Presidential Statement No. 4 on Economic Issues: Responsible and Effective Fiscal Policy.

1. RESPONSIBLE and effective fiscal management is a key obligation of the Federal Government. It requires:

--Comprehensive control of expenditures to insure maximum efficiency in operations, to cut back low priority and outmoded programs, to get a full dollar of value for every dollar spent.

--Strong and innovating Government programs that meet fully and efficiently our responsibilities at home and abroad.

--A tax system which distributes the burdens and raises revenue equitably without blunting the incentive and efficiency of the private economy.

--Clear recognition of the budget's impact on our economic performance. Federal expenditure and tax programs are inevitably powerful influences on jobs, profits, and production in our private economy. The influences can be good or bad, depending on our wisdom in selecting and timing fiscal actions. By remaining alert to the economic effects of the budget, we can manage our fiscal affairs to create jobs and promote stable prices.

--Pursuit of the goal of a balanced budget in an economy balanced at its full potential.

As history demonstrates, when men and machines are idle, the low incomes of an unbalanced economy hold down Federal revenues and create deficits. In such a situation, we must take steps to stimulate production and create jobs, to restore the health of the economy--even though these measures may temporarily add to the deficit.

In other instances, when total demand would otherwise outrun our capacity to produce, we must diligently insist on budgetary surpluses and debt retirement.

In short, we must continuously pursue policies to promote steady and sustained prosperity without inflation--not merely to counter recessions and unsustainable booms after they begin.

2. We have put these principles into operation in 1964:

--by effecting substantial economies and cost reductions through close scrutiny of every expenditure program. As a result of careful management we are able to decrease both expenditures and Government civilian employment in the 1965 budget--for only the second time in 9 years.

--by using the fruits of frugality to contribute to human compassion and national progress. We have launched new programs to attack poverty, support urban mass transportation, improve housing, promote better education and training, and make more effective use of our natural resources.

--by providing the largest peacetime fiscal stimulus in history through the Revenue Act of 1964, thereby strengthening and broadening our prosperity.

3. And we will continue to follow these principles in the years ahead.

As long as the economy remains prosperous, rising incomes will increase the revenues of the Federal Government by roughly $6 billion a year at current tax rates. Unless a major increase in defense was required by unanticipated international developments, revenues would therefore tend to rise relative to expenditures. Economic conditions in a particular year might make this a desirable outcome. But fiscal policy must be constantly alert to the danger that a steady growth in revenues relative to expenditures could choke off our economic expansion, as it did in the late 1950's.

There are many ways by which this "fiscal drag" can be countered. The possibilities include: further tax reductions, increases for top-priority Federal programs, and an increased flow of funds to State and local authorities.

The size of these adjustments and the choice among them at any given time must and will depend on the changing needs of our people, state of our economy, and demands of national security--not on some rigid mechanical formula fixed for years in advance.