Statement on the Budget.

In my Budget Message of January 3, 1935, I made the following statement:

"In order to promote more satisfactory methods of budgetary control in the Government, I propose this year to inaugurate the policy of having a Summation of the Budget prepared for publication immediately after the Congress has acted on all financial matters. This summation will be ready on or before July 1, unless the Congress is still in session. It will be presented along the lines of the General Budget Summary and supporting schedules, including Statements Nos. 1 and 2, as shown in this Budget. It will exhibit the revenue estimates, so revised by the Treasury, as to reflect any changes in the economic situation during the preceding six or seven months and also any revisions made by the Congress in the tax laws. It will provide a complete summary of all appropriations and expenditure authorizations made by the Congress and related estimates of expenditures. Lastly, it will indicate the need for executive or administrative measures in controlling the execution of the Budget during the fiscal year 1936."

THE ECONOMIC SITUATION

Since so great a part of the Federal program is influenced by economic conditions, it is appropriate to review briefly the changes which have taken place during the past fiscal year.

At the opening of the year in July, 1934, and despite noticeable improvement during the preceding twelve months, business Was in slight decline because of accumulation of inventories, and because of the drought which affected seriously a vast area of agricultural land. There was a lag in the activities of heavy industries. Some pickup was apparent in the fall; and subsequently, output expanded to a level higher than that of the preceding winter. During the spring of 1935, normal rainfall assured favorable crop conditions, and expenditures for durable goods and equipment showed a steady increase. Automobiles, electrical appliances and household furniture were sold in much larger quantities and demand for farm and industrial machinery increased considerably. Automobile output, during the first six months of 1935, almost equaled that of the like period in 1929. Expansion also occurred in the construction of buildings other than public works, following three years of relative inactivity.

The burden of private debt and of interest payments was lightened during the year both by a further decline in the volume of indebtedness and by a general reduction in rates of interest. Mortgages on farm and urban houses were being refunded at lower rates, partly by Government agencies or as a result of Government policy. There was a gradual improvement in real property values and some revival in demand for mortgages by private investors. In the capital market a large volume of security offerings for refunding purposes was sold during the spring and summer.

Industrial payrolls were nearly 8 percent larger than in the preceding fiscal year, and dividends paid by representative corporations increased. Prices for agricultural products were higher, and farm income for the country as a whole, including rental and benefit payments, increased nearly 20 percent. The increases noted are to be compared with an increase of about 4 percent in the cost of living.

On the whole economic conditions were decidedly better for the fiscal year just closed than in the preceding year, and of course vastly better than in 1933 and still better than in 1932. We have witnessed larger distribution of goods to consumers and a reduction in plant inventories; a closer relationship between industrial and agricultural prices; further reduction of the burden of private indebtedness; an increase in national income. At this date inventories are low. Industry has shown its strength against the current of seasonal slackness, and output and trade are expanding. Capital market conditions are favorable. Crops are expected to be larger this season and to yield farmers more income than in the past year.

REVIEW OF THE FISCAL YEAR 1935

Total expenditures of the Government for the fiscal year ended June 30, 1935, amounted to $7,375,825,166, against an estimated expenditure shown in the Budget of last January of $8,581,069,026. Actual spending during the year was less than the estimate, therefore, by $1,205,243,860. Of this difference between estimated and actual expenditures, nearly a billion dollars was for account of recovery and relief, and some two hundred millions for account of the regular Government agencies. For recovery and relief there was expended $4,262,257,208 against an estimate of $5,259,802,852. It may be pointed out here that when the Budget was made up last winter it was expected that the Reconstruction Finance Corporation would expend on all accounts, except relief, during the then current year the net sum of $556,000,000, whereas the operations of the Corporation actually resulted in a net receipt of $107,000,000, a difference between estimated and actual expenditures of $663,000,000. Recovery and relief expenditures by other agencies were less than estimates by some $334,000,000.

Expenditures for the operation and maintenance of regular departments and establishments of the Government (including refunds of taxes erroneously collected, but exclusive of the service of the public debt) were estimated last January in amount $1,913,700,174. Actual expenditures for the same purposes were $1,719,083,353.

For interest on the public debt there was expended $820,926,353 as compared with an estimate of $835,000,000; while expenditures for statutory debt retirement were $573,558,250 against an estimate of $572,566,000.

Treasury reports at June 30th showed total receipts for the year in the amount of $3,800,467,202 or approximately $89,000,000 above the estimate of $3,712,650,688. Internal Revenue receipts, including processing taxes on farm products, amounted to $3,277,690,028 as against an estimate of $3,197,466,507. Customs receipts were $343,353,033 against an estimate of $287,000,000. Miscellaneous revenue, including realization upon assets, amounted to $179,424,140, whereas the estimate was $227,184,181.

The deficit at the end of the year 1935 was $3,575,357,964. Deducting $573,558,250 for statutory debt retirements, the resulting net deficit was $3,001,799,714. This net deficit, after subtracting the decrease in the general fund balance, the excess of trust fund receipts over trust fund expenditures, and the amount of retirement of national bank notes from gold increment, accounts for an increase of the total outstanding gross public debt from $27,053,141,414 at the close of the fiscal year 1934 to $28,700,892,624 at the close of the fiscal year 1935. In other words, it is worth noting that the net increase in the actual gross public debt was $1,647,751,210.

CONDITION OF THE FISCAL YEAR 1936

The total expenditure requirements for the fiscal year ending June 30, 1936, are estimated at $7,752,332,000, of which $2,301,508,000 is for account of the regular establishments of the Government, including refunds of receipts. Expenditure for the service of the public debt is estimated in amount $1,296,000,000, and $4,154,824,000 is set aside for recovery and relief.

The estimated expenditures for the regular establishments for the fiscal year 1936 are $582,425,000 greater than expenditures for 1935, due largely to the increase in the Government's contributions to the Civil Service Retirement and Disability Fund and the Adjusted Service Certificate Fund; restoration of employees' compensation; enactment of legislation granting a 40-hour week to postal employees; appropriation of an amount equal to 30 percent of customs receipts for benefit payments on agricultural exports; increases in pensions and compensation to our war veterans; the inclusion of substantial public works program in regular expenditures rather than under recovery and relief expenditures; and the increase in appropriations for national defense. The amount estimated to be expended for recovery and relief is slightly less than was spent for this purpose last year and is considerably under the estimate in the 1936 Budget.

The work relief program designed to put 3 1/2 million men on useful work has moved more slowly than I hoped, but is now accelerating with reasonable assurance of providing adequate employment during the coming months. While some of the heavier projects will continue under construction beyond June 30, 1936, the major part of the funds will be expended for improvements that will permit quicker employment.

The definitely encouraging factors in the economic situation set out above are reflected and confirmed in the Treasury receipts of Federal taxes.

Tax receipts for the fiscal year 1935 showed an upward trend. Likewise, recently estimated receipts for the current year forecast total collections from original sources of more than $478,000,000 in excess of the amount set out in the 1936 Budget last January.

Legislative acts during the last session of Congress which affect Federal revenue in the fiscal year 1936 are (1) the extension to June 30 or July 31, 1937, of Title IV, as amended, parts I, II, III, and IV of Title V, as amended, of the Revenue Act of 1932;(2) "An Act to amend the Agricultural Adjustment Act"; (3) "An Act to levy an excise tax upon carriers and an income tax upon their employees, and for other purposes"; (4) "the Bituminous Coal Conservation Act of 1935"; (5) "The Revenue Act of 1935"; and (6) "The Social Security Act." The Bituminous Coal Conservation Act is not expected to provide significant revenue in the fiscal year 1936; and, with minor exceptions, the Revenue Act of 1935 and the Social Security Act do not affect the revenues until the fiscal year 1937.

Estimated receipts from all sources for the current fiscal year amount to $4,470,349,140, as set out in detail in supporting schedule numbered one.

It will be understood that estimates of receipts contemplate continued collection of processing taxes. If the attack which has been made upon this act is sustained we will have to face the problem of financing existing contracts for benefit payments out of some form of new taxes.

The deficit for the fiscal year 1936 is forecast at $3,281,982,860. Deducting statutory debt retirement, the resulting net deficit would be $2,730,982,860.

It may be pointed out in this connection that erroneous and gloomy predictions have frequently been voiced in some quarters to the effect that heavy increases in taxation will be required to balance the Budget and retire our public debt. The under, lying tax structure of the Government is now stronger than ever before in our history, and as normal business returns will produce revenues adequate for all essential purposes. The prevailing rate of recovery points to the speedy decline of Federal expenditures for emergency activities. The 1937 Budget is now being prepared with a view to sharply decreasing the spread between income and outgo. Thus it is clear to me that the Federal Government under provisions of present tax schedules will not need new taxes or increased rates in existing taxes to meet the expense of its necessary annual operations and to retire its public debt.

APPROPRIATIONS

The estimates of appropriations included in the Budget and supplemental estimates submitted by me to Congress after the Budget was presented aggregated $8,679,441,626. The Budget included an item of $300,000,000 for regular public works. This item was later reduced by me, in a formal recommendation made to Congress, by $76,000,000. Appropriations made by Congress aggregated $8,671,427,171, a difference of only $8,014,455 exclusive of the reductions subsequently made by me in the public works estimate.

It will be observed that the deficit for the current year, like those for the preceding two years, is due entirely to expenditures contemplated on account of the emergency and almost wholly on account of unemployment relief. Moreover, it is anticipated that the deficit for this year will be about $300,000,000 less than the deficit for 1935. This reduction in the deficit can be realized, however, only in the event that no new items of expenditure are added to the year's program as set forth in this summation.