seaway and power project. These seven are the only new projects recommended for the river-basin programs. Four of them are in the river and harbor program, and funds for them are included in the transportation category.

The new projects together with projects completed or under way by the Bureau of Reclamation, Corps of Engineers, and Tennessee Valley Authority will provide ultimate capacity of 20 million kilowatts. Funds recommended in 1952 for the Bonneville, Southwestern, and Southeastern Power Administrations, Bureau of Reclamation, and Tennessee Valley Authority will provide properly scheduled facilities to transmit power to principal load centers.

I am also including funds in this Budget to plan for the urgently needed redevelopment of Niagara power facilities made possible by the recent treaty with Canada.

Following the Flood Control Act of 1950, I directed the Federal agencies concerned to work together on preparation of a comprehensive plan for development of the resources of the Arkansas, White, and Red River Basins and the New England-New York area. The Budget for 1952 provides funds to continue the surveys.

Mineral and other resource programs. During and since World War II, the Bureau of Mines and the Geological Survey have concentrated upon research on the adequacy of mineral resources, the discovery of new resources, and means for improved development, conservation, and use of existing reserves. All of these activities have a dear defense significance and budget increases are recommended to accelerate them.

Funds for the management, protection, and development of other resources are at somewhat lower levels than would be desirable for good conservation practice. Increases are recommended for supervision and sale of timber resources and construction of access roads to increase the cut of timber, and for range improvement and fish and wildlife development to add to the supply of food and other essential products. Because of their importance to planning for defense projects, increases are also recommended for topographic mapping and water resources investigations. Programs for the management and development of national park areas and resources of Indian lands, and for other services to Indians have been held to the 1951 level or below.

To insure effective use of their lands, the Indians are in need of credit facilities. I recommend legislation which would augment the loan fund authorized in 1934 in an amount sufficient to meet the demands for credit over the next 5 to 10 years. Such legislation is preferable to a piecemeal approach of providing credit for selected tribes through individual bills.

AGRICULTURE AND AGRICULTURAL RESOURCES

During the period of concentration upon defense expansion, our Federal agricultural programs must serve one central purpose-the maintenance of our capacity to produce abundant quantities of food and fiber to meet our own needs and critical needs of friendly countries. Government farm programs now in effect make up, in general, the kinds of activities needed for the defense period. Some of these programs are being redirected to provide a greater contribution to the defense effort, as for example the production of fibers required for clothing and equipment for the Armed Forces.

American agriculture today is in a strong financial condition. The high postwar demand for agricultural products has maintained farm production and income at high levels. Gross farm income in the calendar year 1950, although below the peak level of 1948, was approximately three times as high as in 1940, and will show a further increase in 1951

With this outlook for agricultural prices and farm income, total Federal expenditures for agriculture and agricultural resources are expected to decline from 2.8 billion dollars in the fiscal year 1950 to 1 billion dollars in 1951 and to 1.4 billion dollars in 1952. Most of the change in agricultural expenditures from 1950 to 1952 is due to decreased expenditures for agricultural price supports.

AGRICULTURE AND AGRICULTURAL RESOURCES

[ Fiscal years. In millions ]

Expenditures
_______________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 1952

Stabilization of farm prices and farm income:
Commodity Credit Corporation--price support,
supply, and purchase programs (net) $1,606 1--$296 $238 $427
Removal of surplus agricultural commodities 96 92 75 2 73
International Wheat Agreement (Commodity
Credit Corporation) 76 117 115 77
Sugar Act 60 61 70 72
Federal crop insurance and other 7 8 6 8
Financing farm ownership and operation 146 157 141 163
Financing rural electrification and rural telephones 294 312 269 118
Agricultural land and water resources:
Conservation and use (including administrative
expense accounts) 275 309 304 310
Soil Conservation Service and flood control 61 65 63 64
Research, and other agricultural services 163 161 148 171

Total 2,784 986 1,419 1,483

1 Excess of receipts over expenditures. 2 Excludes $77 million of this permanent appropriation recommended to be made available for reimbursement to the Commodity Credit Corporation for the 1950 costs of the International Wheat Agreement.

Stabilization of farm prices and farm income.--Expenditures of the Commodity Credit Corporation for price-support purposes have declined greatly since mid-1950 because of the rise in farm prices and the short cotton crop. During the fiscal year 1951, it is now estimated that the Corporation will realize net receipts of 296 million dollars compared with net outlays in 1950 of 1.6 billion dollars. Receipts from sales of nearly 3.5 million bales of cotton acquired from the 1948 crop will alone more than offset other expenditures for price support.

Present estimates of production, consumption, and exports of 1951 crops indicate that net expenditures for price support will be 238 million dollars in the fiscal year 1950. While commodity inventories are currently proving to be valuable in meeting increasing needs for foods and fibers, losses have occurred in the disposal of a number of perishable commodities, and further losses are expected to occur in 1952. To avoid the unnecessary accumulation and loss on perishable agricultural commodities, legislation is needed to permit direct payments to producers in lieu of market price supports through Government purchases. This would allow excess perishable commodities to move into consumption and would make our price support provisions more compatible with our international trade policy. To help the Commodity Credit Corporation dispose of its existing surpluses, it should be authorized to pay transportation and repackaging costs on surplus commodities distributed to public and private welfare organizations.

In addition to Commodity Credit Corporation price support expenditures, a permanent appropriation, equal to 30 percent of customs duties, is available for removal from the market of surplus agricultural commodities, mainly perishables. With increasing demands for farm commodities, the total amount of this fund will not be necessary for this purpose in the fiscal year 1952. Accordingly, I recommend that 77 million dollars of the permanent appropriation be used to reimburse the Commodity Credit Corporation for costs of the International Wheat Agreement in the fiscal year 1950.

Under the International Wheat Agreement, the United States guarantees the export of a certain quantity of wheat at the maximum price of $1.80 per bushel during the 4 years of the Agreement. The loss arising from the difference between this agreed-upon price and the higher domestic price of wheat is met from Corporation funds, with reimbursement later from appropriated funds. Because of an increase in export quotas and higher domestic wheat prices, expenditures for the Wheat Agreement are estimated to rise to 117 million dollars in the fiscal year 1951 and 115 million in 1952.

Expenditures under the Sugar Act of 1948 will increase in the fiscal year 1951 because of the larger volume of domestic sugar production in 1950 and 1951, and the provision in the law for mandatory payments to sugar producers.

Financing farm ownership and operation.--The loan programs supervised by the Farm Credit Administration will, in the defense period, facilitate farm operations and encourage farm ownership. These loan programs are largely financed by borrowing in the open market, and only the supervisory expenses of the Farm Credit Administration and changes in net investment of Government capital in the supervised banks and other corporations are included in Budget totals.

The loan activities of the Farmers' Home Administration, which also assist farm operations, are financed by funds borrowed from the Treasury. These activities are expected to remain at approximately the same level in the fiscal year 1952, with a decrease in farm ownership loans offset in part by some expansion in production and subsistence loans to meet the needs of reclamation settlers and low-income farmers for essential operating credit not available from other credit sources. The disaster loan program is expected to decline in 1952 below the abnormal levels required in 1950 and 1951.

Financing rural electrification and rural telephones.--By June 30, 1950, approximately 86 percent of all farms were electrified, compared with 48 percent in 1945. Last year, a new program to extend and improve rural telephone systems was begun. Although under normal conditions it would be desirable to continue the rapid progress on rural electrification and the provision of adequate rural telephones, shortages of metals, particularly aluminum and copper, and of electronic equipment, make it necessary to proceed more slowly with both the electrification and telephone programs. I recommend that the Rural Electrification Administration new loan authorization be reduced from the 297 million dollars available in 1951 to 109 million dollars in 1952. Expenditures will decline by a smaller amount because of the backlog of loans committed but not yet advanced. The reduction in new loan authorization will permit improvement and expansion of existing distribution capacity where essential, but will require some curtailment of loans for new facilities.

Conservation.--Efforts to promote conservation and development of agricultural land and water resources are aided by the Department of Agriculture through the technical advice and assistance of the Soil Conservation Service, the flood control program, and the conservation payments program. Although some phases of these programs may in future years need to be expanded to maintain and improve our soil resources, the higher priority which must now be given to defense programs requires in the 1952 Budget a policy of no expansion of present conservation programs. I, therefore, recommend that funds for flood control and the Soil Conservation Service be held at the present level and that the advance authorization for the conservation and use program in the 1952 crop year, which will largely determine expenditures in the fiscal year 1953, be continued at the 1951 crop-year level of 285 million dollars.

Research and other agricultural services. An appropriation of 171 million dollars is recommended for the continuing basic services for agriculture, including research on crop varieties, livestock and poultry, and the production and marketing of farm products; control and eradication of insects and plant and animal diseases; meat inspection; payments to States for experiment stations and cooperative extension work; and general overhead expenses of the Department of Agriculture. This amount also includes 33 million dollars to reimburse the Commodity Credit Corporation for 1950 expenses of the program to eradicate foot-and-mouth disease in Mexico. Although there are many worthwhile research and service programs which it would be desirable to expand under more normal conditions, I recommend at this time that they be held at or below their 1951 level. Finally, I recommend legislation to enable the Commodity Exchange Authority to control speculative trading and to strengthen its regulation of commodity exchanges.

HOUSING AND COMMUNITY DEVELOPMENT

In the years since World War II, we have made a good start toward achieving adequate housing and community facilities for our people. In the last 12 months over 1,350,000 new housing units were produced, a third above the previous record level. About half of this new housing was financed with mortgages insured or guaranteed by Federal agencies. Under the comprehensive legislation enacted by the Eighty-first Congress, the Federal Government has begun to aid in clearing slums and redeveloping our cities; to assist local housing authorities in providing adequate housing for low-income groups; to promote better farm housing; and to conduct or sponsor the basic research needed to realize the full potentialities of the construction industry.

Continuance of the high level of housing construction achieved in 1950, while entirely desirable in normal times, would use materials and manpower now needed to meet defense requirements. Accordingly, to help the defense program go ahead full speed and to reduce inflationary pressures on construction costs, it has been necessary to take measures to reduce residential construction this year by more than a third, to a level of about 850,000 units annually.

To meet defense needs, four major revisions have been made in our housing and community development programs. First, comprehensive limitations have been imposed on all types of credit to finance new housing construction, as well as on all Government-guaranteed credit to finance ,purchase of existing homes. Second, in both existing and proposed new programs, we are giving top priority to military and defense related housing and community facilities.

HOUSING AND COMMUNITY DEVELOPMENT
[ Fiscal years. In millions ]

Net Expenditures or net receipts (-)
______________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 1952 1

Defense housing, community facilities and
services (proposed legislation) ........ .......... $100 $150
Civil defense:
Federal Civil Defense Administration ........ $10 265 450
Reconstruction Finance Corporation ........ 5 65 .......
Aids to private housing (present programs):
Housing and Home Finance Agency:
Federal National Mortgage Association $579 189 --530 .......
Federal Housing Administration 2 --30 --6 --5 .......
Home Owners' Loan Corporation --242 --80 (3) .......
Other 5 7 --11 .......
Veterans Administration: Direct loans ......... 73 --5 .......
Department of Agriculture: Farm housing 12 28 23 23
Reconstruction Finance Corporation --25 --40 --20 .......
Other housing and community development
programs:
Housing and Home Finance Agency:
Public housing programs --37 158 --138 28
Loans to educational institutions 1 36 ..........
Slum clearance and urban redevelopment (3) 10 65 4350
Advance planning loans and other 4 32 15 5
Reconstruction Finance Corporation --6 14 24 ..........
Other (mainly Interior) 1 8 14 12

Total 261 409 --10 1,018

1 This column excludes 5 million dollars of recommended appropriations to liquidate prior year contract authorizations.
2 Excludes net receipts of Mutual Mortgage Insurance Fund, now shown under trust accounts.
3 Less than one-half million dollars.
4 Represents obligational authority already provided by Housing Act of 1949.

Third, subject only to defense priorities, we are giving special emphasis to housing for lower-income groups in accordance with the general objectives of national housing policy. Fourth, we are rapidly organizing under newly enacted legislation to meet the civil defense requirements of the Nation.

Most of the existing Federal programs are financed by authorizations already made by the Congress in basic statutes. Partly because of the sharp curtailments in programs, only a small part of those authorizations will be spent in the fiscal year 1952. Moreover, sales of mortgages purchased by the Government in earlier years and collections on loans will cause a substantial excess of receipts over new expenditures for several going programs. Therefore, despite increased expenditures for civil defense and for the proposed new defense-supporting legislation, the housing and community development category as a whole in the fiscal year 1952 will realize estimated net receipts of 102 million dollars.

Defense housing, community facilities and services.--As the defense effort accelerates, additional housing and community facilities and services in many key areas will undoubtedly be required to take care of the influx of defense workers and military personnel. We shall continue to place primary reliance on the initiative of private builders and local communities to provide the new construction and services required. To reinforce and supplement this initiative, I am recommending several basic changes in legislation to meet specific defense needs for housing, community facilities and services.

The expansion in the defense program makes more urgent the provision of an adequate supply of rental housing. Military installations and defense plants will find it difficult to meet their expanding manpower requirements if adequate housing is not available at reasonable rents. For this reason, despite the cutbacks in total construction, it is essential to increase new private rental housing in defense areas. The legislation which I am proposing will provide more liberal insurance for loans financing construction of a limited number of rental units in these areas. In addition, it will extend the temporary program for insurance of military housing loans beyond the present expiration date of June 30, 1951, and will include similar insurance for mortgages to finance rental housing near installations of the Atomic Energy Commission.

The adaptability of prefabricated housing to defense housing requirements makes it imperative that present producers of proven efficiency be able to obtain adequate financing for their operations--especially for the distribution of such housing. The proposed legislation will help meet the special financing problems of this industry.

In some areas where the most rapid expansion in military or defense-related activities will occur, local communities and private builders cannot be expected--even with these new aids--to meet all the emergency requirements for housing and community essentials. This problem will be particularly acute where large installations are located in small communities or isolated areas. To prevent delays in recruitment and to assure a reasonably stable labor supply in such areas, the Federal Government should have authority, as in World War II, to construct housing units and to make loans and grants for community facilities and services. This authority should be limited to meeting defense needs and even then should be available only when these needs could not otherwise be met. Accordingly the proposed legislation would authorize direct Federal construction of defense housing and pro, vision of Federal funds for community facilities and services. For these purposes, as well as for the necessary extension and expansion of defense-related private housing aids, the Budget includes estimated appropriations of 150 million dollars.

Civil defense.--With modern methods of warfare our Nation could be subjected to a sudden, devastating enemy attack. The military services have responsibility for warding off attack, but effective civil defense can sharply reduce the injuries, loss of life, and destruction of homes and factories that otherwise might occur.

Under legislation just enacted, the Federal Civil Defense Administration will provide equal matching grants to States for the construction of shelters and other protective facilities in critical target areas. These grants account for the larger part of the expenditures projected for this program in the fiscal year 1952. The Administration will also begin building a national reserve of supplies and equipment. In addition, the Reconstruction Finance Corporation will make loans to public authorities for public works which can serve both as shelters and for other community purposes, when the Administrator certifies that there is a civil defense necessity for such projects.

Aids to private housing.--The record levels of private housing construction in recent years have been stimulated in large part by widespread and generous Federal credit aids--mainly Federal insurance or guarantees of private mortgage loans and Federal purchases to support the market for these mortgages. By reducing the liberality of these aids, it has been possible to cut back housing construction in recent months without imposing direct controls.

Federal National Mortgage Association.-Changes in law and administrative policy governing the Federal National Mortgage Association have sharply curtailed new purchases of mortgages (except those covered by earlier commitments) and have helped to stimulate an increasing volume of sales of mortgages previously purchased. As the large backlog of old commitments is gradually drawn down, the net expenditures of this program will continue to decline. In the fiscal year 1952 net receipts of 530 million dollars are expected, primarily from the accelerated sales program. By that time, we plan to return this secondary mortgage market largely to a stand-by status and to place a substantial part of the unused mortgage purchase authority in reserve for possible future emergency requirements.

Federal Housing Administration.--The higher down payments and other limitations placed on housing credit have caused a sharp decline in applications for mortgage insurance under existing Federal Housing Administration programs. Nevertheless, in 1952, roughly one-half the total new housing produced, as well as purchases of nearly 200,000 existing homes, will probably be financed with the aid of Federal mortgage insurance. From the standpoint of the Federal Budget, these programs will continue to show net receipts, since the estimated premium income will exceed administrative expenses and probable losses.

Home Owners' Loan Corporation.--The Home Owners' Loan Corporation will be liquidated before the dose of the current fiscal year. All of the Federal investment of more than 3.7 billion dollars made during the depression years of the 1930's will be repaid in full and in addition the earned surplus of 14 million dollars will be paid to the Treasury. These payments will successfully complete one of the largest emergency financing operations of the depression years.

Direct veterans loans.--Under the Housing Act of 1950, the Administrator of Veterans' Affairs was given temporary authority to make a maximum of 150 million dollars in direct housing loans to veterans in areas where, even with the support of the secondary market, adequate financing is not obtainable. Experience to date indicates only a limited need for such loans, which private lenders should be able to provide. Accordingly, I do not recommend the extension of this program beyond the current fiscal year.

Farm housing.--As part of the general limitation of new housing construction, new loans for farm housing in the fiscal year 1952 will be held to less than a third of the 75 million dollars authorized in the basic statute.

Public housing programs.--In the fiscal year 1952, construction of an estimated 75,000 new units will be started under the low-rent public housing program, well below the annual level of 135,000 units authorized by the Housing Act of 1949. These units will serve two major purposes. They will not only help meet the long-neglected housing needs of low-income families, but will also make an important contribution to defense housing requirements. To make sure that the full defense potentialities are realized, the Public Housing Administration, to the maximum extent feasible, will give preference to projects serving defense areas and will require local housing authorities to give military personnel and defense workers preference as tenants.

During the current year, the initial construction is being financed largely through temporary Federal loans. In 1952 and later years, however, both the initial construction and the permanent capital investment in the local projects will be largely financed by obligations issued by the local housing authorities to private investors on the security of the annual Federal contributions. In the fiscal year 1952, collections and private refinancing of earlier loans will cause substantial net receipts. Federal expenditures for annual contributions to help pay rentals of low-income tenants will increase moderately, but in the case of projects occupied by defense workers the income of the occupants will be sufficient to make Federal contributions unnecessary to help pay their rents.

Loans to educational institutions.--Soon after the aggression in Korea last summer, authorizations under this program were suspended to permit reappraisal of college housing needs. On the basis of this reappraisal, a maximum of 40 million dollars out of the 30 million dollars authorized by the Housing Act of 1950 has been provided, to be used only for college housing directly contributing to defense. No other loans will be made under this program until the outlook for college enrollment shows a clear need for such housing.

Slum clearance and urban redevelopment.--The long-range program for clearance of slums and redevelopment of the major urban areas, for both private and public use, is still in its early stages. Commitments for planning advances have been issued to 70 cities.

Because of the great importance of encouraging orderly development of our cities--and the small amounts of manpower and other resources involved in the early years--steady progress should continue in the planning stage of this program. Local authorities also may acquire sites, but will not demolish existing buildings or otherwise redevelop areas unless the redevelopment is consistent with defense requirements. Under this basic policy, net expenditures of 65 million dollars are anticipated for the fiscal year 1952--primarily for planning advances and temporary loans for acquisition of sites. This contrasts with the additional 350 million dollars in authority which becomes available in 1952 under the basic
statute.

Advance planning loans.--Advances to State and local governments for public works planning have been suspended except when the projects involve defense-related or essential civilian requirements. While in a normal peacetime economy this program makes a major contribution to economic stability, it does not now appear advisable to extend it beyond the present expiration next October.

EDUCATION AND GENERAL RESEARCH

The challenge of communist imperialism requires the full potential of all our people-their initiative, their knowledge, their skills, and their ideals. These qualities have given this Nation world leadership in science and industry. Education and research are vital to the maintenance of this leadership.

The highly developed technology of the Nation requires an educated people equipped to operate this productive system efficiently. Likewise, it requires continuing basic research and the practical application of new knowledge and new techniques. Yet we start our defense effort with an educational system which fails to provide adequate educational opportunities for all our people, and with a lack of balance in the Nation's research activities.

The Federal Government took a major step last year toward achieving a better balance in research through the creation of the National Science Foundation, but urgently needed general legislation in the field of education was not enacted. This Budget includes provision for grants to the States for the operating expenses of elementary and secondary schools to assist in improving educational opportunities for our children. This proposal accounts for more than half of the total estimate of 483 million dollars of expenditures for education and general research in the fiscal year 1952, and for most of the estimated increase over 1951.

In addition to programs included in this total, many Federal agencies carry on specialized education and research activities which are included under other categories, such as veterans' services and benefits, military services, and agriculture.

Promotion of education.--Strong elementary and secondary educational systems throughout the country are vital to national strength and to the improvement of individual opportunity. Although educational opportunities are excellent in some parts of the country, children and youth in too many of our communities still do not receive adequate education. Inequalities exist primarily because of differences in the financial resources of the States and localities.

The Nation as a whole suffers from these inequalities. The results are demonstrated most sharply in times like the present. The military services even find it necessary to teach some inductees reading and writing before they can begin combat training. From the standpoint of national security alone, as well as the enlargement of opportunities for the individual, the Nation needs to see that every youth acquires the fundamental education and training which are essential to effective service, whether in the Armed Forces, in industry, or on the farm. I therefore urge the Congress to authorize Federal financial assistance to help the States provide a level of elementary and secondary education that will meet the minimum needs of the Nation. The Budget includes a tentative appropriation estimate of 300 million dollars for this purpose.

EDUCATION AND GENERAL RESEARCH

[ Fiscal years. In millions ]

Expenditures
_____________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 19521

Promotion of education: Office of Education:
General aid for operating expenses, elementary
and secondary schools (proposed legislation) ......... ......... $290 $300
Vocational education $27 $27 27 27
Education of children on Federal property
and in emergency areas ......... 39 106 78
Other programs 14 8 8 9
Educational aid to special groups 5 7 8 5
Library and museum services 9 11 12 12
General purpose research:
National Science Foundation ......... ( 2 ) 3 10
National Bureau of Standards 9 12 11 8
Seventeenth decennial census (Commerce) 42 32 10 9
Other (mainly Census Bureau) 8 7 8 10

Total 114 143 483 468

1This column excludes 29 million dollars of recommended appropriations to liquidate prior year contract authorizations.
2Less than one-half million dollars.

To help meet one particular educational problem, laws were enacted last year to make a single agency--the Federal Security Agency--responsible for giving financial assistance to schools or, if necessary, establishing schools for the education of children living on Federal property or in areas especially affected by Federal activities. Previously a variety of arrangements existed, and some of these children were denied free public education. The Budget includes expenditures of 106 million dollars in the fiscal year 1952 for buildings and current operating expenses under these new laws.

In view of the present necessity to provide training for defense production, a part of the appropriations for the general purpose of vocational education and training should be used for the training of workers for defense and essential civilian production. This Budget provides for the designation of 10 million dollars of the proposed vocational education appropriation for the fiscal year 1952 for this purpose.

Last year I recommended a program of aid to college students to help equalize educational opportunities. The proposal is omitted from the Budget pending reconsideration of the kind of program that will best fit into Selective Service policies and general manpower requirements.

Science Foundation.--The National Science Foundation, established by law last year, is now organized and planning its program. The limited funds available to it in the current fiscal year will not permit the Foundation to proceed beyond initial preparations.

An appropriation request for the fiscal year 1952 will be submitted this spring to enable the Foundation to initiate the important work of formulating a national policy for basic research, stimulating such research, and training scientific personnel.

SOCIAL SECURITY, WELFARE, AND HEALTH

Last year the Congress enacted important improvements in our social security program. Coverage under old-age and survivors insurance was extended to some 10 million additional workers. Eligibility requirements were relaxed for older people, so that many more will qualify for retirement annuities in the near future. The level of benefits was raised substantially and the taxable wage base was increased moderately, to make the benefits and the taxes more commensurate with earnings.

In taking this step, the Congress clearly decided that social insurance, rather than public assistance, is to be the primary vehicle for providing social security in this country. This accords fully with our American tradition of self-reliance. In the future, the great majority of American families will obtain, through their own and their employers' contributions, a considerable degree of insurance protection against poverty arising from the old age or death of the wage earner.

In spite of these far-reaching improvements, however, the Nation's social insurance program still does not measure up to the full needs or aspirations of the American people; nor has it by any means achieved the scope of protection that our economy can afford and should give. Millions of people, including self-employed farmers, many domestic and agricultural workers, many public employees, and members of the Armed Forces, still are not under social insurance. Our aim should be to establish for all employed people a minimum protection that each person takes with him wherever he works. Pension and insurance plans for special groups should supplement social security benefits, as industry pensions already do for several million workers. Moreover, we need to fill important gaps in our social insurance system by providing protection on a prepaid basis against the costs of medical care and the loss of family income in cases of disability. These measures will help to provide that material security which is essential to a vigorous democracy and a highly productive labor force.

All Federal programs of social security, welfare, and health are estimated to require expenditures of 2.6 billion dollars in the fiscal year 1952, an increase of 105 million dollars over the current year. Three-fourths of the expenditures are for public assistance, for accident compensation payments, and for the transfer of railroad payroll tax receipts to the railroad retirement trust account. The amounts of these expenditures are all determined by statutory requirements. The remaining one-fourth provides for all the public health activities of the Government, for aid to various special groups, and for the Federal Bureau of Investigation and other crime control and correction services.

Public assistance.--The same legislation which extended coverage of old-age and survivors insurance also made changes in the Federal-State public assistance program. It authorized Federal grants for assistance to totally and permanently disabled persons, extended the aid for dependent children to include a relative who takes care of such children, and provided for Federal sharing of payments made by the States to hospitals and doctors furnishing medical care for persons receiving public assistance.

SOCIAL SECURITY, WELFARE, AND HEALTH

[ Fiscal years. In millions ]

Expenditures
_____________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 19521

Public assistance: Federal Security Agency $1,125 $1,282 $1,302 $1,302
Aid to special groups:
Vocational rehabilitation (Federal Security
Agency) 26 22 24 24
School lunch (Agriculture) 83 83 83 83
Indian welfare and other (Interior) 29 41 43 44
Other (Federal Security Agency) 1 1 1 1
Retirement and dependents' insurance:
Railroad Retirement Board 583 598 646 646
Federal Security Agency and other 9 7 7 7
Promotion of public health: Federal Security
Agency and other:
Present programs 242 349 350 268
Proposed legislation:
Aid to medical education .......... .......... 25 30
Local health services .......... .......... 5 5
Crime control and correction: Department of
Justice and other 91 107 106 109
Accident compensation: Department of Labor 24 30 33 33

Total 2,213 2,520 2,625 2,552

1This column excludes 141 million dollars of recommended appropriations to liquidate prior year contract authorizations.

With many more persons eligible now or in the near future for old-age and survivors insurance benefits, and with the increased employment opportunities of the defense economy, public assistance should conform more nearly to its intended purpose of filling gaps in social insurance. Thus, increases in expenditures resulting from the new public assistance legislation are expected to be largely offset by decreases resulting from a reduction in the number of children and old 'people on the public assistance rolls. The estimated expenditures of 1.3 billion dollars for public assistance in the fiscal year 1952 exceeds by 20 million dollars the amount for the current year.

Aid to special groups.--The present Federal-State program for rehabilitation of the disabled will return 65,000 persons to productive work this year. This program should be expanded. Bringing these people into the ranks of the gainfully employed, besides improving their economic self-reliance, adds to our national productive capacity.

Railroad Retirement Board.--Expenditures shown for the Railroad Retirement Board represent principally a bookkeeping transfer of payroll taxes, collected from railroad workers and companies, to the railroad retirement trust account, where they are added to the reserve against future benefit payments. The estimate for the fiscal year 1952 also includes a 33-million-dollar payment by the United States to the trust account for the cost of military service credits for railroad workers. Increased railroad payrolls expected in 1952 are responsible for a rise of 48 million dollars in the estimate. I again recommend that these taxes be transferred to the fund as they are collected, rather than in advance of collection, in order to correct the present indefensible practice whereby the Federal Government pays interest on money that it advances to the fund.

Promotion of public health.--If we are to meet successfully the challenge that confronts this Nation, we can less than ever afford to waste the good health of our people. But the present emergency makes even more difficult the maintenance of good health.

Our chronic shortage of doctors, dentists, and nurses will be aggravated as more of them are called into the Armed Forces. Therefore, we need, more than ever, prompt enactment of legislation that will help to increase enrollment in medical and related schools, by assisting them to meet their costs of instruction and to construct additional facilities where needed. Scholarships should be provided to attract larger enrollments in nursing schools and grants should be made to States for vocational training of practical nurses. Estimated Budget expenditures in the fiscal year 1952 include 25 million dollars for this proposed program.

Many communities that will be faced with added health burdens arising from defense needs do not have adequately staffed local health departments--indeed, some communities have none at all. To help overcome this deficiency, I urge the Congress to enact legislation which will make possible more adequate Federal grants to the States for the strengthening of their local health services. The Budget includes 5 million dollars as the estimated first-year cost of this proposed legislation.

More than one-half of all Federal expenditures for the promotion of public health-estimated at 350 million dollars for the existing programs in the fiscal year 1952-consists of grants to State and local governments. These grants are available for a variety of public health programs, including general health services, hospital construction, maternal and child health, and control of certain specific diseases such as venereal disease, tuberculosis, cancer, mental illness, and heart disease.

Federal expenditures for hospital construction grants are estimated at 136 million dollars, about 4 million dollars less than in the current year. Federal expenditures for other existing programs of grants to States are estimated at 72 million dollars, a slight increase over 1951, due entirely to the expanded grants for maternal and child welfare services provided by the recent amendments to the Social Security Act. The principal direct Federal programs are the research and hospital activities of the Public Health Service.

Trust funds.--The three major retirement systems administered by the Government are the old-age and survivors insurance, railroad retirement, and Federal employee retirement and disability programs. Benefit disbursements are made directly from trust accounts and are not included in Budget expenditures. Receipts of the trust funds are mainly employer and employee payroll contributions. In the case of the railroad retirement system, these receipts are included in total Budget receipts and are transferred to the trust account as a Budget expenditure. The Government contributes as an employer to the Federal employee retirement funds and, for those Federal workers who are not covered by these special programs, to the old-age and survivors insurance system. These contributions appear as Budget expenditures. Payroll contributions received from other employers and from workers for old-age and survivors insurance are transferred directly to the trust fund and are not included in total Budget receipts. Accumulated assets in the three major trust funds now total 20 billion dollars; the money is invested in Government securities and the interest earned is added to the principal of each trust fund.

Receipts and expenditures under the proposed medical care insurance program would be handled through a trust account, paralleling the procedures for old-age and survivors insurance. A period of preparation will be required to set up the health insurance system. I am proposing that in the meantime a small payroll tax of one-fourth of 1 percent each on employees and employers be levied to provide for initial expenses.

VETERANS' SERVICES AND BENEFITS

In the fiscal year 1952 expenditures for veterans' services and benefits will be under 5 billion dollars for the first time in 6 years. This results from a further decline in requirements for the readjustment of veterans of World War II.

During the coming years, because we shall need to maintain larger Armed Forces, virtually all our able-bodied young men may be required to serve their country in its military forces. Before many years, nearly all the population may be veterans or the dependents of veterans.

This means a profound change in the social and economic import of Government programs which affect veterans. It requires a clear recognition that many of the needs of our veterans and their dependents can be met best through the general programs serving the whole population. Therefore, in legislation directed particularly to the problems of servicemen and their dependents, we should provide only for those special and unique needs which arise directly from military service. We should meet their other needs through general programs of the Government.

Readjustment benefits.--A decline of nearly 800 million dollars in expenditures for veterans' readjustment, to 1.6 billion dollars estimated for the fiscal year 1952, will result almost entirely from reduced enrollments for education and training.

SOCIAL SECURITY, WELFARE, AND HEALTH
( Major trust funds)

[Fiscal years. In millions]

1950 1951 1952
actual estimated estimated

Federal old-age and survivors insurance trust fund:
Receipts:
Transfer of employment taxes $2,106 $2,960 $3,823
Interest and other 2.57 2.99 313
Transfers from Budget accounts 4 4 4
Payments of benefits and administrative expenses --783 --1,674 --2,177

Net accumulation 1,584 1,589 1,963

Balance in fund at close of year 12,885 14,474 16,437

Railroad retirement fund:
Receipts:
Transfers from Budget accounts 583 598 646
Interest on investments 62 70 75
Payments of benefits, salaries, and expenses --304 --329 --350

Net accumulation 341 339 371

Balance in fund at close of year 2,064 2,403 2,774

Federal employees' retirement funds:
Receipts:
Employee contributions 359 32.7 311
Transfers from Budget accounts and other 305 305 325
interest 144 161 175
Payments of annuities and refunds, and expenses --268 --287 --312

Net accumulation 540 506 499

Balance in fund at close of year 3,860 4,366 4,865

Medical care insurance trust fund (proposed legislation):
Receipts from payroll contributions ........ ........ 2.75
Payment for initial expenses ........ ........ --35

Net accumulation ........ ....... 240

Balance in fund of close of year ........ ....... 240

Under the Servicemen's Readjustment Act, eligible veterans are required to initiate their courses of training by July 25, 1951. Accordingly, with the program drawing to a close, the enrollment in institutional, on-the-job, and farm-training courses in the fiscal year 1952 is expected to average about 1 million, a decline of some 600,000 from 1951. By the end of the fiscal year 1952 more than 7,500,000 veterans will have received education and training under this program at a cost of 13.9 billion dollars.

Other expenditures for readjustment benefits cover guarantees of veterans' loans, unemployment allowances, tuition and supplies for the training of disabled veterans, and Government grants to certain seriously disabled veterans. Government expenditures for the loan guarantees in the fiscal year 1952 are estimated at 110 million dollars, largely for a gratuity of 1 year's interest on the guaranteed portion of each loan. By the end of the fiscal year 1952 over 3 million veterans will have borrowed 18 billion dollars in Government-guaranteed loans for homes, farms, and businesses.

VETERANS' SERVICES AND BENEFITS

[ Fiscal years. In millions ]

Expenditures
_____________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 19521

Readjustment benefits:
Education and training $2,596 $2,159 $1,414 $1,117
Loan guarantees 61 105 110
Unemployment and self-employment allowances 141 18 10
Loan guarantees, unemployment and
self-employment allowances combined 94
Other 76 79 45 24
Compensation and pensions 2,223 2,198 2,223 2,223
Insurance 480 95 74 73
Hospitals and medical care:
Current expenses 605 601 650 659
Hospital construction 159 212 155 ........
Other services and administration (mainly Veterans
Administration) 286 2.79 230 236

Total 6,627 5,746 4,911 4,426

1This column excludes 28 million dollars of recommended appropriations to liquidate prior year contract authorizations.

The Eighty-first Congress enacted legislation to meet the special rehabilitation needs of disabled veterans injured in Korea. By renewing the program of vocational rehabilitation which was in effect during and after World War II for disabled veterans, and by providing medical treatment, hospital services, and monthly compensation, the Government is assisting our disabled veterans to return to a self-reliant and productive role as civilians.

Broader problems of policy arise when we consider the readjustment needs of nondisabled veterans. In preparing to meet their needs, we naturally think first of the combat veterans of the Korean fighting, but we must remember that during the coming years the lives of nearly all our young men also may be interrupted for service to their country. When the time comes that these future veterans can be discharged, we must be sure that they will be able to readjust rapidly to normal civilian pursuits.

The provision of education benefits, vocational training, loan guarantees, and unemployment allowances to World War II veterans represented a new and more positive approach to the veterans' readjustment problem than the pensions and bonuses previously provided. There is ample evidence that the "GI bill" has benefited the Nation as well as millions of veterans, despite abuses which impaired the readjustment of some veterans and added to the cost of the whole program.

Any future program should not only avoid past mistakes but should also be fitted to our changed economic and military outlook. The readjustment needs of the men in the Armed Forces now and in the future are likely to be quite different from the needs of World War II veterans. The requirements of future veterans will depend on how long our young men serve, what they do while in military service, and their ages and family responsibilities at time of discharge. The need for special programs for veterans will depend also on how many of our young men serve, the job opportunities open to them afterward, and the types of services available to them under governmental programs for the population as a whole. When all these factors are considered, it is clear that an extension of the "GI bill," without material changes, would perpetuate provisions not suited to changed conditions. It could result in excessive expenditure of public funds and still fail to accomplish the objective of helping the veteran to readjust.

The full assessment of these complicated problems requires careful study in order that we may adopt the best policies for future Government programs affecting veterans. In that assessment, we need to take careful account of our own national experience over the last 6 years and the requirements imposed by our changed military and economic needs.

Compensation and pensions.--It is estimated that payments for compensation and pensions will total more than 2.2 billion dollars in the fiscal year 1952, and will be made to an average of 3,168,000 individuals and families. This is an increase over the current year of 113,000 in the average number of cases, and of 25 million dollars in expenditures. Of the compensation cases, which result from service-connected disabilities or deaths, 82 percent relate to military service during or after World War II. Of the pension recipients, 7 percent are veterans or the dependents of veterans of World War II.

The total of 2.2 billion dollars for 1952 includes 1.5 billion dollars in compensation payments, covering an average of 345,000 families of deceased veterans and 2,010,000 veterans with service-connected disabilities. Also included is 80 million dollars for subsistence allowances to service-disabled veterans in the vocational rehabilitation program, a decrease of 56 million dollars below the 1951 level. Pension payments will be made in an estimated 812,000 non-service connected cases. The total of 605 million dollars for these pension payments is 75 million dollars higher than in the current year.

Insurance.--Government liabilities for life insurance programs for servicemen and veterans are mainly for the costs of administration and for payments on account of deaths traceable to the extra hazards of military service.

In view of the Korean hostilities and the current enlargement of the Armed Forces, there is pressing need for new legislation to assure financial protection to the families of servicemen. The present national service life insurance program does not meet this need. Because it is optional, the protection is not carried by some servicemen and is held in less than adequate amounts by others. The system is complex and costly and absorbs excessive manpower, especially when the Armed Forces are large and manpower scarce.

It would be more equitable, and over the last decade it would have been more economical, to provide a free and automatic $10,000 indemnity to the survivors of all who die while in military service, and to establish a special new system of voluntary insurance open only to veterans whose insurability at standard rates has been impaired by military service. I recommend that this Congress now enact such legislation and extend its benefits to the dependents of those servicemen who have died while on active duty since June 27, 1950, if they did not have a like amount of servicemen's insurance protection.

Hospitals and medical care.--Expenses for hospital and medical care are estimated at 650 million dollars in the fiscal year 1952, 49 million more than in the current year. The average number of patients in hospitals and homes is estimated at 138,000, an increase of 5,000 over the current year. Approximately two-thirds of present patients are being treated for non-service-connected disabilities.

The presently approved construction program of 766 million dollars, to provide 36,500 new hospital and domiciliary beds, will be four-fifths completed by the end of the fiscal year 1952. Obligational authority already available is more than adequate to complete the program.

Trust funds.--About 6.5 million life insurance policies are now outstanding under two trust funds operated for servicemen and veterans. One is for the Government life insurance program established for servicemen in World War I; the other is for national service life insurance, its World War II counterpart.

Expenditures from these trust funds are expected to exceed receipts by 265 million dollars, because dividends estimated at 546 million dollars will be paid to policyholders in the fiscal year 1952. During the fiscal years 1950 and 1951 dividends which had accumulated over an extended period were paid from these funds, so that the trust fund expenditures in those two years exceeded receipts by 2 billion dollars. At the end of the fiscal year 1952, the Government securities and cash held by the funds will still exceed 6.4 billion dollars.

GENERAL GOVERNMENT

Expenditures for general government in the fiscal year 1952 are estimated at 1.4 billion dollars, an increase of 99 million dollars over the current year. This total includes 164 million dollars for the dispersal of governmental facilities.

Dispersal of Government facilities.--The acceleration of the defense effort requires additional Government buildings to accommodate the increased number of Federal employees in the District of Columbia. From the viewpoint of security, the new buildings should not be located in the central area of the District of Columbia but should be located within commuting distance and sufficiently removed from each other to assure continuity of operations in the event of air attack. Long-range planning goals for the Capital area also call for dispersal of Government buildings. I therefore urge the Congress to provide the necessary authority and funds to begin promptly a program for the dispersal of Government offices now located in the District of Columbia.

VETERANS' LIFE INSURANCE FUNDS
(Trust funds)

[ Fiscal years. In millions ]

1950 1951 1952
Item actual estimated estimated

Receipts:
Transfers from general and special accounts $475 $90 $68
Interest on investments 249 210 204
Premiums and other 440 490 514

Total 1,164 790 786

Expenditures:
Dividends to policyholders 2,687 334 546
Benefits and other 414 478 505

Total 3,101 812 1,051

Net withdrawal --1,937 --22 --265

Balance in funds at close of year 6,692 6,670 6,405

GENERAL GOVERNMENT
[ Fiscal years. In millions ]

Expenditures
______________________ Recommended
new obliga-
1950 1951 1952 tional authority
Program or agency actual estimated estimated for 1952 1

Dispersal of Government facilities
(proposed legislation) .............. $6 $164 .............
Federal financial management:
Bureau of Internal Revenue $227 248 254 $256
Customs collection, debt management,
and other (mainly Treasury) 129 139 134 139
General Accounting Office 35 33 31 32
Other central services:
Central property and records management
(mainly General Services Administration) 118 139 164 145
Civil Service Commission 16 18 20 20
Legal services (Justice) 8 9 10 11
Government Printing Office 9 10 11 19
Government payment toward civilian
employees' general retirement system 302 305 320 320
Legislative functions 40 43 48 39
Judicial functions 244 331 25 25
Executive direction and management 7 12 8 7
Other general government:
Immigration control (Justice) 31 33 36 37
Public building construction
(General Services Administration) 9 38 9 .............
Weather Bureau ............................... 24 25 26 27
Claims and relief acts (Treasury) 71 96 50 .............
Other 58 67 41 63

Total 1,108 1,252 1, 351 1,140

1This column excludes 5 million dollars of recommended appropriations to liquidate prior year contract authorizations.

As distinct from dispersal, functions will be decentralized to locations outside the vicinity of the District of Columbia only in those instances where the functions involved can be permanently located at further distances without significant loss of efficiency.

Federal financial management.--New tax legislation has created additional problems of tax collection. The increase in the estimate for the Bureau of Internal Revenue will permit continued strengthening of audit and enforcement activities to try to insure that every person pays his full and fair share of taxes.

Present customs law imposes unnecessary difficulties upon the Nation's importers and hampers the conduct of international trade. I therefore urge the Congress to enact legislation to simplify customs procedures along the lines of recommendations previously transmitted.

Central property and records management.--When the General Services Administration was established in 1949, the Federal Government inaugurated a Government-wide effort to improve real and personal property management, including procurement, warehousing, traffic, utilities, and records management. In the last few months, special emphasis has been given to measures to eliminate every nonessential requirement for supplies and equipment; to set inventory ceilings at minimum levels in each agency and make any excess stocks available to other agencies; to screen thoroughly all surplus property declarations before making sales to the public; and to reduce the volume of records so as to release scarce office space and equipment.

Payments on Federal real estate.--As an outcome of conferences with State and local government officials, a proposal will shortly be transmitted to the Congress for a general plan to reduce the effects of Federal real estate acquisitions on State and local government finances. Payments to State and local governments would not generally begin until the second year after enactment of this measure.

Civilian employees retirement.--The Budget includes 320 million dollars for the annual Government contribution to enable the civil-service retirement and disability fund to cover its currently accruing obligations. Federal employees covered by the system are required by law to contribute 6 percent of their salaries toward future benefits. The Government contribution, designed to cover the remaining cost of benefits, amounts to approximately 2.6 percent of the payrolls of covered employees plus interest on the Government's liability to the fund for deficiencies in previous contributions.

INTEREST

The interest payments made by the Federal Government arise primarily from the huge additions made to the Federal debt in World War II. All interest payments are financed by permanent indefinite appropriations and therefore do not require annual Congressional action.

Interest on the public debt.--Interest payments on the public debt are estimated at 5.8 billion dollars for the fiscal year 1952, continuing the gradual increase of recent years. This increase is the product of a great number of factors, relating not only to the amount of Federal securities outstanding, but also to the composition of the debt by type of security and the interest rate structure of the debt.

INTEREST
[ Fiscal years. In millions ]

Expenditures
______________________ Obligational
authority
1950 1951 1952 (permanent
Program or agency actual estimated estimated indefinite)

Interest on the public debt 1 $5,720 $5,625 $5,800 $5,800
Interest on refunds 93 90 92 92
Interest on uninvested trust funds 4 7 5 5

Total 5,817 5,722 5,897 5,897

1Includes 225 million dollars in nonrecurring payments resulting from a shift in reporting methods.

About one-third of the increase in interest for the fiscal year 1952 is accounted for by the continued expansion of special issues to Government trust funds at rates of interest higher than the average on the public debt as a whole.

Second, the current increase in public debt is also reflected in higher interest expenditures.

A third important factor is the accrual of interest on savings bonds. These accruals are continuing to increase as the large volume of World War II savings bonds gets closer to maturity. Interest on savings bonds alone accounts for a little more than one-fourth of the total interest on the public debt. Most of this interest is received by individuals and is a reflection of the widespread distribution of the public debt at the present time.

Interest on refunds.--On most refunds of receipts interest is paid because the Federal Government has had temporary use of the funds. Most of the refunds result from overpayment of taxes. The interest rate paid on tax refunds, like that collected on tax deficiencies, is considerably higher than the average rate paid on the public debt.

I have presented a Budget to meet our country's needs in a period of danger.

We are building the military and economic strength which alone has meaning to the men who control world communism. This is the only realistic road to a world peace based on justice and individual freedom.

For the third time in this century we as Americans must subordinate our peacetime goals to what is required for the survival of the Nation. Our national objectives in the coming months demand unity of purpose among us and a spirit of dedication on the part of everyone. Our young men will devote more years to military service. All of us will work longer and harder than we have worked before. We will pay much heavier taxes. We must defer, in many cases, new governmental programs to enrich our national life and contribute to our individual and family welfare. But in return we will get something precious-strength to meet and overcome the barbaric threat of communism in whatever manner it confronts us.

We in this Nation have always, in time of national emergency, risen with unity and vigor to the defense of our free institutions and way of life. We are responding now. We go forward with faith and confidence to meet and win the tests ahead.

HARRY S. TRUMAN.


Note: The message and the budget document (1032 pp,) are published in House Document 17 (82d Cong., 1st sess.).
Citation: Harry S. Truman: "Annual Budget Message to the Congress: Fiscal Year 1952," January 15, 1951. Online by Gerhard Peters and John T. Woolley, The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=13810.
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