The President's News Conference

FISCAL POLICY

THE PRESIDENT. I have no questions, and I have no incidental news. I thought I might talk to you for a moment on the background in relation to future fiscal policies of the Government--solely for your information and in the hope that it might be helpful to you.

I can say at once that no serious consideration has yet been given to the policies which will be inaugurated at the time Congress meets as to taxation. For very serious reasons it is impossible to come to any conclusions on a subject of that character now, but there are a great many factors that will enter into whatever determination we will arrive at, whether to proceed without additional taxation or to impose such taxation. We do not yet know what the tendency of our income may be. Any degree of economic recovery would entirely change the whole aspect of Government receipts.

There are one or two features of our Federal income that begin to stand out with a great deal of vividness--the most important being that the corporation tax and the income tax are, both of them, profit taxes. They are dependent on the volume of governmental income, upon the progress of business and industry .and, therefore, they are subject to tremendous variableness on the progress of the country as a whole. At the time those taxes were devised no doubt the amount which they might vary was little understood. The corporation tax, obviously, is a tax on profits, and as profits have diminished very greatly, that tax, of course, is very much less fertile than it used to be in good times.

The income tax is in a very large proportion a tax on earned incomes of business profits. A large amount of tax exempt securities in the country have been issued, and the Federal, State, municipal, and other tax exempt securities have furnished a refuge for unearned income, as it is called, and the result is that our Federal taxation system is fairly unreliable in its yield as between good times and bad. So that the .amount of income which we would have to predicate for both this fiscal year and the next fiscal year is purely a question of the economic outlook, and we are not able to formulate at the present moment any judgment on that question. So that for that reason alone we would not be coming at the present time to any conclusions.

Furthermore, the tendency of expenditures during the present fiscal year and the next fiscal year cannot now be determined. The question, of course, is always open as to whether there will be added expenditure during this fiscal year as the result of congressional action, and also a question as to how far we can safely impose economies in the governmental expenditure during the present and next fiscal year. We are making every effort to hold down the expenditures of the Government in the present fiscal year, but we have, of course, the tremendous burden of Federal aid to the unemployment situation. You will recollect that the various programs of the Federal Government in aid to unemployment have resulted in an increase of our construction and maintenance expenditure from somewhere about $250 million, as you already know, of normal amount, to somewhere about $700 million to $750 million. In other words, we are carrying a burden of somewhere about $500 million in our Federal budget which is the product of the depression and the contribution of the Federal Government to that situation.

As I have told you before, the total number of men employed directly and indirectly on Federal construction and maintenance work in January 1930, was about 180,000, whereas it is now about 760,000. That is an indication of the increased budgetary burden which we are now carrying. That undoubtedly continues through this fiscal year. What would be the necessary conclusion about that for the next fiscal year we cannot begin to arrive at at the present time. Obviously, if there was a turn in the economic tide we would be able to diminish that burden on the Government and make very large economies in the subsequent fiscal year, but even that cannot be determined just now.

Aside from any further burden which Congress may think necessary to impose on the budget for this fiscal year, some things have arisen which are likely to increase our expenditures, particularly the loans on the bonus certificates. If those loans continue at their present rate we shall probably need to appropriate anything between $200 million and $300 million for further loans during this fiscal year. That will be a direct burden on the budget. You will recollect that there had already been distributed about $300 million prior to the passage of the act and since the passage of the act about $800 million to $850 million has been distributed, which almost exhausted the provision made by Congress in the last session for the service. We will be able to get through, until Congress opens, with the amounts which we still have available, but a continuation of that demand is likely to necessitate very considerable appropriations. And as to what that will result in it is too early to determine. It may be that all of the veterans who are going to take advantage of the provision have now done so, and that we will not be faced with that burden.

I might mention incidentally that the two long-term loans which have been recently made, the one of June for $800 million and the one of now for $800 million--one of those, the June one, just covers the deficit of last year--does not quite cover it. The one made now might be said to cover the payments on bonus certificates. So that you cannot derive any conclusion as to Government policies by the fact that we are issuing loans for purposes of covering moneys which we have already expended. There is no anticipatory gospel in that.

You will recollect that in the last fiscal year we had a deficit of something over $900 million, of which something over $400 million was due to statutory retirement of the debt, and the actual increase in the debt was somewhere approximately $500 million. We, therefore, absorbed that amount of fat out of the previous excess redemption of the debt. It does not necessarily imply that we can go on living indefinitely on our fat until it is exhausted. How far the Government should go in that direction will depend on the economic outlook. If the economic situation improves, obviously the Government could live a while on its fat, but it could not go on indefinitely. And the economic outlook, I might say parenthetically, is very much dominated by the European situation. Our whole economy during the last 6 months has been practically continued by the difficulties in Europe; that Europe has not been able to purchase our agricultural commodities in any very considerable degree. It has gone through two very severe financial crises, in it two of the greatest governments in the world, something almost unparalleled in history, and the reaction in the United States has been greatly to retard our recovery. If, by the arrangements which have been set up in those governments, they have reached stability it ought to release forces in the United States which would give a good deal of encouragement here. That is another reason why another 2 or 3 months study of this situation is necessary before we can come to any fiscal conclusions.

The present situation is a little better in some particulars. In that I don't want to minimize the problem which we have to carry over the next winter. The change is largely in seasonal and governmental activities. The statistics of the Department of Labor cover the manufacturing industries and one or two service industries, together with quarrying and mining, but they do not cover such things as public works and things of that character only where they indirectly reflect into manufactures. So that if you start with the supposed 6 million unemployed last winter, we have a good many seasonal factors which at least give temporary strength to this situation. There are, as I have said, somewhere about 300 million to 380 million more people employed directly or indirectly by the Federal Government than there were last January. There are somewhere near a million, as nearly as we can compute, from the State and local expenditure on roads by the State and local authorities outside of the Federal, more than there were last winter. And there are some 750 million people employed on wages in agriculture, purely seasonal, and there are a number of other seasonal industries which have taken up a good deal of the slack of last January. And there are some industries which have shown a substantial improvement. Both the shoe and textile industries show very great improvement over last winter. Altogether it amounts to the strengthening of the situation temporarily from an employment point of view--temporarily perhaps--more than has been accredited. That, however, does not solve our problem over the winter, but I mention it to you as one of the things giving some strength and some encouragement from some of our other difficulties.

In any event, the primary problem and the only problem in governmental fiscal questions is the maintenance of the social obligations of the Government to a population that are in difficulties; that no government of a substantial character and of any humane aspect will see its people starve or go hungry or go cold, and every agency of a government, whether local, State, or Federal, must be implemented to that end. So that we have to consider that problem, and we have another problem which bears indirectly on that same one, and that is that we must maintain the complete stability and confidence in our Federal Government. That is the root of all confidence and stability in our country, and upon that maintenance bears the recovery of the country and the maintenance of employment and of all the other necessary humane considerations that come out of good government. So that we are all endeavoring to approach this problem solely from the point of view of these many factors, for their adequate determination and the best judgment we can bring to bear. And it is entirely too early to come to any conclusions on it at the present time.

I don't know that that is of any great importance to you, but you might as well know what I have in my own mind about it, and if it is useful to you I would be glad to handle some of the other problems in the same way. I am not in a position to make any statement to the press because the problems are all too implicated. It is very difficult to convey all of the problems of the situation into a discussion of this character because they are enormously involved.

Q. Mr. President, may this be used in the third category ?

THE PRESIDENT. No, this is for your own information. I do not think you can present such an involved question properly from such a discussion as this. It is just for your own information.