Dwight D. Eisenhower photo

Annual Budget Message to the Congress: Fiscal Year 1955.

January 21, 1954

To the Congress of the United States:

I am transmitting herewith the Budget of the United States for the fiscal year ending June 30, 1955.

The budget message is divided into two parts. The first part is a general statement summarizing the budget and a number of its most important aspects. The second part includes pertinent details of my tax and legislative programs, and of the budget. Together the two parts comprise my budget message.

When this administration took office on January 20 of last year one of its first concerns was the budget for the 1954 fiscal year, which had been sent to the Congress on January 9, 1953, by the previous administration. With the cooperation of the Congress that budget promptly was revised and reduced. This new budget is the first prepared entirely by this administration.

It provides adequately, in my judgment, for the national defense and the international responsibilities of the Nation--responsibilities which we must undertake as a leader of the free world. On the success of this leadership depends our national security and prosperity. The budget also provides adequately for the current needs of the Government and for constructive forward steps in our domestic responsibilities and programs.

The recommended budget continues the strengthening of our military posture; our progress in the development and production of atomic weapons; the expansion of our system of continental defense; assistance in the development of the military strength of friendly nations; and programs for rapid mobilization if an emergency should arise.

Authority is recommended for new and advanced work on the peacetime uses of atomic energy in the earnest hope that present international relations can be improved and the wonders of nuclear power can be turned gradually to the development of a more abundant life for ourselves and all mankind.

The budget contains provisions for legislative recommendations for expanding the coverage and increasing the benefits of our social security system; for promoting better housing conditions and more widespread home ownership in the Nation; for improving our system of education; for conserving our natural resources; for helping prevent the ravages of floods and soil erosion; for encouraging the expansion of adequate health and hospital care for our people; and for other constructive domestic purposes designed to strengthen the foundations of a stable and prosperous economy.

This budget continues the progress that has been made during the past year in reducing both requests for new appropriations and Government expenditures. The reductions in expenditures already accomplished, together with those now proposed, justify the tax reductions which took effect January 1 and the further tax revisions I am recommending. These lower taxes will encourage continued high capital investment and consumer purchases. Despite the substantial loss of revenue caused by these tax reductions, we have moved closer to a balanced budget.

One of the first problems of this administration was to bring the budget under better control. That was substantially accomplished in the revision of the original budget document for the fiscal year 1954. Now an amount approximately equal to the savings made in this new budget is being returned to the public in tax reductions and tax revisions. This amount substantially exceeds the estimated budget deficit.

In preparing this budget the administration has directed its attention to essential activities and programs rather than to those which some might consider desirable and appropriate, at this time, for the Federal Government to undertake. It assumes fairly stable conditions, internally and externally, during the period it covers. It allows for the continuing heavy demands of the national security programs on the budget. But as we continue to reduce and eliminate the less desirable or the unnecessary Government expenditures, it will become possible to turn to other purposes which are the most desirable in terms of their benefits to all of the people.

This budget marks the ,beginning of a movement to shift to State and local governments and to private enterprise Federal activities which can be more appropriately and more efficiently carried on in that way. The lending activities of the Reconstruction Finance Corporation; the services provided by the Inland Waterways Corporation; certain agricultural activities; and some aspects of our health, education, and welfare programs are examples of this type of action. In those cases where Federal participation is necessary, the effort of this administration is to develop partnerships rather than an exclusive and often paternalistic position for the Federal Government.

This budget also benefits from material savings from the decreased costs of Federal operations resulting from our constant effort to improve the management of Government activities and to find better and less expensive ways of doing the things which must be done by the Federal Government.

The total effect of the recommendations for the 1955 budget, under existing and proposed legislation, is shown with comparable figures for earlier years in the following table. The table also reflects certain technical adjustments for 1955 and prior years which do not affect the budget surplus or deficit and are described in part II of this message. Both receipts and expenditures include, insofar as can be determined, the estimated budgetary results of my recommendations for new legislation.


[Fiscal years. In billions]

1954 estimated 1

1950 1951 1952 1953 Budget current 1955

actual actual actual actual document estimated

New authority to incur

obligations $49.3 $82.9 $91.4 $80.2 $71.8 $60.7 $56.3


Under existing legislation 36.5 47.5 61.4 64.6 68.0 67.4 61.5

Under proposed legislation .2 1.2

Total receipts 36.5 47.5 61.4 64.6 68.0 67.6 63.7


Under existing legislation 39.6 44.0 65.4 74.0 75.6 70.9 64.5

Under proposed legislation 2.3 (2) 1.1

Total expenditures 39.6 44.0 65.4 74.0 77.9 70.9 65.6

Surplus (+) or deficit (--) --3.1 +3.5 --4.0 --9.4 --9.9 --3.3 --2.9

Cumulative unspent balances

of appropriations at end of

year 3 14.1 3 50.3 68.8 78.7 67.4 66.5 54.1

1 References to 1954 are to the 1954 budget document of January 9, 1953, as presented to the Congress, and to currently revised budget estimates.

2 Less than 50 million dollars.

3 Estimated. Detailed accounting data are not available.

General budget policy.--This administration is dedicated to greater efficiency and economy in meeting the Nation's security requirements and the necessary and valid functions of the Government.

The current estimates of the 1954 budget show that the requests for new appropriations were reduced about 12.5 billion dollars, new obligational authority was reduced more than 11 billion dollars, and expenditures were reduced 7 billion dollars below the totals estimated in the 1954 budget document of the previous administration.

Similar reductions continue in the budget recommended for the fiscal year 1955. Recommended new obligational authority is 4.4 billion dollars less than the current estimate for the fiscal year 1954, 15.5 billion dollars less than recommended for that year in the 1954 budget document, and 23.9 billion dollars less than in 1953. Estimated expenditures for the fiscal year 1955 are 5.3 billion dollars less than the current estimate for the fiscal year 1954, 12.3 billion dollars less than recommended in the 1954 budget document, and 8.4 billion dollars less than in 1953.

Thus, new obligational authority has been reduced 15.5 billion dollars and estimated expenditures have been reduced 12.3 billion dollars since this administration took office.

These reductions justified lower taxes. Without tax reductions, a budget surplus was in sight for the fiscal year 1955.

So that most of the new savings could be passed along to the taxpayers of the Nation as a whole, with beneficial effects on our entire economy, I believed it best to adopt a course leading toward the twin goals of a balanced budget and tax reductions.

The reductions in 1954 expenditures were devoted to reducing the large deficit forecast in the 1954 budget document. The anticipated savings in 1955 budget expenditures already have been reflected in the tax reductions of January 1 of this year and are also reflected in the tax revisions I am recommending in this message.

Together these tax reductions will total nearly 5 billion dollars.

We will still have a budgetary deficit of slightly less than 3 billion dollars for the fiscal year 1955, as now estimated. But we will continue determined efforts for economy to reduce that deficit during the 1955 fiscal year.

Furthermore, despite the loss of cash revenue from the tax reductions and revisions, the total cash transactions of the Government with the public are now estimated to show a small cash surplus for the fiscal year 1955.

Budget totals, fiscal year 1954.--The actual budget deficit for the fiscal year 1953 was 9.4 billion dollars. The budget deficit for the fiscal year 1954, indicated in the 1954 budget document, was 9.9 billion dollars. The current estimates of the budget for that year show a budgetary deficit of 3.3 billion dollars.

Total Government cash transactions with the public include the receipts and Payments of the social security and other trust funds which are not considered part of the budget. In 1953 the excess of cash payments to the public over receipts from the public was 5.3 billion dollars. The 1954 budget document estimated an excess of cash payments of 6.6 billion dollars. Present estimates indicate an excess of cash payments over receipts in 1954 of more than 200 million dollars, a reduction of 6.4 billion dollars in the cash deficit originally estimated.

Budget totals, fiscal year 1955.--The budget for the fiscal year 1955 is estimated to show a deficit of 2.9 billion dollars.



Fiscal year: ( in billions )

1952 $4.0

1953 9.4


As estimated, January 9, 1953 9.9

Revised estimate 3.3

1955 estimate 2.9

The presently estimated deficit for the 1955 fiscal year is in sharp contrast to a deficit forecast made by the Bureau of the Budget prior to transmission to the Congress of the 1954 budget document. This projection of the programs in .existence and contemplated in the 1954 budget document, under the tax laws as they then existed, indicated a deficit for the 1955 fiscal year about five times greater than the deficit now estimated.

Budget receipts and expenditures for the fiscal year 1955 are estimated as follows:

Receipts Expenditures

( in billions )

Under existing legislation $61.5 $64.5

Under proposed legislation 1.2 1.1

Total 62.7 65.6

Budget receipts allow for an estimated loss of revenue, totaling nearly 5 billion dollars, from the tax reduction which took effect January 1 and from the cost of recommended tax revisions, insofar as these will apply to the 1955 fiscal year. On a full-year basis the revenue loss will approach 6 billion dollars.

The total cash transactions of the Government with the public show an estimated excess of receipts from the public over payments to the public of more than 100 million dollars in the fiscal year 1955.

This record of progress toward a balanced budget is the result of a determined and continuous effort to bring the financial affairs of the Government under control.

New obligational authority.--My recommendations for new appropriations and other new obligational authority for the fiscal year 1955 amount to 56.3 billion dollars, a further reduction from the amounts enacted during the last several years.

New obligational


Fiscal year: ( in billions )

1952 $91.4

1953 80.0


As estimated, January 9, 1953 71.8

Revised estimate 60.7

1955, as recommended 56.3

New obligational authority includes new appropriations, additions to borrowing authority, and certain adjustments to the authority of agencies to incur obligations. The above figures are on a comparable basis, reflecting certain adjustments in composition and definition made in this budget, partly to conform to congressional practices. Details are shown in the second part of this message.

The accumulated unexpended balances of prior appropriations as of June 30, 1953, of 78.7 billion dollars, will be reduced to 66.5 billion dollars by June 30, 1954, and to 54.1 billion dollars by June 30, 1955, as now projected.

The lower levels of new obligational authority and of accumulated unexpended balances for 1954 and 1955 lead to less expenditures in these and in future years. In the revision of the 1954 budget and in the 1955 budget the trend clearly is toward a balanced budget.

Budget expenditures.--Total budget expenditures in the fiscal year 1955 are estimated at 65.6 billion dollars.


Fiscal year: (in billions)

1952 $65.4

1953 74.0


As estimated, January 9, 1953 77.9

Revised estimate 70.9

1955 estimate 65.6

Proposed expenditure programs for 1955 fall in three broad categories: national security, major programs relatively uncontrollable under existing and proposed legislation, and all other Government programs.

Expenditures for major national security programs--for the military functions of the Department of Defense, the mutual military program, atomic energy, and stockpiling of strategic materials--dominate the budget and are estimated at 44.9 billion dollars in the fiscal year 1955. This compares with a presently estimated 48.7 billion dollars in 1954 and 50.3 billion dollars in 1953. These amounts are about the same Percentage of total budget expenditures in each of the 3 years.

Closely related to these major security programs are other activities for national security included elsewhere in the budget. Our foreign economic assistance and information programs are particularly essential to deter aggression and strengthen the world forces for peace.

Proposed reductions in major national security expenditures in 1955 represent the largest single element of reduction from the current year's level of expenditures. I emphasize, however, that these savings result from revisions in programs, from shifts in emphasis, from better balanced procurement, and from improved management and operations. Our security is being strengthened--not weakened. Further, while expenditures for some programs in this category will be reduced, others will be increased.

Of the four major national security programs, proposed 1955 expenditures for the Atomic Energy Commission and for the mutual military program will be at the highest levels since the initiation of the two programs.

Within the Department of Defense the fiscal year 1955 expenditures on behalf of our airpower will be the largest since World War II. Allocations of expenditures for our continental defense program will be greater than in any previous year.

Expenditures for stockpiling--the fourth of the principal programs in the major national security category--will be less than in the fiscal year 1954, as a result of approaching fulfillment of stockpile requirements in certain categories and of lower world market prices for materials still required for the stockpile.

Budget expenditures for certain Government activities are, by law, relatively nondiscretionary, and depend largely on factors outside the annual budgetary process. While relatively few in number these represent a large amount of dollars and the budget each year has to provide funds for them. For example, once the laws are placed on the statute books, grants to States for many purposes depend upon the extent to which States take advantage of Federal grant-in-aid programs; veterans' pensions depend upon the number of qualified veteran applicants; farm price supports depend upon the size of crops and the demand for supported commodities; and interest payments on the national debt depend upon the amount of the debt and the rate of interest.

In the fiscal year 1955 it is estimated that budget expenditures of 14.1 billion dollars will be required to support these programs. This amount is about the same as presently estimated for 1954 and almost 800 million dollars less than similar expenditures in the fiscal year 1953.

Budget expenditures for other Government activities, which contain more elements controllable through the budget process, are reduced an estimated 2.2 billion dollars below the fiscal year 1953 and 1.5 billion dollars below the present estimate for 1954. This is a reduction, over the two fiscal years, of about 25 percent in the cost of these numerous day-to-day operations of the Government. These activities cover, in number, a large majority of the items in the budget, although the amount involved is about one-tenth of total budget expenditures.

Some substantial reductions in this category will result from a lessened postal deficit and management and program savings in many other departments. On the other hand, estimated expenditures for the Tennessee Valley Authority, urban development and redevelopment, college housing loans, the National Science Foundation, fish and wildlife resources, the school lunch program, and several other programs of domestic importance will be the largest in our history.

Budget receipts and taxes.--Budget receipts under existing and proposed legislation are estimated to be 62.7 billion dollars in the fiscal year 1955. This is 4.9 billion dollars less than presently estimated 1954 receipts; 1.9 billion dollars less than 1953, and 1.3 billion dollars more than 1952.

Total Government expenditures and taxes are now so high that we must choose our path carefully between inadequate revenues on the one hand and repressive taxation on the other. I am anxious to have taxes reduced as fast as that can be done without building up inflationary deficits. It is the determined purpose of this administration to make further reductions in taxes as rapidly as justified by prospective revenues and reductions in expenditures. The objective will be to return to the people, to spend for themselves and in their own way, the largest possible share of the money that the Government has been spending for them.

The start toward tax reductions is justified only because of success in reducing expenditures and improving the budgetary outlook. That outlook permits me to make some proposals for tax reform and reductions for millions of taxpayers at this time which represent much-needed improvements in our tax system. These proposals are directed toward .removing the most serious tax hardships and tax complications, and reducing the tax barriers to continued economic growth. The proposals will encourage the initiative and investment which stimulate production and productivity and create bigger payrolls and more and better jobs. The details of these proposals are many and represent much cooperative work by the House Ways and Means Committee and its staff and the Treasury Department. In part II of my budget message, I list and describe 25 important tax revisions.

I do not believe that the budgetary situation will permit further reductions of taxes at this time. Hence, I repeat my recommendations of last May that the reductions in the general corporate income tax be deferred for 1 year; that the excise tax rates, scheduled to be reduced on April 1, including those on liquor, tobacco, automobiles, and gasoline, be continued at present rates; and that any adjustments in the other excise taxes be such as to maintain the total yield which we are now receiving from this source.

Debt management.--A sound dollar is the cornerstone of financing policy under this administration. The problem of debt management is not only one of offering securities for cash or refunding which the market will take, but of appraising the economic situation and adapting financing plans to it, so that as far as possible debt management does not contribute to either inflation or deflation.

This means close cooperation with the Federal Reserve System, whose duty it is under the law to administer the money supply, with these same objectives in view.

Nearly three-quarters of the debt we inherited a year ago matures within less than 5 years or is redeemable at the holder's option. Too large a proportion is in the hands of banks. This is the result of financing over a period of years too largely by short term issues at artificially low interest rates maintained by Federal Reserve support. These policies contributed to cheapening the dollar.

A start has been made in lengthening the maturities of the debt, as well as obtaining a wider distribution among individuals and other nonbank investors. In our 1953 debt operations, maturities were lengthened in 5 out of 9 times.

There is every reason to look forward with confidence to this country's ability to put its financial house in better order without serious disruption of credits or markets. The stream of the Nation's savings is huge, larger than ever before; the financial system is sound. With a reasonable assurance of sound money of stable buying power there is no better investment than securities of the United States Government.

The national debt is now close to the legal limit of 275 billion dollars. In view of the wide swings in receipts and expenditures and their unpredictability, it is not prudent to operate the huge business of the United States Government in such a straitjacket as the present debt limit.

These difficulties will become worse as we move forward in the year. We shall be close to the debt limit and our cash balances will be dangerously low on several occasions in the first half of the calendar year.

In the second half of the calendar year, when tax receipts are seasonally low, there will be no way of operating within the present debt limit.

For these reasons, I renew my request to the Congress to raise the debt limit.

Proposed legislation.--Legislative proposals are reflected in separate messages or are included in the appropriate sections of part II of this message.

A summary of the budgetary impact of the legislative program also is given in part II.

In summary, I emphasize that this budget carries out the policy of this administration to move toward reduced taxes and reduced Government spending as rapidly as our national security and well-being will permit.

By using necessity--rather than mere desirability--as the test for our expenditures, we will reduce the share of the national income which is spent by the Government. We are convinced that more progress and sounder progress will be made over the years as the largest possible share of our national income is left with individual citizens to make their own countless decisions as to what they will spend, what they will buy, and what they will save and invest. Government must play a vital role in maintaining economic growth and stability. But I believe that our development, since the early days of the Republic, has been based on the fact that we left a great share of our national income to be used by a provident people with a will to venture. Their actions have stimulated the American genius for creative initiative and thus multiplied our productivity.

This budget proposes that such progressive economic growth will be fostered by continuing emphasis on efficiency and economy in Government, reduced Government expenditures, reduced taxes, and a reduced deficit. The reduced request for new obligational authority promises further that, barring unforeseen circumstances, the budgets I shall recommend in the future will be directed toward the same objectives.



To the Congress of the United States:

This, the second part of my budget message, discusses in considerable detail my recommended program for the Government for the fiscal year 1955.

I now present and describe my legislative proposals for taxes, and summarize my other legislative proposals, indicating their budgetary impact. This is followed by a presentation and discussion of the pertinent details of the budget.


Our whole system of taxation needs revision and overhauling. It has grown haphazardly over many years. The tax system should be completely revised.

Revision of the tax system is needed to make tax burdens fairer for millions of individual taxpayers. It is needed to restore normal incentives for sustained production and economic growth. The country's economy has continued to grow during recent years with artificial support from recurring inflation. This is not a solid foundation for prosperity. We must restore conditions which will permit traditional American initiative and production genius to push on to ever higher standards of living and employment. Among these conditions, a fair tax system with minimum restraints on small and growing businesses is especially important.

I believe that this proposed tax revision is the next important step we should take in casing our tax burdens. After it is completed, further reductions in expenditures can be applied to our two objectives of balancing the budget and reducing tax rates.

A year ago I asked the Secretary of the Treasury to undertake a complete review of the tax system and make recommendations for changes. The Committee on Ways and Means of the House of Representatives had already started constructive examination of the tax laws with the same objectives. Extensive hearings were held by the committee during the late spring and summer.

The proposed revisions are the result of a year's intensive work. The collaboration between congressional and Treasury staffs in the development of a tax revision bill has been very close. It may, I hope, provide a precedent for similar collaboration in other fields of legislation.

I shall not list here all the detailed points developed for the revision of the tax laws. The following recommendations cover the major points.

They will substantially reduce the more glaring inequities, thereby helping vast numbers of our people in their individual tax burdens. They will reduce the more serious restraints on production and economic growth. They will promote investment, which provides new and better methods of production and creates additional payrolls and more jobs.

The revisions will also make the law simpler and surer, with benefits to both taxpayers and the Government. They will in many ways prevent abuses by which some taxpayers now avoid their rightful share of tax burdens by taking unfair advantage of technicalities.

1. Children earning over 600 dollars.--At present, parents cannot claim as a dependent any child who earns over 600 dollars a year. This discourages children in school or college from earning as much as they can to help in their support. I recommend that a parent should be permitted to continue to claim a child as a dependent regardless of the child's earnings if he is under 18 or away from home at school, as long as he is in fact still supported by the parent. Such dependents should, of course, continue to pay their own income tax on earnings above 600 dollars.

2. Heads of families.--At present, a widow or widower with dependent children is denied the full benefit of income-splitting available to married couples. It seems unfair to tax the income of a surviving parent with dependent children at higher rates than were applied to the family income before the death of one of the partners in a marriage. I recommend that widows and widowers with dependent children be allowed to split their income as is now done by married couples.

This same tax treatment should be authorized for single people supporting dependent parents. Furthermore, the present requirement that dependent parents must live with their children for the children to qualify for this tax treatment should be removed. It is often best for elderly people to be able to live in their own homes, and the tax laws should not put a penalty on family arrangements of this sort.

3. Foster children as dependents.--At present, foster children and children in process of adoption may not be claimed as dependents. I recommend that such children be allowed as dependents.

4. Expenses of child care.--Some tax allowance can properly be given for actual costs of providing care for the small children of widows or widowers who have to work outside the home. The same tax privilege should be given to working mothers who, because their husbands are incapacitated, provide the principal support of their families.

5. Medical expenses.--The present tax allowances for unusual medical expenses are too limited to cover the many tragic emergencies which occur in too many families. I recommend that a tax allowance be given for medical expenses in excess of 3 percent of income instead of 5 percent as at present. I recommend further that the present ceiling of 1,250 dollars for a single person with a maximum ceiling of 5,000 dollars for a family should be doubled so that the maximum for a family will be 10,000 dollars. However, to avoid abuses in medical deductions, I recommend that the definition of medical expenses be tightened to exclude both ordinary household supplies and certain indirect travel expenses.

6. Medical insurance and sick benefits for employees.--Insurance and other plans adopted by employers to protect their employees against the risks of sickness should be encouraged by removing the present uncertainties in the tax law. It should be made clear that the employer's share of the costs of providing such protection on a group basis will not be treated as income on which the employee is liable for tax. This principle should be applied to medical and hospital insurance as well as to a full or partial continuation of earnings during a sickness.

There should be no tax discrimination between plans insured with an outside insurance company and those financed directly by the employer. At present, payments received by a person while sick are entirely nontaxable if made under an insured plan. This makes it possible for a person subject to high tax rates to have a much larger net income while on sick leave than while at work. To prevent abuses, I recommend that a limit of 100 dollars a week be placed on tax-free benefits, but this exemption should be extended only to plans meeting certain general standards.

7. Pension and profit-sharing plans for employees.--The conditions for qualification for special tax treatment of employers' pension plans are too involved. Such plans are desirable. I recommend that the rules be simplified and that greater discretion be given in establishing plans for different groups of employees, so long as there is no discrimination in favor of key executives or stockholders.

Under present law, the value of a future pension to a surviving widow or child of an employee is included in the husband's taxable estate, even though the survivors may not live to receive the full benefits and there may be no cash available to pay the tax. I recommend that such value should not be included in an estate but that the survivors continue to pay tax on the pension in the same manner that it was taxed to the person first receiving it.

At the same time, to avoid unfair competition with ordinary taxpaying businesses, I recommend that pension trusts be restricted in the same manner as tax-exempt foundations. They should also be subject to rules in regard to percentage distribution of their assets comparable to those applying to regulated investment companies.

8. Taxation of annuities.--Under the present tax law, a person buying an annuity is taxed on a relatively large part of each payment until his cost is fully recovered, at which time the full amount becomes taxable. The tax rule is so strict that often a person is not likely to get his capital back tax free unless he lives beyond his life expectancy. I recommend that the tax treatment of annuities be determined on the basis of the life expectancy of the person receiving it. This will permit the hundreds of thousands of people who buy annuities to recover their capital free of tax over their life expectancies and will avoid any change in the tax status of an annuity during a person's lifetime.

9. Double taxation of dividends.--At present, business income is taxed to both the corporation as it is earned and to the millions of stockholders as it is paid out in dividends. This double taxation is bad from two standpoints. It is unfair and it discourages investment. I recommend that a start be made in the removal of this double taxation by allowing stockholders a credit against their own income taxes as a partial offset for the corporate tax previously paid. This will promote investment which in turn means business expansion and more production and jobs.

Specifically, I recommend that the credit be allowed on an increasing scale over the next 3 years. For this year, I recommend that a credit of 5 percent be allowed; for 1955, a credit of 10 percent; and, in 1956 and later years, 15 percent. To avoid shifts in the payment dates of corporation dividends, these credits should apply to dividends received after July 31 of each year. To give the full benefit immediately to small stockholders, I recommend that the first 50 dollars of dividends be completely exempted from tax in 1954 and that the first 100 dollars be exempted in 1955 and later years.

10. Estimated returns.--The burden on those required to file estimated tax returns should be reduced by increasing the number of optional ways in which an individual can estimate his tax without being subject to penalty for an underestimate. I recommend also that the penalties resulting from underestimates be simplified by being stated as a 6-percent interest charge on deficiencies.

11. Filing date.--To reduce the burdens of preparing and filing returns in the early months of the year, I recommend that the March 15 filing date for individuals be changed to April 15.

In the taxation of business the same objectives of fairness, simplicity, and reduction of tax barriers to production and normal economic growth are important. The present tax law should be revised on the basis of these standards.

Particular attention should be given in the revision of the law to the problems of small and growing business concerns. I cannot emphasize too strongly the social and economic importance of an environment which will encourage the formation, growth, and continued independent existence of new companies.

12. Depreciation.--A liberalization of the tax treatment of depreciation would have far-reaching effects on all business and be especially helpful in the expansion of small business whether conducted as individual proprietorships, partnerships, or corporations. At present, buildings, equipment, and machinery are usually written off uniformly over their estimated useful lives. The deductions allowed, especially in the early years, are often below the actual depreciation. This discourages long-range investment on which the risks cannot be clearly foreseen. It discourages the early replacement of old equipment with new and improved equipment. And it makes it more difficult to secure financing for capital investment, particularly for small business organizations.

I recommend that the tax treatment of depreciation be substantially changed to reduce these restrictions on new investment, which provides a basis for economic growth, increased production, and improved standards of living. It will help the manufacturer in buying new machinery and the storekeeper in expanding and modernizing his establishment. It will help the farmer get new equipment. All of this means many more jobs.

Specifically, I recommend that business be allowed more freedom in using straight-line depreciation and in selecting other methods of depreciation. Larger depreciation charges should be allowed in the early years of life of property by the use of the declining-balance method of depreciation at rates double those permitted under the straight-line method. Other methods which give larger depreciation in early years should be accepted, so long as they do not produce deductions which exceed those available under the declining-balance method.

The new methods of depreciation should be allowed for all investments in buildings, equipment, and machinery made after January 1, 1954. This would include farm buildings and equipment and new construction of commercial and industrial buildings and rental housing.

Faster depreciation, it should be noted, will merry shift the tax deductions from later to earlier years. It will not increase total deductions. The change should, in fact, increase Government revenues over the years because of the stimulation which it will give to enterprise and expansion.

In addition to the tax treatment of depreciation, which is important for all business, there are other features of the tax law which are of special importance to small business.

13. Research and development expenses.--At present, companies are often not permitted to deduct currently for research or development expenses. This rule is especially burdensome to small concerns because large companies with established research laboratories can usually get immediate deductions. I recommend that all companies be given an option to capitalize or to write off currently their expenses arising from research and development work. Our tradition of initiative and rapid technical improvements must not be hampered by adverse tax rules.

14. Accumulation of earnings.--At present, the penalty tax on excessive accumulations of corporate earnings operates to discourage the growth of small companies which are peculiarly dependent on retained earnings for expansion. The tax in some form is necessary to prevent avoidance of individual taxes by stockholders, but I recommend that the law be changed to make the Government assume the burden of proof that a retention of earnings is unreasonable.

15. Taxation of partnerships.--The tax law applicable to partnerships is complex and uncertain. I recommend that it be simplified and made definite. It should be possible to form partnerships and make changes in them without undue tax complications.

16. Optional tax treatment for certain corporations and partnerships.-Small businesses should be able to operate under whatever form of organization is desirable for their particular circumstances, without incurring unnecessary tax penalties. To secure this result, I recommend that corporations with a small number of active stockholders be given the option to be taxed as partnerships and that certain partnerships be given the option to be taxed as corporations.

17. Corporate reorganizations.--The tax law applicable to reorganizations and recapitalizations of corporations is also complex and uncertain. This part of the law should be simplified and made sufficiently definite to permit people to know in advance the tax consequences of their actions.

The owners of small corporations frequently find it necessary to rearrange their interests in a corporation in anticipation of estate taxes, to secure new capital, or to make stock available for a new management group. I recommend that the tax law permit tax-free rearrangements of stockholders' interests in corporations, so long as no corporate earnings are withdrawn. Such changes will remove some of the tax pressures which force the sale of independent companies to larger corporations. At the same time, the law should be tightened to prevent abuses by which corporate earnings are withdrawn through the issuance and redemption of corporate securities. It should also be amended to avoid abuses through the purchase of corporations to acquire their rights to loss carryovers.

18. Loss carryback.--At present, losses may be carried back and offset against prior earnings for 1 year and carried forward to be offset against future earnings for 5 years. I recommend that the carryback be extended to 2 years. This will benefit established companies which become distressed. The 5-year carryforward should be continued to permit new businesses to offset their early losses against later profits.

19. Soil conservation expenses.--At present, only limited and uncertain tax deductions are allowed for soil conservation expenses on farms. I recommend that such deductions be allowed up to 25 percent of the farmer's gross income.

20. Accounting definitions.--Tax accounting should be brought more nearly in line with accepted business accounting by allowing prepaid income to be taxed as it is earned rather than as it is received, and by allowing reserves to be established for known future expenses.

21. Multiple surtax exemptions, consolidated returns, and intercorporate dividends.--I recommend that the law be tightened to remove abuses from the use of multiple corporations in a single enterprise. I also recommend that the penalty tax on consolidated returns and intercorporate dividends be removed over a 3-year period.

22. Business income from foreign sources.--I recommend that the taxation of income from foreign business investments be modified in several respects. The investment climate and business environment abroad are much more important than our own tax laws in influencing the international flow of capital and business. Nonetheless, our capital and management know-how can be helpful in furthering economic development in other countries, and is desired by many of them. Our tax laws should contain no penalties against United States investment abroad, and within reasonable limits should encourage private investment which should supplant Government economic aid.

Specifically, I recommend the following new provisions in our taxation of business income from foreign sources:

(a) Business income from foreign subsidiaries or from segregated foreign branches which operate and elect to be taxed as subsidiaries should be taxed at a rate 14 percentage points lower than the regular corporate rate. This lower rate of tax should apply only to earnings after January 1, 1954.

(b) The present definition of foreign taxes which may be credited against the United States income tax should be broadened to include any tax other than an income tax which is the principal form of taxation on business in a country, except turnover, general sales or excise taxes, and social security taxes. This country, by its tax laws, should not bring indirect pressure on other countries to adapt their tax systems and rates to ours.

(c) The overall limitation on foreign tax credits should be removed. This limitation discourages companies operating profitably in one foreign country, from starting business in another foreign country where operations at a loss may be expected in the first few years.

(d) Regulated investment companies concentrating on foreign investments should be permitted to pass on to their stockholders the credit for foreign taxes which would be available on direct individual investments.

23. Payment dates of corporation income tax.--Over the past several years, corporation income tax payments have been gradually shifted forward into the first two of the regular quarterly dates. By 1955, the entire tax will be due in two equal installments in March and June.

The irregularity of tax receipts increases the problems in managing the public debt and is an unsettling influence in the money markets. The irregularity of tax payments also may make it harder for corporations to manage their own financing.

I recommend that, beginning in the fall of 1955, a start be made in smoothing out corporation income tax payments by requiring advance payments in September and December before the end of the taxable year. Each of these payments should be made at 5 percent of the amount due for the entire year in 1955, rising to 25 percent each in 1959 and later years.

These advance payments will require estimates of income for the year somewhat comparable to those now required of individuals. Though estimates of profits are difficult to make accurately, no payments will be required before the middle of the ninth month of a business year.

24. Administrative provisions.--The administrative features of the tax laws are unnecessarily complex. Different provisions have been adopted over the years to deal with particular problems, with little regard to consistency. Specifically, I recommend that the parts of the law covering assessments, collections, interest and penalties, the statute of limitations, and other administrative provisions be simplified and brought together in one place. This will result in savings to both taxpayers and the Government.

An effective and fair administration of the tax laws is vital to every individual in the country. The Internal Revenue Service has been revitalized during the past year and is being organized and managed on a basis that will assure fair and equal treatment to all taxpayers, maximum realization of taxes from revenue laws, and the contribution by each taxpayer of the share of the cost of Government that Congress intends that he should make.

The regulations and administration of the tax laws are being tightened to prevent abuses by which a small minority of taxpayers avoid their fair share of taxes by misuse of expense accounts and other improper practices.

25. General simplification of tax laws and other revisions.--The revision of the tax laws should be comprehensive. Many unnecessary complications have developed over the years. The entire Internal Revenue Code needs rewriting and reorganization.

Jointly, the Treasury Department and the staff of the congressional committees have developed many recommendations for changes other than those which I have described here. Some of these relate to the estate and gift tax, and the administrative provisions of the excise taxes.

The review of the present tax system in the Treasury Department has not yet led to final conclusions in many other situations that require further study before any recommendations for change can be properly made. These subjects include the tax treatment of capital gains and losses, the special problems of the oil and mining industries, the tax treatment of cooperatives and organizations which are wholly or partially tax exempt, as well as the provision of retirement income for people not covered by pension plans.

The tax reforms and revisions covered by the foregoing 25 recommendations make the income tax system fairer to individuals and less burdensome on production and continued economic growth. After their adoption, further reductions in Government expenditures will make possible additional reductions in the deficit and tax rates.

I do not believe that the budgetary situation justifies any tax reductions beyond those involved in the proposed tax revision and in the tax changes which occurred on January 1. Accordingly, I repeat my recommendation of last May that the reduction in the general corporate income tax rate be deferred for another year.

Excise taxes provide a relatively small proportion of our total tax revenues. In the fiscal year 1955, they are estimated to produce 10 billion dollars at existing rates as compared with 20 billion dollars from corporation income taxation and 30 billion dollars from individual income taxes. Of this 10 billion dollars, more than half comes from the excise taxes on liquor, tobacco, and gasoline.

Because of the present need for revenue, I recommend that the excise taxes scheduled to be reduced on April 1, including those on liquor, tobacco, automobiles, and gasoline, be continued at present rates; and that any adjustments in the other excise taxes be such as to maintain the total yield which we are now receiving from this source.


The administration has developed a dynamic, progressive, and at the same time wholly practical legislative program. Its major outlines are set forth in the State of the Union Message, which I delivered to the Congress on January 7. Since that date, I have forwarded to the Congress the details of my recommendations with respect to the steps which I believe should be taken: (1) To modernize and make effective our agricultural laws (January 11); (2) to bring up to date and to improve the Labor-Management Relations Act of 1947 (January 11) ; (3) to extend and make more equitable the old-age and survivors insurance system (January 14); (4) to chart a new course in Federal cooperation and support for putting up-to-date medical and hospital care at the disposal of our citizens (January 18). On January 25 I shall present a program which will, for the first time, bring together into a coordinated and forward-looking set of policies the housing and community development programs of the Federal Government. Within a few days thereafter, I expect to make certain recommendations with respect to amendments to the Atomic Energy Act. These are discussed in more detail in subsequent sections of this message.

These measures, together with the legislative proposals which will be presented in the course of the next several months with respect to foreign assistance and trade, are the foundation stones for the legislative program of this administration. All of them call for extensions of existing legislation or the enactment of new legislation. All of them are necessary. They will help us to protect the freedom of our people, to maintain a strong and growing economy, and to concern ourselves with the human problems of the individual citizen.

Keyed to these foundation stones are the other individual measures which I have already recommended or which I shall recommend as soon as the necessary information upon which to base recommendations can be prepared. To some extent these other measures are basically improvements in program and are less precisely definable in terms of new costs attributed to them.



[Fiscal years. In millions]




obligational Estimated

authority expenditures

Function and program


National security:

Military public works, Department of Defense $1,108.0 $100.0

Mutual military program 2,500.0 700.0

International affairs and finance:

Mutual economic and technical cooperation 875.0 300.0

Surplus agricultural commodities disposal 300.0

Contributions to voluntary international programs 135.0 70.0

Agriculture and agricultural resources: Increase in borrowing

authority of the Commodity Credit Corporation 1,750.0

Transportation and communication:

Federal-aid highway program 575.0

Forest highways 22.5

Subtotal, extension of present major programs . 7,265.5 1,170.0


Social security, welfare, and health:

Grants to States for public assistance 108.0 108.0

Expansion of grants for hospital construction 62.6 5.6

Program to stimulate wider coverage and greater benefits

from private health insurance 96.9 1.1

Expansion of vocational rehabilitation services for the

disabled 8.8 7.8

Creation of a National Commission for Health

Improvement. 0.3 0.3

Housing and community development: Advance planning

of local public works 110.0 3.0

Education and general research:

Program to strengthen the Office of Education 0.3 0.3

National Conference on Education 12.0 21.8

Agriculture and agricultural resources: Cooperation with

State and local agencies on watershed protection 3.0 2.4

Natural resources:

Aid for non-Federal development of water resources 10.0 10.0

Federal projects 0.5 0.4

Transportation and communication:

St. Lawrence Seaway 105.0 5.8

Proposed postal rate increases (increased revenue) -240.0 -240.0

Labor and manpower: Expansion of unemployment

compensation coverage: Administrative costs 22.1 22.0

1Recommended for the fiscal year 1954.

2 Includes 1.5 million dollars in the fiscal year 1954.


1955 BUDGET--Continued

[Fiscal years. In millions]




obligational Estimated

Function and program authority expenditures


General government:

Unemployment compensation for Federal civilian

employees $25.0 $25.0

Increase in Federal payment to the District of Columbia 10.0 10.0

District of Columbia public works program 7.0 5.0

Subtotal, new legislative program:

1954 12.0 1.51

1955 148.8 --33.0

Total legislative proposals:

Fiscal year 1954 12.0 1.5

Fiscal year 1955 7,414.3 1,137.0



[In millions]

Function and program

Social security, welfare, and health: 1955

Expansion and improvement of old-age and survivors insurance: estimated

Additional receipts $100.0

Additional disbursements 408.0

Net accumulation in reserve --308.0

Labor and manpower:

Extension of coverage of unemployment insurance:

Additional deposits by States 145.0

Additional withdrawals by States 60.0

Net accumulation in reserve 85.0

To the extent that it has been possible to assess with reasonable accuracy the cost of major measures in the legislative program, estimates have been included in this budget. These estimates are summarized above. One recommendation, the proposed increase in postal rates, would add to Federal revenues. Other minor measures, in themselves too small to be identified in summary tables, are discussed and recommended in respective summary sections and chapters of this budget. Their total cost is small and has been adequately provided for in the reserve for contingencies.


I now present and describe pertinent details of the budget. The figures shown in the budget are careful estimates based on present and foreseeable conditions. Changes in the budget can result from congressional action. Still others can result from economic factors which change the price of goods purchased by the Government or the incomes received and taxes paid by the citizens of the Nation. Changes in international and domestic conditions could alter this budget before the end of the fiscal year 1955.

The presentation of the figures in the budget for the fiscal year 1955 reflects two significant clarifications.

First, the appropriation to the railroad retirement trust fund equal to the taxes under the Railroad Retirement Tax Act has been excluded from the totals of budget expenditures and deducted from the total of budget receipts. This does not affect the budget surplus or deficit, and has been applied to the figures for all the years shown in this budget so that they are on a comparable basis.

This change properly presents an item which has previously overstated both budget receipts and expenditures in an equal amount. The collection of employment taxes on the railroad industry is in effect collections for a trust fund and not for Government operations. Their transfer to the trust fund should be made directly as a deduction from receipts and not shown as a budget expenditure.

The second significant clarifying change in presentation relates to the fact that the budget expenditure totals in the past have understated the scope of the Government's activities in that they included only the net basis of the spending by a number of enterprises which are engaged in business-type operations with the public. In the course of carrying out their functions, each of these public enterprises receives money from its customers or clients--interest and collections on loans or payments for goods delivered or services rendered. By law, most public enterprises may use their receipts and collections to carry on the operations for which they were created. These receipts and collections from the public in the fiscal year 1955 total 11 billion dollars.

The public enterprise activities are carried on through "revolving funds." Some of the enterprises are organized as Government corporations; others, such as the Post Office, are unincorporated.

In the summary tables of previous budgets, the receipts of such funds were subtracted from expenditures and only the difference was reported as a budget expenditure. In those cases where receipts exceeded expenditures for the year a negative figure was included in the summary expenditure tables. While the use of either the gross figures or the net figures produces an identical effect on the budget surplus or deficit, the former method of presenting only net figures in the summary tables did not reveal the full scope of the Government's financial transactions.

When Government agencies engaged in lending activities use their collections on old loans to make new loans, the net expenditure figure fails to disclose the volume of new lending and the new risks involved.

In this budget, the summary tables present the expenditures of the public enterprise funds on both a gross and net basis. The difference reveals the magnitude of receipts from the public in the "revolving funds."


The estimates of budget receipts for the fiscal year 1955 in the following table are in accordance with my recommendations for taxes, and are based upon the continuation of business conditions, personal income, and corporation profits at substantially the present high levels.


[Fiscal years. In millions]

1953 1954 1955

Source actual estimated estimated

Individual income taxes:

Existing legislation 1$32,478 $33,433 $30,908

Proposed legislation 585

Corporation income taxes:

Existing legislation 21,595 22,809 19,694

Proposed legislation 570

Excise taxes:

Existing legislation 9,943 10,038 9,221

Proposed legislation 1 89 1,018

Employment taxes:

Federal Insurance Contributions Act:

Existing legislation 14,086 4,600 5,369

Proposed legislation 100



[Fiscal years. In millions]

1953 1954 1955

Source actual estimated estimated

Employment taxes--Continued

Federal Unemployment Tax Act:

Existing legislation $276 $290 $292

Proposed legislation 16

Railroad Retirement Tax Act 626 640 640

Railroad Unemployment Insurance Act 10

Estate and gift taxes 891 955 955

Customs 613 590 590

Internal revenue not otherwise classified 49

Miscellaneous receipts 1,827 2,313 2,454

Total receipts 72,394 75,857 71,242


Appropriation to Federal old-age and survivors

insurance trust fund:

Existing legislation 4,086 4,600 5,369

Proposed legislation 100

Appropriation to railroad retirement trust fund 625 640 640

Refunds of receipts:

Existing legislation 3,120 2,988 2,644

Proposed legislation --153

Adjustment to daily Treasury statement basis +30

Budget receipts 64,593 67,629 62,642

Budget receipts exclude refunds of overpayments made to taxpayers and also exclude the employment taxes which are appropriated and transferred to the old-age and survivors insurance trust fund and to the railroad retirement trust fund. Since these items are also excluded from budget expenditures, the surplus or deficit is not affected.


New obligational authority represents the total of all new authorizations enacted by the Congress permitting Government agencies to incur financial obligations. In addition to new appropriations, it includes mainly authorizations to enter into contracts prior to the enactment of appropriations, and authorizations to make expenditures from borrowed money.


[Fiscal years. In billions]

1954 estimated


1953 docu- Current 1955 recom-

Major program actual ment1 estimate mended

National security $57.2 $49.1 $39.3 $34.9

Veterans' services and benefits 4.1 4.6 4.2 4.0

International affairs and finance 2.2 1.9 1.2 1.5

Social security, welfare, and health 1.9 1.9 1.9 1.8

Housing and community development 1.5 .7 .6 .2

Education and general research 3 .2 .2 .2

Agriculture and agricultural resources 1.3 1.5 2.3 2.8

Natural resources 1.4 1.4 1.0 1.0

Transportation and communication 1.9 2.1 1.8 1.5

Finance, commerce, and industry .1 .1 .1 (2)

Labor and manpower .3 .3 .3 .3

General government 1.4 1.5 1.1 1.0

Interest 6.6 6.4 6.6 6.9

Reserve for contingencies .1 .1 .2

Total 80.2 71.8 60.7 56.3

1Adjusted for purposes of comparability.

2Less than 50 million dollars.

In prior years, new obligational authority has included all reappropriations. In conformity with congressional procedures, this budget does not include as new obligational authority reappropriations for two large programs, the mutual security program, and the construction program of the Atomic Energy Commission. These are authorized annually but are in effect continuing programs. The resulting reduction in reported new obligational authority is offset by a corresponding increase in the unspent balances of appropriations brought forward from one fiscal year to the next. New obligational authority in this budget also excludes the appropriation equivalent to taxes for the railroad retirement account, which has been discussed elsewhere. These changes are set forth in the following table:


[Fiscal years. In millions]

1954 estimated

1953 Budget 1955

Description actual document Current estimated

New obligational authority, midyear

review basis $81,373 $72,883 $63,981

Deduct reappropriations for:

Mutual security program 447 1,944

Atomic Energy Commission--

construction 65 404 679

Appropriations for railroad

retirement taxes 625 660 640

New obligational authority, present basis. 80,236 71,819 60,718 $56,283

Deduct authorizations other than

current appropriations 7,879 7,504 8,889 9,260

Current appropriations 72,357 64,315 151,829 47,023

1Includes supplemental appropriations estimated in this budget at about 0.5 billion dollars; hence appropriations actually enacted are 51.3 billion dollars.

The Congress enacted increasing amounts of new obligational authority after the beginning of hostilities in Korea in June 1950. This new obligational authority was much greater than the amount of budget expenditures for each year and also greater than budget receipts in each year. Thus it represented commitments for future spending in excess of the revenues then being provided by the tax system.

The estimate of total appropriations and other authorizations for the fiscal year 1954 and, likewise, the total of my recommendations for new obligational authority for the fiscal year 1955 are less than estimated budget expenditures and also less than estimated budget receipts for the corresponding years. This is in direct contrast to the substantial excess of appropriations over revenues in recent prior years. It means we now are reducing the large amount of outstanding unfinanced commitments incurred under past appropriations and are making possible lower future levels of expenditures.

The major national security programs still require the largest part of our new budgetary authorizations. Of the total new obligational authority recommended for the fiscal year 1955, 34.9 billion dollars, or about 62 percent, is for the military functions of the Department of Defense, the atomic energy program, the mutual military program with our allied nations of the free world, and the stockpiling of strategic and critical materials.

In the detailed review which the appropriations committees and the Congress make of the operations of each agency and its budget proposals before enacting new obligational authority it is necessary to have the budget proposals set forth separately for each agency. Part II of the 1955 budget document is organized on such a basis. It presents summary and detailed information on my recommended appropriations for each agency. The individual appropriations are supported by schedules which reconcile the amount of the appropriation recommended with the obligations which are expected to be incurred. The obligation figures are reconciled with the estimated expenditures. The activities carried on within the appropriations and the workloads involved are also described for individual appropriations.

This grouping of the budget proposals by agencies, as contrasted with grouping by program or function principally employed in the budget summaries, is not only required for congressional action but is also the essential presentation for those of our citizens who are interested in following the progress of the budget proposals in the Congress.

The following table is derived from part II of the 1955 budget document. It shows that the new obligational authority I am recommending for the fiscal year 1955 is 56.3 billion dollars. This is 35. 1 billion dollars less than the highest post-Korean amount of 91.4 billion dollars enacted for the fiscal year 1952. It is 15.5 billion dollars less than the amount recommended to Congress for the fiscal year 1954, in the budget document dated January 9, 1953, and 4.4 billion dollars less than the currently revised estimate for the fiscal year 1954.


In some cases, a considerable time period elapses between the enactment of an appropriation and the expenditure of all the Federal funds appropriated. For example, several years may elapse between the time a contract is negotiated pursuant to an appropriation for aircraft or other heavy military equipment and the time all the equipment ordered has been delivered and paid for by the Government. Thus many of the expenditures being made by the Government in the fiscal years 1954 and 1955 result from obligational authority enacted and from contracts negotiated in prior years.


[Fiscal years. In millions]

1954 estimated

Budget Current 1955 recom-

Agency 1953 actual document1 estimate mended

Legislative branch $76 $85 $83 $67

The Judiciary 28 29 29 30

Executive Office of the President 9 8 9 9

Funds appropriated to the President 1,908 1,532 932 1,185

Independent offices:

Atomic Energy Commission 4,079 1,593 1,042 1,366

Veterans Administration 4,191 4,554 4,273 3,893

Other 1,050 1,134 665 592

General Services Administration 317 395 163 155

Housing and Home Finance Agency 1,357 506 454 85

Department of Agriculture 1,510 1,659 2,499 2,935

Department of Commerce 911 1,078 982 973

Department of Defense:

Military functions 48,776 41,319 34,495 30,993

Mutual military program 4,236 6,119 3,800 2,500

Civil functions 598 688 505 580

Department of Health, Education, and

Welfare 1,934 1,773 1,863 1,806

Department of the Interior 590 664 499 488

Department of Justice 173 187 179 178

Department of Labor 295 332 299 388

Post Office Department (general fund) 660 669 439 89

Department of State 241 332 142 969

Treasury Department 7,279 7,101 7,250 7,471

District of Columbia (general fund) 18 12 16 31

Reserve for contingencies 50 100 200

Total 80,236 71,819 60,718 56,283

1Adjusted for purposes of comparability except for reorganization transfers.

During the fiscal year 1955, it is estimated that 45 percent of total budget expenditures will be from obligations incurred under appropriations and other authorizations enacted in years before 1955, and 55 percent will be from the new obligational authority I am recommending for 1955.

The reductions in appropriations that were made last year and the further reductions I am recommending for the fiscal year 1955 decrease the accumulated backlog of outstanding commitments which lead to later budget expenditures. Balances of appropriations unexpended at the end of the year and still available for expenditure during the next year are shown in the following table for each fiscal year since 1950. The amounts shown have been modified to reflect related technical changes in handling reappropriation items (see pp. 106-107) and to restrict unexpended balances to items of appropriations, excluding, for example, public debt authorizations. For the most part, these appropriation balances have been obligated or committed, but the expenditures take place one or more fiscal years after the enactment of the appropriation.


[In billions]


brought Amount

forward into carried over

Fiscal year the year to next year

1950 1 $11.5 1 $14.1

1951 1 14.1 1 50.3

1952 1 50.3 68.8

1953 68.8 78.7

1954 estimated 78.7 66.5

1955 estimated 66.5 54.1

1Estimated. Detailed accounting data not available.


Budget expenditures in the fiscal year 1955 are estimated at 65.6 billion dollars, a reduction of 5.3 billion dollars from the revised estimate of the fiscal year 1954 expenditures, a reduction of 12.3 billion dollars from the expenditures estimated in the 1954 budget document, and a reduction of 8.4 billion dollars from actual expenditures in the fiscal year 1953.

As mentioned earlier, the summary tables in the budget have been made more revealing by the presentation of expenditures of public enterprises on both a gross and a net basis. The difference between the gross and net figures reveals the magnitude of the receipts and collections of the "revolving funds" which are used for making new loans and other expenditures.

In the summary tables of this budget, these receipts are labeled "applicable receipts of public enterprise funds." The table on the following page shows both gross and net figures for the fiscal year 1955, compared with net figures (on the old basis) for 1954 and 1953.


[Fiscal years. In millions]

1955 estimated 1954 estimated 1953 actual

Applicable Budget expenditures

receipts of Budget (net) Budget

public expendi- expendi-

Gross ex- enterprise tures Budget Current tures

Major program penditures funds (net) document estimate (net)

National security $44,860 (1) $44,860 $54,700 $48,720 $50,274

Veterans' services and

benefits 4,223 $31 4,192 4,564 4,160 4,298

International affairs and

finance 1,885 635 1,250 2,161 1,779 2,216

Social security, welfare,

and health 1,807 (1) 1,807 1,919 1,947 1,910

Housing and community

development 1,903 2,180 --277 509 57 549

Education and general

research 223 223 288 278 277

Agriculture and agricul-

tural resources 6,752 4,386 2,366 1,827 2,654 2,936

Natural resources 1,337 234 1,103 1,381 1,172 1,358

Transportation and

communication 4,277 2,859 1,418 2,111 1,856 2,077

Finance, commerce, and

industry 917 755 162 150 164 76

Labor and manpower 282 1 281 303 265 281

General government 1,164 4 1,160 1,554 1,175 1,439

Interest 6,875 6,875 6,420 6,600 6,583

Reserve for contingen-

cies 150 150 40 75

Adjustment to daily

Treasury statement

basis --292

Total 76,655 11,085 65,570 77,927 70,902 73,982

1Less than 500,000 dollars.

The fuller presentation in the summary tables does not have any effect on the budget surplus or deficit, or upon the changes in the public debt. Nor does it indicate any new method of financing these Government-owned enterprises. However, it does give a more complete disclosure of the Government's financial transactions with the general public.

As indicated in the preceding table, the term "budget expenditures" refers to the net expenditure figures. The term "gross expenditures" will be used wherever the activities of public enterprises are discussed on a gross basis. The table which follows shows the gross figures for all 3 years, reduced to the older net basis by a single deduction for each year at the bottom of the table.


[Fiscal years. In millions]

1954 estimated

1953 Budget Current 1955

Major program actual document estimate estimated

National security $50,274 $54,700 $48,721 $44,860

Veterans' services and benefits 4,327 4,590 4,190 4,223

International affairs and finance 2,656 2,604 2,249 1,885

Social security, welfare, and health 1,910 1,921 1,947 1,807

Housing and community development 2,118 1,696 2,357 1,903

Education and general research 277 288 278 223

Agriculture and agricultural resources 6,448 6,362 8,087 6,752

Natural resources 1,499 1,568 1,349 1,337

Transportation and communication 4,474 4,570 4,446 4,277

Finance, commerce, and industry 1,205 897 1,151 917

Labor and manpower 284 306 267 282

General government 1,444 1,558 1,178 1,164

Interest 6,583 6,420 6,600 6,875

Reserve for contingencies 40 75 150

Adjustment to daily Treasury statement

basis --292

Subtotal 83,207 87,520 82,895 76,655

Deduct applicable receipts of public

enterprise funds 9,225 9,593 11,993 11,085

Budget expenditures (net) 73,982 77,927 70,902 65,570

The figures for gross expenditures in this and related tables are derived from the detailed accounts of each Government agency contained in part II of the 1955 budget document. On this basis, both the gross expenditures and the applicable receipts include some transactions relating to private bank loans guaranteed by the Commodity Credit Corporation and by the Export-Import Bank which involve no use of governmental funds. These amounts are:


[Fiscal years. In millions]

1954 estimated

1953 Budget Current 1955

Program and agency actual document estimate estimated

International affairs and finance: Export-

Import Bank $4 $5 $82 $188

Agriculture and agricultural resources:

Commodity Credit Corporation 340 383 1,564 274

In the sections of this message discussing international affairs and agriculture, these figures are excluded from the totals to make them comparable to the basis used in other public enterprise accounts. This has no effect on net budget expenditures.

My recommendations for each of the major programs of Government listed in the above tables are discussed in detail later in this message. Budget expenditures by agency are described in detail in part II of the 1955 budget document, and are summarized in the table on the following page.

The analysis on page 115 shows that budget expenditures for the national security program and for those items which are relatively fixed under provisions of existing and proposed legislation amount to an estimated 59 billion dollars in the fiscal year 1955, 90 percent of all budget expenditures.

The remaining "all other," 6.6 billion dollars, or 10 percent of the total, include some items related to the first two categories. For example, those related to our national security effort are the international programs for economic development, the Selective Service System, and civil defense. Examples of programs which are partly controllable through the budgetary process are the mortgage purchases of the Federal National Mortgage Association and a few relatively small grant-in-aid programs. The bulk of this category is made up of expenditures for the day-to-day operations of the Government, such as law enforcement and administration, tax collection, the various regulatory agencies, the administration of other services rendered to the public, and the cost of direct civil public works.


[Fiscal years. In millions]

1955 estimated

Appli- 1954 estimated 1953

cable re- actual

ceipts of Budget expenditures

public Budget (net) Budget

enter- expendi- expendi-

Gross ex- prise tures Budget Current tures

Agency penditures funds (net) document1 estimate (net)

Legislative branch $66 $66 $70 $63 $61

The Judiciary 30 30 28 29 27

Executive Office of the

President 9 9 8 10 9

Funds appropriated to the

President 1,622 $242 1,380 1,956 1,702 1,828

Independent Offices:

Atomic Energy Commission 2,425 (2) 2, 425 2,700 2, 200 1 791

Veterans Administration 4,235 70 4,165 4,494 4,190 4,334

Other 3,795 3,317 478 979 520 830

General Services

Administration 753 2 751 1,126 936 1,107

Housing and Home Finance

Agency 1,712 2,097 --385 380 -- 103 385

Department of Agriculture 4,760 2,263 2,497 2,031 2,945 3,217

Department of Commerce 1,028 49 979 1,031 1,080 1,063

Department of Defense:

Military functions 37,575 (2) 37,575 45,500 41,550 43,610

Mutual military program 4,275 4,275 5,700 4,200 3,954

Civil functions 654 114 540 640 617 813

Department of Health,

Education, and Welfare 1,789 2 1,787 1,904 1,949 1,920

Department of the Interior 562 34 528 659 549 587

Department of Justice 176 176 184 184 171

Department of Labor 362 1 361 321 299 300

Post Office Department (general

fund) 2,775 2,686 89 669 440 659

Department of State 214 214 317 159 271

Treasury Department 7,653 208 7,445 7,178 7,292 7,325

District of Columbia (Federal

contribution) 35 35 12 16 12

Reserve for contingencies 150 150 40 75

Adjustment to daily Treasury

statement basis --292

Total 76,655 11,085 65,570 77,927 70,902 73,982

1 Adjusted for purposes of comparability except for reorganization transfers.

2 Less than 500,000 dollars.

The record of budget expenditures since the outbreak of aggression in Korea in June 1950 shows considerable variation in the relative changes from year to year in the three major categories shown. While expenditures for national security have risen markedly and those for uncontrollable major programs have fluctuated within rather narrow limits, Government spending in all other categories has been steadily declining.


[Fiscal years. In millions]

1954 estimated

1953 Budget Current 1955

Description actual document estimate estimated

National security program $50,274 $54,700 $48,720 $44, 860

Relatively uncontrollable major programs

under existing and proposed


Legislative and the Judiciary 88 98 92 96

Interest on public debt and refunds 6, 583 6, 420 6, 600 6, 875

Claims and judgments 129 65 148 135

Veterans' compensation, pension, and

benefit programs 3, 383 3, 524 3, 232 3, 244

Payments to employees' retirement

funds 324 430 34 32

Payments to Railroad Retirement Fund

for military service credits 33 35 35

Grants to States for public assistance 1,330 1,340 1,389 1,293

Grants to States for unemployment

compensation and employment service

administration 202 208 190 205

Veterans' unemployment

compensation 26 47 40 61

Unemployment compensation for

Federal employees 25

Federal-aid highway grants 509 540 541 555

Conservation of agricultural land

resources 273 254 225 196

Removal of surplus agricultural

commodities 82 75 205 233

Agriculture price support 1,943 729 1,404 1,165

Total 14,905 13,765 14,135 14,115

All other 8,803 9,462 8,047 6,595

Net budget expenditures 73,982 77,927 70,902 65,570


[Fiscal years. In billions]

1950 1951 1952 1953 1954 1955

Description actual actual actual actual estimated estimated

National security program $13.0 $22.3 $43.8 $50.3 $48.7 $44.9

Relatively uncontrollable major

programs 15.6 12.1 12.3 14.9 14.1 14.1

All other 11.0 9.6 9.3 8.8 8.1 6.6

Total 39.6 44.0 65.4 74.0 70.9 65. 6


Budget receipts, expenditures, and the budget surplus or deficit reflect transactions of funds which belong to the Federal Government. There are many other financial transactions of the Federal Government which involve funds the Government holds in trust for others, such as the social security trust funds. The transactions of these trust funds are shown separately in part III of the 1955 budget document. They are not included in the budget totals of receipts and expenditures. As a rule, the trust funds are now building up accumulations; that is, as they build reserves for future liabilities, they are currently taking in more money than they pay out.

By consolidating the trust funds with the budget transactions, and by eliminating intragovernmental and certain noncash transactions, it is possible to obtain a measure of the flow of money between the Federal Government as a whole and the public.


[Fiscal years. In millions]

1954 estimated

Budget Current 1955

1953 actual document estimate estimated

Cash receipts from the public $71,282 $75,150 $74,932 $70,842

Cash payments to the public 76,554 81,797 75,166 70,727

Excess of cash receipts 115

Excess of cash payments 5, 272 6,647 234

The trust funds of our social security system reflect the increase in rate provided under existing law and the expected increase in payments resulting from proposed legislation increasing the coverage and benefits.

If the automatic increase in rate had taken place with no recommendation for increased coverage and benefits, the excess of cash receipts over payments estimated for the fiscal year 1955 would have been a greater amount.


This budget is based on a new concept for planning and financing our national security program, which was partially applied in the budget revision recommended last spring for the fiscal year 1954. Our military planning in previous years had been based on several successive assumed fixed dates of maximum danger, which were extended from time to time with procurement and personnel plans focused to achieve maximum readiness by each such date. This budget is aimed instead at providing a strong military position which can be maintained over the extended period of uneasy peace.

It points toward the creation, maintenance, and full exploitation of modern airpower. Our military planners and those of the other nations of the free world agree as to the importance of airpower. But air forces must be complemented with land forces, amphibious forces, antisubmarine warfare forces, and fighting ships. The added emphasis on airpower complements our plans for improving continental defense against possible enemy attack. We expect to continue to improve the combat effectiveness of our forces by the application of new weapons and new techniques, and ultimately achieve far greater flexibility than heretofore attainable. The reassembly of our strategic reserve forces will be as dictated by world conditions and the forces kept in a high state of readiness to cope with any possible acts of aggression. This budget aims toward building to a maximum effectiveness all of this complex of military strength. It provides greater expenditures for airpower in the fiscal year 1955 than in any year since the close of World War II. The reorientation of our defense strategy makes this possible within a lower level of total expenditures for national security.

With the shift in emphasis to the full exploitation of airpower and modern weapons, we are in a position to support strong national security programs over an indefinite period with less of a drain on our manpower, material, and financial resources.

Today there is a truce in Korea. After 3 years of hostilities, we are now in the first year of an armed peace. But we are a long way from achieving the kind of peace that is our goal. As long as the Communist threat to the free world exists, we must plan to maintain effective military strength in close cooperation with the other nations of the free world.

Our basic security objective is to prevent another outbreak of aggression. We must create the necessary deterrent to any possible aggressor by maintaining a strong military position at home and abroad. To do this takes determination, human and material resources, and careful planning.

The national security section of the budget includes not only the military functions of the Department of Defense, but also the mutual military program, the development of atomic energy, and the stockpiling of strategic and critical materials. These four major programs are related and designed for the basic purpose of our security. They complement each other and must be assessed in conjunction with the long-range planning which underlies the fiscal and legislative programs of this administration.

The previous history of our military budgets has been one of feast or famine, depending upon the state of world affairs. In peacetime, appropriations have customarily been much reduced. In wartime, financial considerations have been largely ignored. Our present budgetary plans represent a departure from these practices. They provide for the continued maintenance of a strong military force which is within the financial capability of a sound economy. We cannot afford to build military strength by sacrificing economic strength. We must keep strong in all respects.

It will be noted from the table on pages 120-121 that expenditures for the Department of Defense and the stockpiling program have been reduced in the fiscal year 1954 and I am recommending a further reduction for the fiscal year 1955. The reduction in the total Department of Defense expenditures will be effected despite the fact that expenditures for aircraft, shipbuilding, electronics, guided missiles, construction, research and development, and many other defense programs will continue at close to record peacetime levels. I am also recommending some increased expenditures in the fiscal year 1955 for the mutual military program and for atomic energy which will bring expenditures for these two programs to record levels. Nevertheless total spending for national security is estimated to decline about 1.6 billion dollars from the fiscal year 1953 to 1954, and an additional 3.9 billion dollars from 1954 to 1955.

This decline in national security expenditures reflects the dynamic long-range plan recommended by the Joint Chiefs of Staff for our military forces, the savings resulting from the economies effected by this administration, the cessation of hostilities in Korea, and the decrease in procurement--particularly with respect to vehicles, ammunition, and soft goods-made possible by the improved supplies and materiel position.

The defense team, both military and civilian, is working hard toward improvement of the organization, procedures, and methods of the entire Defense Establishment. Already much progress has been made. The Office of the Secretary of Defense has been reorganized, and the administrative structures of the three military departments are under review, with the purpose of making Secretaries of these departments truly responsible administrators and establishing clearer lines of responsibility within this concept. This will help in achieving the maximum economies that can be realized through improved management and administration.

Considerable progress has been made in standardizing military procurement, and it is planned to reduce sharply the present approximately 4 million different procurement items. This alone will ultimately save hundreds of millions of dollars in procurement, warehousing, and distribution costs. The adoption of commercial maintenance practices for aircraft, vehicles, and other equipment is currently saving millions of dollars.

Better transportation methods are being worked out which will produce additional economies. Savings are also being effected in personnel, procurement, and supply activities. Through these and similar economy programs, more defense for the taxpayers' dollar will be realized.

Consistent with these plans for a sustained military capability at the lowest possible cost is an integrated plan of continental and civil defense. Such planning is necessary in order to hold our civilian losses from possible enemy attack to a minimum.

Last summer I told the American people that "the Soviets now have the capability of atomic attack upon us, and such capability will increase with the passage of time." I made this statement shortly alter it was established that the Soviet Union had successfully detonated a thermonuclear device which, if successfully converted into an offensive weapon and if exploded over our American cities, would be capable of effecting unprecedented destruction.

The administration has taken a number of actions to deal with this serious prospect. Funds are included in the Department of Defense budget to expand the system of continental defense which coordinates the actions of our radar outposts and our air, naval, and land forces. It will provide improved early warning of enemy attack and the men and equipment to resist any such attack. Expenditures for continental defense in the fiscal year 1955 are expected to be greater than ever before in our history.

This budget reflects a new concept of civil defense which takes account of the destructive threat of modern weapons and which emphasizes improved warning of impending attack and planning for the dispersal of populations of potential target cities in advance of enemy attack.


[Fiscal years. In millions]


1950 1951 1952 1953 1954 1955

Item actual actual actual actual estimated estimated

Gross expenditures:

Direction and coordination

of defense $10 $12 $13 $15 $12 $13

Other central defense

activities 199 353 379 394 438 562

Army defense 3,983 7,469 15,635 16,242 14,200 10,198

Navy defense 4,100 5,582 10,162 11,874 11,300 10,493

Air Force defense 3,600 6,349 12,709 15,085 15,600 16,209

Proposed legislation 100


of Defense 11,892 19,765 38,898 43,610 41,550 37,575

Mutual military program:

Present programs 130 991 2,442 3,954 4,200 3,575

Proposed legislation 700

Development and control of

atomic energy 550 897 1,670 1,791 2,200 2,425

Stockpiling of strategic and

critical materials 438 654 837 919 770 585

Total 13,010 22,307 43,847 50,274 48,720 44,860

Deduct applicable receipts (1) (1) (1) ( 1 ) (1) (1)

Net budget expenditures 13,010 22,307 43,847 50,274 48,720 44,860

1 Less than 500,000 dollars.


[Fiscal years. In millions]

New obligational authority

1950 1951 1952 1953 1954 1955 rec-

Item actual actual actual actual estimated ommended

Direction and coordination of

defense $11 $12 $14 $15 $13 $13

Other central defense activities 180 432 419 400 762 548

Army defense 4,392 19,588 21,354 15,221 12,777 8,236

Navy defense 4,359 12,484 16,220 12,689 9,526 9,882

Air Force defense 5,428 15,203 22,375 20,451 11,417 11,206

Proposed legislation 1,108

Subtotal--Department of

Defense 14,370 47,719 60,382 48,776 34,495 30,993

Mutual military program:

Present programs 1,359 5,222 5,291 4,236 3,800

Proposed legislation 2,500

Development and control of

atomic energy 794 1,919 1,266 4,079 1,043 1,366

Stockpiling of strategic and

critical materials 425 2,910 579 134

Total new obligational

authority 16,948 57,770 67,518 57,225 39,338 34,859

Much planning, organization, and training remains to be done, however, to make this strategy of civil defense fully effective at all levels of government. It will be the Federal responsibility, as reflected in this budget, to provide warning of impending attacks, and to stockpile medical supplies. The Federal Government will not assume the responsibilities which belong to local governments and volunteer forces, but will supplement State and local resources, provide necessary information on weapons effects, and advise and assist States and localities.

Many activities throughout the budget are related, directly and indirectly, to the national security. They are not all classified as national security for many reasons. Civil defense is one of these activities. The major part of continental defense is in the military budget, but, because of the community aspect of the civil defense program, funds for it are included as heretofore in the section on housing and community development.

Department of Defense.--The total of the first six items listed in the preceding table indicates the portion of our national security expenditures which is used for the direct support of our military forces. For these items the budget recommends 31.0 billion dollars of new obligational authority and estimates expenditures of 37.6 billion dollars in the fiscal year 1955. These expenditures are 4.0 billion dollars less than the amount now estimated for 1954. The revised estimate for 1954 is 2.1 billion dollars less than the actual spending in 1953--in marked contrast with the expectation in the budget document of January 9, 1953, that such expenditures in the fiscal year 1954 would exceed those in 1953.

The changing military situation following the sudden attack on Korea brought unbalanced programs and uncoordinated financing during the fiscal years 1951 to 1953. Steps have been, and will continue to be, taken by this administration to bring these factors into balance. One result has been the elimination of the previously forecast increase in expenditures in 1954. Because of the long lead-time needed to procure military equipment, the expenditures have not come down to the level of the new obligational authority. In 1954, with new obligational authority of 34.5 billion dollars, the expenditures are estimated to be 41.6 billion dollars. Likewise, in 1955, though I am recommending 31 billion dollars in new obligational authority, the expenditures are estimated at 37.6 billion dollars.

At the outbreak of hostilities in Korea we had about 1.5 million men under arms. The Korean fighting and general defense buildup brought this figure up to an average of 2.4 million in the fiscal year 1951 to an average of 3.5 million in fiscal year 1952 and a peak strength of 3.7 million in the last quarter of that fiscal year; and to an average of 3.6 million in fiscal year 1953.

Recently, I announced our plan to withdraw two Army divisions from Korea and return them to the United States as an initial step in the progressive reduction of United States ground forces in Korea. This withdrawal is made possible by the cessation of hostilities, the increased mobility and striking power of our air and other combat forces, and by the increasing capabilities of the Republic of Korea forces. This action does not impair our readiness and capacity to oppose any possible renewal of Communist aggression with even greater effect than heretofore if this should be necessary. United States military forces in the Far East will be maintained at appropriate levels, with emphasis on highly mobile naval, air, and amphibious units. Funds are provided to the Department of Defense in this budget for the continued support of Republic of Korea forces at a high level of effectiveness.

As the striking power of our combat forces is progressively increased by the application of technological advances and the growth of airpower, the number of military personnel is being reduced. Total military personnel is scheduled to be reduced from the present level of more than 3.4 million to approximately 3.3 million by June 30, 1954, and a little over 3 million by June 30, 1955. On this basis, this budget provides for an average of 3.2 million military personnel during the fiscal year 1955, compared with an average of 3.4 million during the fiscal year 1954.

The efficiency of our combat forces is contingent upon having experienced, well-trained career personnel. In the State of the Union Message I indicated that pay alone will not retain in the Armed Forces, in competition with industry, the necessary proportion of long-term personnel. We must provide a more generous use of other benefits important to service morale.

Under the long-range plan recommended by the Joint Chiefs of Staff, the number of Army divisions may be less than those currently organized, but increased mobility and the availability of modern weapons will provide each division with increasingly greater striking power. As part of the program to improve continental defense, the number of guided missile antiaircraft battalions will be increased substantially.

At the present time, the Air Force, Navy, and Marine air forces have a total active inventory of approximately 33,000 aircraft, of which approximately one-third are jet aircraft. The emphasis on airpower is reflected in the objective of increasing the active aircraft inventory to more than 40,000 during the next 3 years, with more than half of these aircraft to be jets. At that time the Air Force will have 137 wings--of which 126 will be combat wings--augmented by appropriate combat support units. Naval airpower will include 16 carrier air groups and 15 antisubmarine warfare squadrons, while the Marines will maintain 3 Marine air wings. In each case, these units will be supplemented by appropriate combat support units.

The Navy, in addition to increasing its effective air strength, will continue to modernize the fleet, with emphasis on the combatant elements. The Marine Corps will maintain three combat-ready divisions.

The military plan for forces to be maintained in the fiscal year 1955 permits a reduction of approximately 600 million dollars in the expenditures required for military pay, allowances, and other direct military personnel costs. Operation and maintenance--sometimes called housekeeping--is being held to a minimum, and expenditures in this area will be reduced.

Major procurement expenditures as a whole will decline by about 15 percent from 1954 levels, but the 14.5 billion dollars expected to be spent for this purpose will still be almost four times as great as the amount spent during the fiscal year 1951--the first year of buildup following the attack in Korea. Because the capital investment will already have been made for much new equipment and for a considerable portion of the desired mobilization reserve of materiel and supplies, expenditures for vehicles, ammunition, production equipment, and some other major equipment items will be lower in 1955. The accumulation of mobilization reserves is being scheduled over an extended period of time, with a view toward keeping production facilities of key military items in continued production. Provision of capital equipment and modernization of aircraft will continue at a rapid pace in 1955, and expenditures for aircraft procurement for the Air Force and naval aviation will be at the same general level as in 1954. Aircraft procurement expenditures will account for 22 percent of total Department of Defense expenditures in 1955, compared with 20 percent in 1954, 17 percent in 1953, and 13 percent in 1952. Shipbuilding expenditures will continue at approximately the same level as in 1954, but the new obligational authority I am recommending will provide for a slightly higher level of shipbuilding in the years immediately ahead in order to meet the problem of "block obsolescence" of the fleet, a major portion of which was built during World War II.

Expenditures for military public works in the fiscal year 1955 will be maintained at the 1954 level, as work progresses on air bases, antiaircraft and radar sites, and other necessary installations. Expenditures for reserve components are expected to increase by about 20 percent as the buildup of a vigorous reserve program continues. Research and development will continue at a high level.

The following table shows, by major cost category, the elements making up the Department of Defense budget.


[Fiscal years. In millions]

New obli-


Budget expenditures authority

19501 1951 1952 1953 1954 1955 1955

Cost category actual actual actual actual estimated estimated estimated


personnel $7,148 $11,152 $11,556 $10,910 $10,335 $10,673

Operation and

maintenance 6,444 11,855 10,335 8,979 8,769 9,107

Major procure-

ment and

production (3,976) (11,478) (17,123) (17,273) (14,546) (7,303)

Aircraft 2,412 4,888 7,416 8,425 8,310 4, 399

Ships 381 624 1,191 1,005 990 1,150

Other 1,183 5,966 8,516 7,843 5,246 1,754

Military public

works 439 1,819 1,913 1,687 1,650 1,109


components 537 476 521 560 675 710

Research and

development 758 1,163 1,412 1,425 1,350 1,352


wide activities 621 656 666 735 740 739

Working capital


funds --158 299 84 --19 --490

Total $11,892 19,765 38,898 43,610 41,550 37,575 30,993

1 Detail not available.

Mutual military program.--Because our own national security is vitally dependent on the continued strength of our allies throughout the free world, we have undertaken over the past several years to assist them in building the military forces necessary to deter Communist aggression from without or subversion from within. Since the beginning of the mutual defense assistance program in fiscal year 1950, when the armed strength of the free world was at low ebb, 18 billion dollars have been made available to furnish military equipment and training to friendly nations. More than half of this amount will have been spent by the end of the fiscal year 1954. This assistance, combined with their own resources, enables our allies and friends to equip and train an equivalent of 175 army divisions, about 220 air force squadrons, nearly 1,500 naval aircraft, over 440 naval vessels, and related combat and logistic units to back up these forces.

These friendly forces located in key strategic areas for the defense of the free world are largely supported by the countries themselves. In addition, substantial forces are exclusively supported by our allies. Without all of these forces the United States would be faced with a potential defense burden so costly that it could well sap the economic vitality of our Nation. These forces constitute an integral part of the military strength of the free world.

Since the mutual military program is so closely integrated with our own military plans and program, it is shown this year in the defense chapter of part II of the budget, and is discussed here as part of our national security program. Because the mutual military program is also an integral part of our foreign policy, the Secretary of Defense will continue to carry out his responsibilities for the mutual military program under the foreign policy guidance of the Secretary of State and within the terms of the mutual security legislation passed by the Congress.

In this budget, mutual military program funds are shown under the new obligational authority of the Department of Defense. However, this arrangement is being reviewed and my recommendations will be set forth in connection with the authorizing legislation I shall recommend to the Congress. This authorizing legislation should permit adjustments in the composition of our aid programs to meet changing needs due to new international developments. It is therefore essential that the Congress maintain the present Presidential powers of transferability of all foreign assistance funds, whether for military, technical, or economic assistance.

The recent Paris meeting of the North Atlantic Treaty Organization set realistic force goals for the 14 member nations, which will provide for a substantial increase in the defensive strength of NATO. The mutual military program provides the bulk of the initial equipment and certain mobilization reserves needed to meet these new goals. Meanwhile, our allies are themselves carrying heavy burdens. Their military budgets during the period of this program exceed by many times the value of the equipment we have so far delivered. They have expressed their determination to continue their efforts at high levels.

Despite the progress which NATO has made, we are nevertheless faced with a serious need to achieve the unity in Europe which is necessary for strength and security in the North Atlantic area. As is well known, the treaty constituting the European Defense Community is not as yet in effect. It is not necessary for me to dwell on the reasons why the EDC is urgently needed. However, I am convinced that the Europeans who must decide on this essential next step toward building a European community are fully aware of what is at stake and will in the near future reach their decisions.

NATO is engaged in a reappraisal of strategy and tactics to reflect the prospective availability of atomic and other new weapons. These studies, to be meaningful, require the dissemination of certain information regarding atomic weapons to NATO commanders. This will have a significant impact on NATO planning and provide a greater measure of security for all. I shall recommend that the Congress amend the Atomic Energy Act to permit us to disseminate classified information to our allies with regard to the tactical use of atomic weapons. This, of course, would be accomplished under stringent security regulations. It is essential that action on this matter be taken by the Congress during the current session.

In Indochina, where the French Union and Associated States forces are holding back Communist efforts to expand into the free areas of Asia, the United States is making a major contribution by providing military equipment and other military support. The amount as well as the timeliness of this military assistance will be an important factor in improving the situation. Additional native forces must be trained and equipped to preserve the defensive strength of Indochina. This assistance is required to enable these gallant forces to sustain an offensive that will provide the opportunity for victory.

We have helped the Chinese Nationalist forces to strengthen the defense of the Island of Formosa. This assistance will be continued as will assistance to other countries of the free world such as the Philippines, Thailand, and some of the American Republics.

The mutual military program, like our domestic military program, is now designed to build strength for the long pull rather than meet a given target date. Accordingly, we will concentrate on helping equip forces which our allies can themselves support over a long period of time, with minimum dependence upon aid from the United States. We have succeeded in substantially reducing the need for additional funds in fiscal year 1955 compared to previous years.

Our mutual security program continues in two related parts--the economic and technical program is much smaller in amount than the mutual military program and is discussed in a later section under international affairs. In that section is a comparative summary of the combined program.

Development and control of atomic energy.--In my speech before the United Nations on December 8, 1953, I made proposals looking toward a resolution of the atomic danger which threatens the world. My budgetary recommendations for the program of the Atomic Energy Commission for the fiscal year 1955 contemplate both new efforts to advance peacetime applications of atomic energy and also additional production of fissionable materials. All men of good will hope that these fissionable materials, which can be used both for peace and for military defense, will ultimately be used solely for peace and the benefit of all mankind.

Under the recommendations in this budget, expenditures of the Atomic Energy Commission will rise in the fiscal year 1955 to the highest point in our history. Operating costs will rise significantly as newly completed plants are brought into production. Capital expenditures will continue at a high level as construction goes forward on major new plants authorized in recent years. New obligational authority recommended in 1955 is above that provided in 1954, because of the expansion in operations. Initiation of new construction projects will be at a lower level than in recent years, and they will be limited essentially to facilities directly related to the production program and to several urgently needed research and development facilities. In all areas of activity the Commission is making strenuous efforts to effect economies; results are being accomplished in the reduction of unit costs.

The increase in expenditures for operations from 912 million dollars in the fiscal year 1954 to 1,182 million dollars in 1955 is due primarily to expanded operations at the Commission's facilities at Oak Ridge, Paducah, Portsmouth, Hanford, and Savannah River, as plants are completed and placed in operation. To meet the greater requirements for raw materials for this enlarged productive capacity, increased amounts of uranium ores and concentrates will be purchased. Due to vigorous efforts in recent years to expand our sources of supply in this country and abroad, increased amounts are now being made available to match the increase in requirements.

Atomic reactor development will be focused particularly upon the development of industrial atomic power for peacetime uses. The Commission will move forward on the construction of a large atomic power reactor to be initiated in the fiscal year 1954, marking a significant advance in the technology of peacetime atomic power. Research and development, including construction of experimental facilities, will continue also on several other types of reactors which show promise of ultimately producing power at economic rates.

The launching--this month--of the first atomic submarine, the U. S. S. Nautilus, will be followed in the fiscal year 1955 by the launching of the U. S. S. Seawolf, a second atomic submarine of different design. Research on the more difficult problems of aircraft propulsion by atomic energy will continue.

With the advent of various technical developments relating to atomic power and with the greater availability of raw materials and fissionable materials, the time has arrived for modification of the existing atomic energy legislation to encourage wider participation by private industry and by other public and private groups in this country in the development of this new and uniquely attractive energy source for peaceful purposes. Such widespread participation will be a stimulating and leavening force in this important field and will be consistent with the best traditions of American industrial development. The congressional Joint Committee on Atomic Energy. last summer held public hearings which have served a most useful purpose of identifying and developing both the problems and the opportunities which emerge as preparations are made to depart from the Federal Government's existing monopoly in this field. Legislation is being recommended to the Congress which would encourage such participation and yet retain in the Federal Government the necessary controls over this awesome force.

Further amendment of the Atomic Energy Act is needed also to enable us to realize the full value of our atomic energy development for the defense of the free world. I shall recommend amendments which would permit, with adequate safeguards, a greater degree of exchange of classified information with our allies, in order to strengthen their military defenses--as already mentioned--and to enable them to participate more fully in the development of atomic power for peacetime purposes. I shall recommend also an amendment which would permit the transfer of fissionable material to friendly nations to assist them in peacetime atomic power development, particularly those nations which are supplying us with uranium raw materials. This proposed amendment, as well as the previously mentioned amendment, will provide adequate safeguards for the security of the United States. These legislative recommendations are independent of my recent proposal for the establishment of an international agency to advance the peacetime benefits of atomic energy, for which additional legislation would be needed.

It is now feasible to plan to terminate Federal ownership and operation of the towns of Oak Ridge, Tennessee, and Richland, Washington. To enable the citizens of these communities to manage their own affairs in a more normal fashion, legislation will be recommended which would permit them to purchase their own homes and to establish self-government in these communities.

Stockpiling of strategic and critical materials.--Considerable progress has been made in the fulfillment of the national stockpile goals, and further substantial progress is expected during the fiscal year 1955. By the end of 1955 about 50 of the 73 materials objectives will be virtually completed. Consequently, expenditures will decline sharply from 919 million dollars in 1953 to 770 million dollars in 1954 and 585 million dollars in 1955. The total value of all stockpile objectives is estimated at 7.2 billion dollars, of which about 5.5 billion will be on hand by June 30, 1955, to meet industrial and mobilization requirements in times of emergency. In addition to these direct expenditures from stockpile appropriations, the borrowing authority provided under the Defense Production Act, discussed in the finance, commerce, and industry section of this message, is used primarily for expanding the supply of critical materials. Net expenditures under this authority are estimated at 381 million dollars in the fiscal year 1954 and 308 million dollars in 1955. Therefore, a total of nearly 900 million dollars will be spent in the fiscal year 1955 to assure an adequate supply of critical materials in the event of an emergency.


Since 1940 the number of veterans has risen nearly fivefold and it is still increasing rapidly as men are discharged from the Armed Forces. There are now more than 20 million veterans, who, with their families, constitute 40 percent of our people. Over 300 laws provide a variety of special benefits and services to this large segment of our population.

It is our firm obligation to help our veterans overcome the handicaps which they incurred in the service of the Nation so they can return to their normal civilian pursuits. We must first of all do what we can to ease the burdens of veterans disabled in service and the families of those who have died from service causes. This is our primary responsibility, and generous benefits to them are the core of our veterans' programs.

Secondly, we must make available readjustment aids through well-conceived and properly administered programs for those veterans discharged after service during national emergencies.

Finally, we must remember that the best way to help our millions of veterans is by making it possible for them to share fully in the economic and social gains of our country. This means assuring them adequate job opportunities. It also means assuring them, both during and after military service, of the same protection under the broad social-security programs that is provided for nonveterans. Progress in achieving these objectives will lessen the need for pensions and other special benefits for the vast majority of veterans who, fortunately, did not incur disabilities during their service.


[Fiscal years. In millions]


Expenditures mended new


1953 1954 1955 authority

Program or agency actual estimated estimated for 1955

Gross expenditures:

Readjustment benefits:

Education and training $659 $473 $554 $350

Loan guaranty and other benefits

(Veterans Administration) 112 89 37 37

Unemployment compensation (Labor

Department) 26 40 61 56

Compensation and pensions 2,420 2,485 2,535 2,535

Insurance and servicemen's indemnities 102 105 75 72

Hospitals and medical care:

Current expenses 657 693 694 689

Hospital construction 100 84 60 44

Other services and administration (Veterans

Administration and other) 251 221 207 176

Total 4,327 4,190 4,223 1 3,959

Deduct applicable receipts:

Insurance programs (Veterans

Administration) 1 2 3

Other services and administration (Veterans

Administration, primarily canteen

services) 28 28 28

Net budget expenditures 4,298 4,160 4,192

1 Compares with new obligational authority of 4, 132 million dollars in 1953 and 4,229 million dollars in 1954.

The appropriations recommended in this budget will enable the Government to discharge fully our obligations to veterans in the coming fiscal year. Funds are included to provide for all essential benefits and services, in some cases exceeding the amounts spent in any previous year. At the same time allowance has been made for anticipated savings from improvements in efficiency, resulting in part from a general reorganization of the Veterans Administration.

Readjustment benefits.--Education and training and loan guaranty benefits are provided for veterans of World War II and the current emergency. In addition, special vocational rehabilitation assistance is provided for service-disabled veterans of both periods, and unemployment compensation is available to veterans of the Korean conflict.

Expenditures of 652 million dollars for all readjustment benefits in the fiscal year 1955 are estimated to be about 8 percent higher than in the current year. While expenditures for benefits to veterans of the Korean conflict are increasing, outlays for education and training, rehabilitation, and loan guaranty benefits to World War II veterans are declining. Thus, the proportion of total outlays for all readjustment benefits going to veterans of the Korean conflict is expected to rise from about one-half to about four-fifths in the one year.

During the fiscal year 1955 an average enrollment of 537,000 veterans--more than 30,000 above the previous year--is expected in school, job, and farm training courses. Of this number, an estimated 412,000 are veterans of the Korean conflict.

A decline in expenditures for loan guaranty and other benefits from 1953 to 1955 reflects the discontinuance of payment by the Government of a gratuity up to 160 dollars on each guaranteed loan issued after September 1, 1953.

Unemployment compensation payments to veterans will increase. This is the result of the growth in the number of eligible veterans. While existing legislation was intended to provide benefits during the transition period after discharge, it does not include a limit on the time during which veterans may apply for unemployment compensation. I recommend that the law be changed to provide for a time limit for filing claims after discharge. This should provide reasonable time for veterans to make their readjustment to civilian life and to establish benefit rights under the general unemployment compensation program. Limits are now provided in the Servicemen's Readjustment Assistance Act for other benefits.

Compensation and pensions.--The estimated expenditures of 2.5 billion dollars will provide for compensation and pension benefits to an average of 3.3 million individuals and families. This total includes nearly 1.8 billion dollars in compensation payments to service-disabled veterans and families of those veterans who have died from service-connected causes, and 700 million dollars for non-service-connected pensions. It also includes 45 million dollars for subsistence payments to an average of 20,000 disabled veterans in the vocational rehabilitation program and for 115,000 burial awards.

Expenditures for compensation and pensions have increased sharply in the last decade, and the long-run outlook on the basis of present laws and veteran population is that these expenditures will rise to double their present annual amount within several decades. At the same time, a large proportion of the present or potential recipients of these benefits will also qualify for payments under the Government's old-age and survivors insurance program.

While the conditions under which veterans are entitled to compensation and pension benefits are largely specified by law, the Administrator of Veterans' Affairs necessarily has important responsibilities for their administration, and the budget estimates for the fiscal year 1955 assume additional efforts to prevent unsound practices and abuses.

Insurance and servicemen' s indemnities.--The Government reimburses the veterans' insurance trust funds for payments made for deaths traceable to war hazards in the case of policyholders under the national service life insurance contracts issued mostly to World War II veterans and under the United States Government life insurance policies issued to veterans of earlier periods. The Government also pays certain other insurance benefits directly to policyholders. Insurance payments are expected to decline from 84 million dollars in the fiscal year 1954 to 45 million dollars in 1955.

Since the enactment of the Servicemen's Indemnity Act of 1951 as a substitute for a Government life insurance program, the families of servicemen who die on duty or within 120 days after separation are paid benefits at the rate of $92.90 a month for 10 years. These payments are expected to increase 41 percent from the 1954 level to 30 million dollars m 1955.

Hospital and medical care.--The estimates for current expenses of the veterans' hospital and medical programs will provide for an average of 110,200 patients in Veterans Administration and contract hospitals and 25,700 members in Veterans Administration and State domiciliary facilities during the fiscal year 1955. The cost of caring for the increase of about 2 percent in the hospital load compared to the level now estimated for 1954 is offset, however, by lower amounts for the medical and dental outpatient care programs. The lower estimates for the dental outpatient care program are based primarily upon the recommendation that the Congress extend for 1955 the language enacted for the fiscal year 1954 in Public Law 149, 83d Congress, limiting dental treatment for noncompensable disabilities to those cases for which application for treatment is made within one year of discharge.

The budget includes recommended new obligational authority of 44 million dollars for new construction and improvements, including 30 million dollars to complete new hospitals at San Francisco and Topeka, toward which the Congress made an initial appropriation for the fiscal year 1954.

I am recommending increased appropriations to provide for an average employment in the Veterans Administration medical and hospital programs of 136,000 during the fiscal year 1955, an increase of 10,500 from average employment in 1953 and 3,000 more than in the current year. This increase provides for operation of the new hospital facilities which have been constructed.

Other services and administration.--General administrative expenses of the Veterans Administration are estimated to decline further in the coming year as the result of declining workloads for readjustment of World War II veterans as well as improved performance resulting from better organization and greater efficiency. Average employment of 35,600 in Veterans Administration nonmedical programs is estimated for 1955, 11 percent below employment in the current year and 17 percent less than in 1953.

Trust funds.--Under the United States Government life insurance and national service life insurance trust funds, nearly 7 million policies continue in force, carrying 44 billion dollars of life insurance issued before enactment of the Servicemen's Indemnity Act of 1951. The receipts of these funds now roughly balance their disbursements. The transactions of these, as of other, trust funds are not included in the budget totals.


(Trust funds)

[Fiscal years. In millions]

1954 1955

Item 1953 actual estimated estimated


Transfers from general and special accounts $84 $75 $36

Interest on investments 200 208 208

Premiums and other 427 522 485

Total 711 805 729


Dividends to policyholders 190 297 217

Benefits and other 470 533 524

Total 660 830 741

Net accumulation (+) or withdrawal (--) +51 --25 --12

Balance in funds at close of year 6,613 6,588 6,576


My budget recommendations for the international programs of the Government will enable us to hold our newly won initiative in world affairs and move toward a lasting peace. The budget for international affairs and finance includes funds required for the conduct of our foreign affairs, for the programs for economic and technical development abroad, and for our foreign information and exchange program.

The mutual military program, which was formerly included in the budget along with these programs under the heading "International security and foreign relations" has been discussed in this budget message as part of the national security program. At the same time, military assistance is intimately related to and must be administered in the furtherance of our foreign policy.

The extent of our assistance under both the mutual military program and mutual economic and technical program is shown in a summary table below. This table covers all components of the present mutual security program. This entire program is directed toward the establishment of conditions overseas which, in one way or another, contribute to our own security and well-being.


[Fiscal years. In millions]

1955 recom-

1954 mended or

Expenditures: 1953 actual estimated estimated

Mutual military program $3,954 $4,200 $4,275

Mutual economic and technical program 1,702 1,300 1,125

Total 5,656 5,500 5,400

New obligational authority:

Mutual military program1 4,236 3,800 2,500

Mutual economic and technical program 2 1,907 926 1,010

Total 6,143 4,726 3,510

1 Does not include reappropriations of $321 million for 1953 and $ 1,763 million for 1954.

2 Does not include reappropriations of $128 million for 1953 and $179 million for 1954.

Our national security and international programs are designed to deter would-be aggressors against the United States and other nations of the free world, and to strengthen our efforts for peace by all appropriate means including diplomatic negotiations with the Soviets. With a position of strength, an effective conduct of our foreign relations by the Department of State is the keystone of our efforts to win our way to peace. There has never been a time when the future security and welfare of our country were more dependent upon the exercise of wise leadership in the realm of world affairs. My recommendation for funds for the Department of State will enable it to meet this challenge.

Some countries are still facing such economic conditions that they are not able solely by their own efforts to support the desired military effort or to provide for the economic growth and progress essential to our mutual objectives. It is thus still necessary that supplementary goods, services, and technical skills be provided by the United States. It is for these purposes that funds for economic and technical development are requested for fiscal year 1955.

Through our information and exchange program we are attempting to achieve a clear understanding by others of our aims, objectives, and way of life and a better understanding by us of the aspirations and cultures of other countries. Such mutual understanding increases our ability to exercise strong, sympathetic, and cooperative leadership in the mutual efforts of free peoples to achieve their common goals.


[Fiscal years. In millions]

Gross expenditures Net expenditures Recom-

mended new

1954 1955 1954 1955 obligational

1953 esti- esti- 1953 esti- esti- authority

Program actual mated mated actual mated mated for 1955

Conduct of foreign affairs $150 $129 $125 $150 $129 $125 $116

Economic and technical


Present program 1 2,396 1,943 1,105 1,960 1,555 658 15

Proposed legislation 370 370 1,010

Surplus agricultural

commodities disposal

(proposed legislation) 300

Foreign information and

exchange activities 106 95 97 106 95 97 105

Total 2,652 2,167 1,697 2,216 1,779 1,250 1,546

1 Gross expenditures exclude private bank loans guaranteed by the Export-Import Bank and net repayments thereof in the amounts of 4 million dollars in 1953, 82 million dollars in 1954, and 188 million dollars in 1955.

During the past year progress has been made toward the accomplishment of the objectives of our international programs. Not only have our allies and friends grown in military strength, but also a continued high level of production and increased gold and dollar reserves have permitted European countries to become more nearly self-supporting. This improvement makes it possible for estimates of expenditures for economic and technical programs included in this budget to be significantly lower than the already reduced level of the fiscal year 1954. Significant contributory factors in this progress have been our assistance in past years and the positive and constructive fiscal and other economic measures which have been taken by the other countries themselves. As a result the fiscal year 1955 represents, in a sense, a period of transition from heavy dependence by a large number of countries upon massive bilateral economic assistance from the United States to the use of such assistance in more limited circumstances. Progress in such a transition will generally depend upon the extent to. which our own policies, and those of our friends, contribute to increased private investment, increased exports to the United States, internal financial and economic reforms in some countries, and multilateral cooperation for the achievement of strong and self-supporting economies.

Conduct of foreign affairs.--The burden of the vastly enlarged responsibility involved in our international affairs falls heavily upon the Department of State since the Secretary of State is the officer responsible, under the President, for the development and control of all foreign policy and for the conduct of our relations with foreign governments and international agencies. Successful discharge of this broad responsibility calls for wise and informed diplomatic support to our national leaders in negotiations carried on at the highest levels as at Bermuda and Berlin. It requires the day-to-day representation of our national interest through some 273 diplomatic missions and consular offices abroad. We also must continue to give our firm support to the United Nations and other international organizations, and bear a part of the costs of these organizations and their programs. A successful administration of our foreign policy requires the State Department to report and appraise political, economic, and social conditions and trends abroad; to provide foreign policy guidance to all agencies carrying on programs overseas; and to coordinate in the field all foreign policy aspects of overseas programs. Finally, advice must be furnished as to the foreign policy implications of domestic programs.

Net budget expenditures for the conduct of foreign affairs in the fiscal year 1955 are estimated at 125 million dollars. This expenditure represents a decrease of 4 million dollars from 1954, resulting from reduction of personnel and other costs of the Department of State including the curtailment of civilian occupation activities in Germany.

Economic and technical development.--Net budget expenditures for economic and technical development in the fiscal year 1955 are estimated at 1,028 million dollars, compared with 1,555 million dollars in the fiscal year 1954 and 1,960 million dollars in 1953.

This budget, as did the fiscal year 1954 budget, reflects proportionately greater emphasis on programs in Asia, Africa, and Latin America. It contemplates new appropriations for aid to very few European countries.

In the Far East there is a need for contributions to provide for relief in Korea and, now that hostilities have .been terminated, for an expanded reconstruction program for that war-devastated country. Funds are also recommended to maintain the strength and security of Formosa and to support further the effort of our friends combating Communist aggression in Indochina. This budget also provides for technical assistance and economic development in India, Pakistan, the Philippines, and other nations of Asia to encourage continued progress in their efforts to improve the living conditions of their people.

With respect to the Near East the budget provides for helping relieve the plight of Arab refugees through contributions to the United Nations refugee agency, and for technical assistance and supplementary economic development in the Arab States, Israel, and Iran.

Provision is also made in the budget for continuing the technical assistance program for Latin America. This program, which has existed for a number of years, contributes to a reduction of social and economic problems upon which communism feeds and which hampers the development of stable and growing economies.

Surplus agricultural commodities.--I plan to request authority soon to use a part of our accumulated surpluses of agricultural products to assist in strengthening the economies of friendly countries, and otherwise to contribute to the accomplishment of our foreign policy objectives. Authority will be requested to use for this purpose over a 3-year period up to 1 billion dollars worth of commodities held by the Commodity Credit Corporation. This budget anticipates a request for a supplemental appropriation of 300 million dollars for the fiscal year 1955 to reimburse that Corporation for commodities used.

This program for use of agricultural surpluses is designed to complement our general program of economic and technical development and must be closely coordinated with it. The program for use of surplus agricultural commodities involves the use of stocks held by the Commodity Credit Corporation. No additional budget expenditures will be required for these commodities.

It should be emphasized in connection with this program that it is purely temporary, predicated upon adoption of our domestic agricultural program which should not involve the continued accumulation of large surpluses. Special safeguards will be provided which will require that commodities furnished must be in addition to amounts which otherwise would have been imported and must not displace the usual marketings of the United States and friendly countries.

Foreign information and exchange activities. This budget includes expenditures of 97 million dollars for foreign information and exchange activities, including those functions conducted by the new United States Information Agency. This is an increase of 2 million dollars over the expenditures for foreign information and exchange programs in the fiscal year 1954.

In October, on the advice of the National Security Council, I directed the United States Information Agency to develop programs which would show the peoples of other nations that the objectives and policies of the United States will advance their legitimate aspirations for freedom, progress, and peace. I believe that if the peoples of the world know our objectives and policies, they will join with us in the common effort to resist the threat of Communist imperialism and to achieve our mutual goals. It is essential that the United States Information Agency have the tools to carry out this mission.

The United States Information Agency will reach 77 free countries through radio, press, motion pictures, or information centers and will reach 10 Iron Curtain countries through radio broadcasts.

My budget recommendations for information and exchange activities include 15 million dollars of new obligational authority for educational exchange programs. These programs are designed to promote a receptive climate of public opinion overseas through the exchange between the United States and over 70 foreign countries of students and persons who are leaders important to the present or future of their nations.


I believe that, along with the essentials of protecting the freedom of our people and maintaining a strong and growing economy, we must make greater and more successful efforts than we have made in the past to strengthen social security and improve the health of our citizens. In so doing, we build for the future, and we prove to the watching world that a free Nation can and will find the means, despite the tensions of these times, to progress toward a better society.

The keystone of our social security program today is the system of oldage and survivors insurance, under which nearly 70 million people are insured and 6 million people are presently receiving benefits. The economic protection afforded by this social insurance is now accepted as basic in our society. Yet there are serious defects in the system. In my recent social security message, I submitted specific recommendations to remedy these defects.

The legislation to improve old-age and survivors insurance will not directly affect the budget totals, since this program is financed through payroll taxes which go into a trust fund, and the expenditures are made from the fund rather than from the general budget accounts. However, the legislation should lessen the need for expenditures from the general budget accounts to help the States pay public assistance to the needy aged and to dependent children, as old-age and survivors insurance takes over a larger and larger role in providing them with basic protection.


[Fiscal years. In millions]


Expenditures mended new


1953 1954 1955 authority

Program or agency actual estimated estimated for 1955

Gross expenditures:

Public assistance:

Present program $1,332 $1,391 $1,187 $1,202

Proposed legislation 108 108

Promotion of public health:

Present program 316 289 281 234

Proposed legislation 7 89

Aid to special groups:

Vocational rehabilitation:

Present program 25 25 21 21

Proposed legislation 8 9

School lunch 83 83 68 68

Indian welfare and other 48 51 54 54

Accident compensation 43 42 43 43

Prisons and probation 29 27 28 29

Retirement and dependents insurance

(Railroad Retirement Board) 33 35

Defense community facilities

and services 1 4 2

Total 1,910 1,947 1,807 2 1,857

Deduct applicable receipts (1) (1) (1)

Net budget expenditures 1,910 1,947 1,807

1Less than 500,000 dollars.

2Compares with new obligational authority of 1,886 million dollars in 1953 and 1,919 million dollars in 1954.

To reflect this development, legislation is being prepared to reduce Federal grants to States for old-age assistance as old-age and survivors insurance continues to take over an increasing share of the load. My social security message has set forth these recommendations in more detail.

This administration flatly opposes the socialization of medicine. Under the traditional American approach, private and nonprofit medical and hospital insurance programs have grown steadily and now cover a large segment of the population. Yet there is still a long way to go. Many families are not protected; many health costs are not insured. Positive action to promote the health of all our people has been recommended in my recent message.

The budget estimates for the fiscal year 1955 provide for the costs of the proposed legislation to improve the health of the people and also for the improvements and expansion of vocational rehabilitation services for the disabled. Experience has proved that these efforts pay for themselves many times over.

Including the proposed legislation, net budget expenditures for social security, welfare, and health in the fiscal year 1955 are estimated at 1,807 million dollars. This is 140 million dollars less than estimated expenditures in 1954. The decline results mainly from an expected reduction in public assistance grants to the States.

Public assistance.--Under present law the Federal Government contributes, according to a statutory formula, to State expenditures for assistance payments to four groups of people in need--dependent children, the aged, the blind, and the totally disabled. With the expansion of the social security program, it is now feasible to recommend a new formula for public assistance grants which will more adequately recognize the varying financial needs of the several States and the appropriate role of the Federal Government in meeting these needs. The legislation which I am recommending would provide for a permanent formula to replace the present temporary increase in the Federal share which expires next September 30. This new formula includes specific provision for a related reduction in Federal grants to States for old-age assistance as the improved old-age and survivors insurance program takes over an increasing share of the load. A transition period for adjusting both Federal and State procedures will be necessary.

The decrease of nearly 100 million dollars in estimated expenditures for public assistance is made possible primarily by the proposed improvement in old-age and survivors insurance, which will reduce the need for supplementation by public assistance.

Promotion of public health.--The budget provides for initiating our new program to help assure adequate medical and hospital services. The main elements of this program are:

1. Establishment of a limited reinsurance service to encourage private and nonprofit health insurance organizations to offer broader health protection to more families on a basis which would reinsure the special additional risks through premiums modeled on sound insurance principles. The capital for this program will be provided initially by the Federal Government and repaid from fees.

2. A broadening of the present Federal grant-in-aid program for hospital construction to stimulate provision of diagnostic and treatment centers, rehabilitation facilities, nursing homes, and additional chronic disease hospitals, and to help finance State surveys of their needs for such facilities.

The new program is estimated to require new obligational authority of 89 million dollars for the fiscal year 1955, of which 7 million dollars would be spent in that year.

Budget expenditures for all public health programs under existing legislation, excluding medical care for military personnel and veterans, are estimated at 281 million dollars in the fiscal year 1955. About one-half of this amount will be for grants to universities and medical schools for medical research and training, for clinical and laboratory research conducted by the Federal Government, and for operation of the Public Health Service hospitals. The Public Health Service hospitals primarily furnish hospital and medical care to American merchant seamen. The budget provides funds to continue these special services while the Department of Health, Education, and Welfare has this program under review.

Other expenditures will be for grants-in-aid to State governments and local communities for hospital construction, general health services, maternal and child health, and the control of specific diseases, such as tuberculosis, cancer, mental illness, and heart ailments. With the major communicable diseases, including tuberculosis and venereal diseases, diminishing in importance as public health problems, greater emphasis is being given to the chronic diseases which are becoming more prevalent.

Vocational rehabilitation program.--The estimate for the present program of vocational rehabilitation reflects congressional action, taken in the 1954 appropriation act, to require that a larger portion of the program be financed by the States. To revitalize the vocational rehabilitation program, I have recommended that we redefine our objectives so as to make possible a substantial increase in the number of persons rehabilitated.

School lunch program.--Budget expenditures shown for the school lunch program for fiscal years prior to 1955 include funds for the purchase of commodities for distribution to the States, as well as for cash payments to the States. The amount recommended for 1955 will maintain cash payments to the States at the same level as in 1954. In addition, it is expected that larger Federal contributions of surplus agricultural commodities will be made to the program. These contributions are financed from a permanent appropriation to the Department of Agriculture. As a result, total Federal aid for the school lunch program, including cash payments and surplus foods distributed under the program for the children are estimated at 218 million dollars in the fiscal year 1955 compared with 206 million dollars in 1954.

Railroad retirement.--As described earlier, the railroad retirement program is reported in this Budget in the same manner as the old-age and survivors insurance program and appears in the tables on that basis. The change does not affect the budget deficit.

Trust funds.--The old-age and survivors insurance system is operated through a trust fund, which receives the payroll contributions and pays the benefits and administrative expenses. The tax rate rose to 2 percent each on employers and employees, effective January 1, 1954. My proposals for expanding and improving the program will raise receipts by an estimated 100 million dollars, benefit disbursements by 400 million dollars, and administrative expense by 8 million dollars in the fiscal year 1955.


[Fiscal years. In millions]

1953 1954 1955

Fund and item actual estimated estimated

Federal old-age and survivors insurance trust fund:


Present program:

Appropriation from general receipts $4,086 $4,600 $5,369

Deposits by States 44 100 135

Interest and other 387 442 477

Proposed legislation 100

Payments of benefits, construction, and

administrative expenses, and tax refunds:

Present program --2,748 --3,368 --3,809

Proposed legislation --408

Net accumulation 1,769 1,774 1,864

Balance in fund at close of year 18,364 20,138 22,002

Railroad retirement fund:


Appropriation from general receipts 658 675 640

Interest on investments 89 98 105

Payments of benefits, salaries, and expenses -- 465 --490 -- 513

Net accumulation 282 283 232

Balance in fund at close of year 3,183 3,466 3,698

Federal employees' retirement funds:


Employee contributions 425 427 427

Transfer from budget accounts and other 311 31 30

Interest 215 227 236

Payments of annuities and refunds, and expenses --363 --421 -- 448

Net accumulation 598 264 245

Balance in funds at close of year 5,652 5,916 6,161

The Government also operates separate retirement programs for railroad workers, mentioned above, and for Federal civilian employees.


Good housing and the development of adequate community facilities are essential to the welfare of our people and to the stability and growth of our economy. Over the years the Federal Government has undertaken a wide variety of programs to assist our citizens in obtaining better housing. These programs, however, have been designed in the main to meet short-run emergencies or they have been developed piecemeal without a clear underlying policy. As a result, housing laws have become a patchwork which only experts can understand. Excessive reliance has been placed on direct participation by the Federal Government in areas where, properly encouraged, local governments or private enterprise could have carried a larger share of the total responsibility. Different Federal programs have too often worked at cross-purposes, resulting in heavy expense without commensurate gains. In some instances, they have aggravated inflationary price increases instead of working toward lower housing cost for the ultimate consumer. Finally, the weaknesses in the organization of Federal housing activities have prevented us from realizing the full potentialities of present programs.

At my request, the Advisory Committee on Housing Policies and Programs, under the chairmanship of the Housing Administrator, has intensively examined all Federal housing activities. After consideration of its report and the Administrator's recommendations, I am proposing a series of changes which have three important objectives: First, they would reorient existing programs to emphasize the initiative of t and the role of local governments. Second, they would fill important gaps in the present housing program and at the same time eliminate numerous unnecessary and obsolete activities. Third, they would strengthen the administration of these programs to assure the most economical and effective use of Federal funds in improving the housing conditions of the Nation.

To carry out these proposals I shall recommend major changes in legislative authority. I shall also submit a reorganization plan which will permit a more logical grouping of operating programs and give the Housing Administrator appropriate authority to supervise these programs and to determine major policies. Pending final decision on important details, estimates for these proposals are not specifically set forth in this budget. However, they will not have a significant effect on the Federal budget in the fiscal year 1955.

Most housing and community development programs involve both expenditures and receipts. In the fiscal year 1955 gross expenditures will total an estimated 1,903 million dollars, but receipts will exceed these expenditures by 277 million dollars. These net receipts compare with net expenditures of 549 million dollars in 1953 and the revised estimate of net expenditures of 57 million dollars in 1954. The great improvement in the fiscal outlook over the 2 years reflects mainly the fact that purchases of mortgages by the Federal National Mortgage Association are declining and sales are rising. Increased private financing for the public housing program is also reducing the need for Federal outlays.


[Fiscal years. In millions]

Gross expenditures Net expenditures Recom-

mended new

1954 1955 1954 1955 obligational

1953 esti- esti- 1953 esti- esti- authority

Program or agency actual mated mated actual mated mated for 1955

Urban development and

redevelopment $25 $68 $97 $21 $38 $48

Aids to private housing:

Housing and Home

Finance Agency:

Federal Housing

Administration 124 118 94 --43 --30 --69

Federal National

Mortgage Association 645 590 488 379 62 --166

Other 15 16 4 --25 --38 --28 $4

Veterans' housing loans

(Veterans Administra-

tion) 92 109 84 70 78 44

Treasury (Reconstruction

Finance Corporation) --60 --50 --11

Farm housing (Department

of Agriculture) 19 17 19 17

Public Housing programs 1,027 1,222 956 1 --220 -234 77

General housing aids:

Housing and Home

Finance Agency:

College housing loans 14 37 62 14 36 58

Other 5 3 3 5 3 3 3

Provision of community


Present programs 31 53 34 23 43 3 6

Proposed advances for

public works planning 3 3

Defense housing 28 31 1 28 31 1

Civil defense 78 76 70 51 74 68 86

Disaster loans and relief 15 17 7 12 13 3

Total 2,118 2,357 1,903 549 57 --277 1176

1Compares with new obligational authority of 1,526 million dollars in 1953 and 628 million dollars in 1954.

Urban development and redevelopment.--Too many families in our cities today are living in substandard housing in deteriorating and slum neighborhoods. Since 1949 the Federal Government has been providing loans and grants to local governments for clearance and redevelopment of slum areas. Most local projects approved for Federal assistance are still in the planning stage, but by the end of the fiscal year 1955, clearance and redevelopment operations will be completed or underway for 180 projects, compared to 43 projects begun by June 30, 1953. Net expenditures in 1955 are estimated to rise to 48 million dollars, of which 39 million dollars represents grants to local communities to cover two-thirds of the net cost of projects which they have completed, or on which they have made substantial progress.

This acceleration is encouraging, but clearing slums provides only a partial answer. Effective progress in redeveloping our cities will require (1) enlistment of greater local and private participation, (2) slum prevention as well as elimination, and (3) rehabilitation of rundown houses and neighborhoods. To help attain these objectives, I shall recommend legislation broadening the present program to authorize loans and grants for the conservation, rehabilitation, and renewal of neighborhood areas. Important changes should also be made in mortgage insurance authority of the Federal Housing Administration and in the low-rent public housing program, so that these programs can contribute more effectively to sound redevelopment. All of these aids should be fully coordinated and should be provided only in areas where the local community has adopted and is carrying out its part of an effective program to arrest urban decay.

Federal Housing Administration.--As one of the major Federal aids to private housing, the Government insures mortgage loans made to finance housing construction or purchase. In the fiscal year 1955 under existing programs the construction of an estimated 190,000 new homes and the purchase of 126,000 existing homes will be financed with the aid of mortgages insured by the Federal Housing Administration. Receipts from premium income and other sources will exceed expenditures by an estimated 69 million dollars.

To encourage the substitution of private financing for Federal outlays in the areas of greatest housing need, I shall urge the Congress to authorize two new mortgage insurance programs, as well as to liberalize 'certain existing programs. Specifically, the Federal Housing Administration should now be authorized to insure private credit used for the rehabilitation of obsolete neighborhoods. It should also be given authority, on an experimental basis, to insure mortgages with small down payments and with the balance payable over a long period, to finance inexpensive homes for lower income families, particularly families displaced by rehabilitation and slum-clearance programs. Additional authority should be provided to adjust down payments and maturities for insured mortgages to the extent consistent with overall economic policy. I shall also recommend simplification of the basic housing laws by the elimination of numerous inactive or unnecessary programs and by simplification of the structure and operations of the existing mortgage insurance funds. At the same time, measures will be recommended to strengthen the insurance funds.

Federal National Mortgage Association.--The Federal National Mortgage Association buys and sells mortgages insured by the Federal Housing Administration or guaranteed by the Veterans Administration. Gross expenditures are estimated at 488 million dollars in the fiscal year 1955, mainly for purchase of mortgages to finance military and defense housing under commitments made in earlier years. By 1955 the supply of private funds is expected to be adequate in most areas to provide financing for most other types of mortgages without Federal support.

The policy of this administration is to sell the mortgages now held by the Association as rapidly as the mortgage market permits. Assuming satisfactory market conditions, receipts from these sales and from other sources in 1955 will exceed expenditures by an estimated 166 million dollars. This contrasts with net expenditures of 379 million dollars in 1953, and 62 million dollars estimated for 1954.

The legislation which I shall propose would provide authority to establish, from time to time, maximum interest rates and other terms on insured and guaranteed mortgages with the objective of encouraging an adequate, but not excessive, supply of private mortgage funds for all parts of the country. This proposal would make unnecessary in the future large Government purchases of mortgages such as were required in the past, whenever interest rates made such mortgages unattractive to private lenders. I shall also recommend the initiation of a new program, financed in large part from private funds, to furnish many of the secondary market facilities now provided by the Federal National Mortgage Association.

Other aids to private housing.--Net expenditures for direct housing loans to veterans are estimated at 44 million dollars in the fiscal year 1955, compared with 78 million dollars in 1954. Sales of loans to private investors are expected to rise as a result of the recent increase in the rate of interest on these loans. Under existing law, disbursements will be made during 1955 only on loans for which commitments are made prior to the expiration of lending authority on June 30, 1954.

Authority for farm housing loans under title V of the Housing Act should be permitted to expire on June 30, 1954. Most of the essential needs can be met under other authorities and funds available to the Farmers' Home Administration.

The loans of three other programs will be substantially liquidated in the fiscal year 1954. These include mortgages held by the Reconstruction Finance Corporation, loans made by the Housing Administrator to the Alaska Housing Authority, and loans to various prefabricated housing manufacturers.

Public housing.--As already indicated, I shall propose a new mortgage insurance program and other measures to encourage provision of private housing for low-income families. If these proposals prove effective, the need for future construction of low-rent public housing will be reduced. As an interim measure, however, the present public housing program should be continued at the level considered necessary to meet the needs of low-income families, particularly those displaced by slum-clearance and urban rehabilitation activities. Accordingly, my recommendations for the fiscal year 1955 in this budget would authorize construction of approximately 35,000 low-rent public housing units by local housing authorities, with the assistance of Federal loans and annual contributions adequate to assure the low-rent character of these units.

An estimated 956 million dollars in temporary Federal loans and other expenditures will be necessary to finance the operations of the low-rent and other public housing programs during the fiscal year 1955. Receipts from private refinancing of local housing authority obligations and other sources are estimated to exceed these expenditures by 234 million dollars. All except 8 million dollars of the 77 million dollars in new obligational authority requested is for payment of annual contributions under contracts made in prior years.

College housing.--Under the Housing Act of 1950 the Housing Administrator makes direct loans repayable over 40 years to finance student and faculty housing at colleges and universities. Net expenditures for such loans in 1955 will rise to 58 million dollars, largely under commitments made in prior years. By June 30, 1955, over 200 loans will have been approved. These will finance construction of housing accommodations for about 50,000 students and faculty members. Wherever possible, private financing of these loans will be encouraged.

Provision of community facilities.--The sharp reduction in net expenditures for provision of community facilities reflects mainly liquidation by the Treasury of loans to public agencies which were originally made by the Reconstruction Finance Corporation. No appropriations are being requested at this time for new loans to public agencies.

To encourage State and local governments to prepare for possible future expansion in public works construction, I am recommending legislation to authorize Federal advances to them for planning future construction. If the authority is granted, I shall request a supplemental appropriation for the fiscal year 1954 of 10 million dollars, with estimated expenditures of 3 million dollars in 1955.

Civil defense.--Expenditures for civil defense are included in housing and community development because of their community aspects, but the program is discussed in this message under national security. Federal expenditures for civil defense are estimated at 68 million dollars in the fiscal year 1955.


The citizen in a democracy has the opportunity and the obligation to participate constructively in the affairs of his community and his Nation. To the extent that the educational system provides our citizens with the opportunity for study and learning, the wiser will their decisions be, and the more they can contribute to our way of life.

I do not underestimate the difficulties facing the States and communities in attempting to solve the problems created by the great increase in the number of children of school age, the shortage of qualified teachers, and the overcrowding of classrooms. The effort to overcome these difficulties strains the taxable resources of many communities. At the same time, I do not accept the simple remedy of Federal intervention.

It is my intention to call a national conference on education, composed of educators and interested citizens, to be held after preparatory conferences in the States. This conference will study the facts about the Nation's educational problems and recommend sensible solutions. We can then proceed with confidence on a constructive and effective long-range program. Pending the outcome of these conferences and the development of our educational program, the Federal Government is providing assistance to those communities where school needs have been greatly increased by the activities of the Federal Government.

Budget expenditures for education and general research activities in the fiscal year 1955 are estimated at 223 million dollars. This figure does not include amounts spent for education and research in connection with the military, veterans', atomic energy, and certain other programs-which are classified in other sections of the budget.


[Fiscal years. In millions]


Budget expenditures (net) mended new


1953 1954 1955 authority

Program or agency actual estimated estimated for 1955

Promotion of education:

Office of Education:

Assistance for school construction and

operation in federally affected areas $201 $199 $139 $99

Vocational education 25 26 25 25

Grants for colleges of agriculture

and the mechanic arts 5 5 5 5

Educational conference and other

proposed legislation 1 1 (1)

Other 3 3 3 3

Educational aid to special groups 7 7 7 9

Library and museum services 11 12 12 12

General-purpose research:

National Science Foundation 4 7 12 14

Bureau of the Census 13 9 10 10

National Bureau of Standards 8 9 9 8

Total 277 278 223 2185

1Less than 500,000 dollars.

2Compares with new obligational authority of 328 million dollars in 1953 and 217 million dollars in 1954.

Sixty-two percent of the expenditures for education and general research in the fiscal year 1955 will be for grants to those local school districts that have been burdened by Federal activities. Another 13 percent will be for grants to States to help support their vocational education programs and their land-grant colleges. The Federal Government also assists Howard University and educational institutions for the deaf and blind, and it maintains major library and museum services at the National Capital. Expenditures shown for general-purpose research are for programs of the Census Bureau, the National Bureau of Standards, and the National Science Foundation.

Promotion of education.--Responsibility for education in the United States belongs to the State and local governments. The Federal Government has for many years provided financial assistance for land-grant colleges and some other educational activities. The Office of Education also disseminates information on educational trends and good practices. In recent years, the problems of education have been increasing in severity while this service has been reduced. My budget recommendations provide for an expansion of this basic activity.

The proposed national conference and preparatory State conferences will be most important steps toward obtaining effective nationwide recognition of these problems and toward recommending the best solutions and remedies. I recommend immediate enactment of the authorizing legislation and appropriations so that preparations for the individual State conferences as well as the national conference can begin at once.

Within the appropriation recommended for the Office of Education in this budget is provision to expand the studies and consultations through which it promotes better practices in education. One problem to which particular attention will be given is the meager education received by children of migrant agricultural workers. Because these children move with their parents from State to State, the problem of providing for their education can be solved only through special effort on a cooperative interstate basis.

In addition, I recommend that legislation be enacted which will enable the Office of Education to join its resources with those of State and local agencies, universities, and other educational organizations for the conduct of cooperative research, surveys, and demonstration projects. Legislation is necessary to make this cooperative effort effective.

An advisory committee on education in the Office of the Secretary of Health, Education, and Welfare should be established by law. This recommendation carries forward an objective of the reorganization plan under which the Department was created last year. This committee, composed of lay citizens, would identify educational problems of national concern to be studied by the Office of Education or by experts outside the Government, and would advise on action needed in the light of these studies.

For these new activities directed toward the improvement and strengthening of our basic educational services, I am including 300,000 dollars in the 1955 budget and recommending a 1954 supplemental appropriation of 2 million dollars.

The last session of the Congress enacted legislation to extend temporarily the laws under which assistance has been provided to local school districts burdened by Federal activities, and to improve the original laws so that they will provide the aid economically and to the areas most acutely affected. As a result of these improvements, the recommended appropriation of 59 million dollars for school-operating assistance in the fiscal year 1955 is 14 million dollars below the amount for 1954. This assistance is provided to more than 2,000 school districts, with enrollments of almost 5 million children, of whom almost 1 million qualify for assistance because their presence is related to Federal activities.

The appropriation of 40 million dollars for school construction recommended for 1955, together with the 1954 appropriation of 70 million dollars, will provide for the most urgent classroom needs of the school districts eligible for this aid under the extended program. These funds are being used to help build almost 5,000 classrooms to serve 140,000 children.

Aid to special groups.--A construction program now underway at Howard University will provide facilities for double the enrollment in the schools of medicine, dentistry, pharmacy, and related health fields. This budget includes funds for the construction of the preclinical medical building, the last unit necessary to make this expanded enrollment possible. Although the university is not limited to any group, it serves as an important center of higher education for Negroes. The expanded enrollment, therefore, will help to alleviate the shortage of doctors, particularly Negro doctors.

Enrollment at the Columbia Institution for the Deaf has been increasing in recent years. Steps now being taken to enable the college to reach an accredited status in the near future include the provision of additional teachers and funds for the construction of a library-classroom building. One-third the cost of this building is being provided by contributions, primarily from former students.

General research.--The National Science Foundation was created by the Congress in recognition of the need to formulate an adequate scientific research policy for the Nation. It is now engaged in intensive studies to that end, and is giving particular attention to the size and composition of the research activities of the Federal Government.

The Congress, at its last session, amended the basic act of the Foundation, removing the ceiling on appropriations to this agency in order to permit steps toward increasing the responsibility of the Foundation for the general-purpose basic research of the Federal Government. Approximately one-half of the 6-million-dollar increase I am recommending in the appropriation for the Foundation for the fiscal year 1955 is in reality a transfer of the responsibility and the financing for certain basic research programs from the Department of Defense to the National Science Foundation. The remainder of the increase is needed to expand basic research.

Within the appropriation for the National Bureau of Standards, there is also provision for an increase in basic research.

Additional basic research is needed to build up the fund of knowledge on which will .be based the development of new crops for agriculture, new methods of safeguarding health, new tools for industry, and new weapons. A further important result is the training which basic research projects provide for graduate students in our universities. The number of trained scientists graduating each year falls short of the needs of our growing economy and is still declining. Enlargement of the research program and the related fellowship program will help counteract this trend.

Funds are requested for the fiscal year 1955 to permit the Census Bureau to conduct a sample census of agriculture. This census will provide essential data for current needs.


My recommendations for Federal agricultural programs are designed to help in the solution of pressing immediate problems such as the hardships arising from severe drought in major farm areas, the squeeze on livestock producers resulting from lower cattle prices, and the disposal of excess stocks of wheat, cotton, vegetable oils, and dairy products which have been accumulated under provisions of price-support laws presently in force. They also take into account our long-run goals--promotion of a more stable and healthy farm economy, conservation and improvement of our basic agricultural resources, and provision of an adequate supply of food and fiber to match the needs of our increasing population.


[Fiscal years. In millions]


Gross expenditures Net expenditures mended

new ob-

1954 1955 1954 1955 ligational

1953 esti- esti- 1953 esti-- esti- authority

Program or agency actual mated mated actual mated mated for 1955

Stabilization of farm

prices and farm


Price support, sup-

ply, and pur-

chase programs


Existing pro-

grams1 $2,874 $2,832 $2,951 $1,831 $1,152 $1,105

Proposed legisla-

tion $1,750

International Wheat

Agreement 131 84 89 131 84 89

Removal of surplus

agricultural com-

modities 82 205 233 82 205 233 180

Sugar Act 63 65 65 63 65 65 60

Federal crop insur-

ance 27 37 33 5 9 3 6

Agricultural adjust-

ment programs 13 44 43 13 44 43 42

1Gross expenditures exclude private bank loans guaranteed by the Commodity Credit Corporation and net repayments thereof in the amount of 340 million dollars in 1953, 1,564 million dollars in 1954, and 274 million dollars in 1955.


[Fiscal years. In millions]


Gross expenditures Net expenditures mended

new ob-

1954 1955 1954 1955 ligational

1953 esti- esti- 1953 esti- esti- authority

Program or agency actual mated mated actual mated mated for 1955

Financing farm owner-

ship and opera-


Farm Credit Ad-

ministration $1,936 $2,012 $2,164 --$83 --$1 $42 $25

Farmers' Home Ad-

ministration 177 193 168 177 193 168 168

Disaster loans and

emergency feed 47 315 66 16 181 --17

Financing rural elec-

trification and rural

telephones 239 250 232 239 250 232 137

Agricultural land and

water resources:

Agricultural conser-

vation program 308 256 196 251 242 165 195

Soil Conservation

Service, flood

prevention and


Existing programs 66 73 69 66 73 69 66

Proposed legisla-

tion 2 2 3

Research and other

agricultural services 145 157 167 145 157 167 159

Total 6,108 6,523 6,478 9,936 2,654 9,366 2 2,791

2Compares with new obligational authority of 1,333 million dollars in 1953 and 2,302 million dollars in 1954.

The Secretary of Agriculture has recently reorganized the Department to increase administrative efficiency and to make more effective the various services the Department renders. Activities have been grouped into major units consisting of closely related programs, and provision has been made for greater emphasis on research and extension work directed to the improvement of farm products, reduction of production and marketing costs, and broadening of both the foreign and the domestic markets for farm products.

Gross expenditures for agricultural programs in the fiscal year 1955 are estimated at 6.5 billion dollars. Repayments of loans and the sale of commodities constitute most of the receipts of the public enterprises carrying on certain of these programs. These receipts are estimated at 4.1 billion dollars. Hence, net budget expenditures in the fiscal year 1955 are estimated at 2.4 billion dollars. This is 288 million dollars less than estimated net expenditures in 1954 and 570 million dollars less than in 1953.

Stabilization of farm prices and farm income.--Price support activities of the Commodity Credit Corporation, which account for nearly one-half of the estimated 1955 net budget expenditures for agriculture and agricultural resources, have dominated the trend of these expenditures in recent years. There is no better evidence of the tremendous budgetary significance of these activities than the increase of about 2.5 billion dollars during the past calendar year in commodities held by the Corporation and in price support loans. Furthermore, present prospects indicate that, under present law, large additional budgetary outlays will be required for these activities in the fiscal year 1955. It is clear, therefore, that a thorough reconsideration by the Congress of the provisions of existing price support laws is needed not only in the interest of farmers, but also in the national interest.

In my recent special message, I recommended improvements in the price support legislation both to deal with the immediate problems arising from our large surpluses of agricultural commodities and to chart a course for the future that will more effectively achieve the goals of farm price supports. In most instances the reduction in budget expenditures which can be expected from improved and more flexible price support provisions will begin to be effective in the fiscal year 1956.

It is impossible, because of many variable factors, to estimate with any certainty the expenditures under these programs. Based upon the best information now available, it appears that the gross price support expenditures of the Commodity Credit Corporation, which reflect mainly the loans made and commodities acquired during the year, will be 3 billion dollars in the fiscal year 1955. Anticipated receipts of 1.9 billion dollars from loan repayments and commodity sales will result in net expenditures in the fiscal year 1955 of 1.1 billion dollars. These net expenditures for price supports are expected to be 47 million dollars lower than in 1954, and 726 million dollars below the high level reached in 1953.

The reduction in expenditures from the 1953 level is due primarily to the application of marketing quotas on wheat and cotton and acreage allotments on corn which are intended to reduce production from the 1954 crops. The estimates for the fiscal years 1954 and 1955 also reflect greater emphasis given to private financing of price support operations. This, coupled with the customary timing for loan maturities, will result in a substantial proportion of the price supports on the 1953 and 1954 crops not becoming a Government expenditure until the loans held by private institutions mature, which will occur in 1955 and subsequent fiscal years.

All obligations of the Commodity Credit Corporation, whether in the form of borrowing from the Treasury or commodity loans held by banks and guaranteed by the Corporation, constitute a use of the statutory borrowing authority of 6.75 billion dollars. With the large volume of commodity loans and inventories now held and the increases expected in 1954 and 1955, it is estimated that the obligations of the Corporation may exceed its present borrowing limit during the annual peak, probably February 1954, and rise to a still higher level in the fiscal year 1955. I shall recommend to the Congress early in this session a supplemental 1954 estimate of 775 million dollars to restore borrowing authority to the Corporation, through cancellation of notes owed the Treasury, in an amount equal to the sum of the Corporation's capital impairment as of June 30, 1953, the advances during 1953 for control of foot-and-mouth disease, and the cost of operations under the International Wheat Agreement. This note cancellation will require immediate action by the Congress to insure that the Corporation can fulfill its statutory responsibilities under the present price support program.

I shall also recommend legislation to increase the borrowing authority of the Corporation by 1.75 billion dollars, effective July 1, 1954. This recommended increase in borrowing authority takes into account the increased commitments by the Government which would result from the proposed increase in the minimum 1954 cotton acreage allotment. While these commitments will be made in the fiscal year 1955, the cash expenditures by the Commodity Credit Corporation will not occur until 1956.

The recommended new obligational authority for the Corporation will meet the minimum foreseeable needs, provided steps are taken through new legislation to place our farm price support program on a sound basis for the future. A further request for additional borrowing authority may be necessary at a later date if conditions result in this amount being insufficient to provide for the commitments and expenditures required during the period the presently applicable price support provisions remain in effect.

Under the revised International Wheat Agreement, which became effective in the fiscal year 1954, our export quota for wheat has been reduced because of the withdrawal of Great Britain from the Agreement. Moreover, the maximum export price has been raised from $1.80 to $2.05 per bushel. As a result, expenditures under this program are expected to be only about two-thirds as much as in 1953 when our guaranteed export quota was larger and the spread between the domestic price and the export price of wheat was wider. While expenditures under the Wheat Agreement will be less in 1955 than in earlier years, the loss of wheat exports may increase wheat surpluses and thus cause larger outlays by the Commodity Credit Corporation under the price support program than would otherwise occur.

The permanent appropriation for the removal of surplus agricultural commodities, enacted in 1935, is equivalent to 30 percent of the customs receipts for the preceding calendar year. In the fiscal year 1955 there will be available from this authority a carryover of 241 million dollars from prior years plus 180 million dollars of new authorization. This total of 421 million dollars compares with estimated expenditures in 1955 of 233 million dollars. Of this amount 150 million dollars of surplus commodities purchased under this program is estimated to be distributed to the national school lunch program in 1955, as compared with 123 million dollars in 1954 and 52 million dollars in 1953. This permanent appropriation will be used also to strengthen the work being done by the Foreign Agricultural Service in cooperation with the Department of State in developing new foreign markets for our agricultural products.

Financing farm ownership and operation.--The Farm Credit Act of 1953, enacted by the last session of the Congress, restored the Farm Credit Administration to an independent status under the supervision of the Federal Farm Credit Board created by that legislation. It is the policy of this administration, through the Farm Credit Administration, to strengthen cooperative credit services on the basis of sound business-credit standards, and to increase farmer participation in the ownership and control of the Federal farm credit system to the end that the investment of the United States in the federally sponsored agricultural credit institutions may be retired within a reasonable time.

The cooperative credit institutions supervised by the Farm Credit Administration make both long- and short-term loans to farmers and to farmers' cooperatives. Short-term loans by the production credit associations are financed largely through the federally owned intermediate credit banks. Gross expenditures of these banks, which reflect mainly new loans, are expected to be approximately offset by receipts from loan repayments in the fiscal year 1955.

Direct loans to farmers by the Farmers' Home Administration, primarily for farm ownership, production and subsistence, and water facilities, are intended to supplement the credit services provided by private and cooperative credit agencies. The principal purpose of these loans is to help borrowers improve their financial situation so that they can qualify for private or cooperative credit. In the fiscal year 1955, the regular loan program will be continued at about the same level as that provided in 1954. Collections of principal and interest on old loans, which approximately equal new loans made, go directly into miscellaneous receipts of the Treasury and are not deducted from budget expenditures of this program.

Existing legislation does not provide adequately for the financing of group water facilities and related small water supply projects. Proposals for legislation will be submitted at a later date to broaden the geographical area within which water facilities loans may be made, and to increase the loan limit.

The volume of special disaster loans to farmers increased sharply during the first half of the fiscal year 1954. This increase resulted mainly from loans made to stockmen and other farmers in drought-stricken areas to help them finance feed purchases and thereby avoid drastic liquidation of their livestock holdings. The Federal Government also contributed emergency feed from stocks acquired in price support operations and absorbed a part of the cost of making other feed available to farmers in these areas.

As of December 18, 1953, the Federal Government under this program had committed 52 million dollars to supply 1.4 million tons of feed concentrates and over 5 million dollars to cover the Federal Government's share of the cost of the hay program which is administered by the States. A recommendation will be made to the Congress shortly to assure a continuation of advances to States for assistance in distributing hay to farmers and ranchers in the drought areas. In addition, meat purchases of 86 million dollars by the Government up to December 16, 1953, financed from the permanent appropriation for removal of surplus agricultural commodities, have resulted in the removal of about 780,000 head of cattle from the market. The disaster loan program, along with provision of emergency feed and purchases of meat by the Department of Agriculture, supported livestock prices at a time when the market otherwise would have been more depressed by forced liquidation of livestock. The need for new loans and other emergency assistance is expected to be greatly reduced by the spring of 1954, and collections during the fiscal year 1955 on disaster loans made in prior years should exceed new loans made.

Financing rural electrification and rural telephones.--The need for rural electrification loans has become less as the proportion of our farms that are electrified has increased. About 91 percent of our farms are now electrified. Only about 42 percent of our farms, however, have telephone service. The budget recommendations for these two programs in the fiscal year 1955 provide loan funds sufficient to finance substantial further expansion of electrification and telephone services in rural areas. In order to reduce the need for future Federal aid, this administration also is exploring possible arrangements whereby more private capital can be made available to finance telephone services in rural areas.

Agricultural land and water resources.--The need for greater emphasis on conservation and development of our agricultural land and water resources was set forth in my special message to the Congress on this matter on July 31, 1953. The budget estimates provide for 66 million dollars under existing legislation to continue and improve the technical and advisory services of the Soil Conservation Service and for related activities.

Additional work should be undertaken with a view to strengthening our vital upstream conservation activities. Farmers increasingly realize that it is in their own interest to do more of this work. Because the Nation as well as farmers and local communities receive benefits, this work should be a joint responsibility. Existing law, however, does not provide an adequate basis for cooperative upstream development. The 1955 budget, therefore, includes 3 million dollars under proposed legislation to permit the Department of Agriculture to cooperate with State and local agencies in the planning and installation on small watersheds of the necessary protective facilities, and to provide for better conservation, development, utilization, and disposal of water. This will supplement the 11 million dollars to be spent under existing law for watershed protection and flood prevention projects.

In conformance with the forward authorization for the 1954 crop year enacted in the 1954 appropriation act, the budget provides 195 million dollars for the agricultural conservation payment program in the fiscal year 1955. A proposed revision of this program will be recommended to the Congress. The proposal involves no expenditures in the fiscal year 1955.

Research and other agricultural services.--To achieve a more efficient and stable agriculture and to provide for the future needs of a growing population, increased attention must be given to research and educational work on problems of agricultural production, soil conservation, and marketing. The 1955 budget includes 112 million dollars for research and extension work, an increase of 18 million dollars over the estimate for the fiscal year 1954. This work is done in cooperation with State and private agencies. The budget recommendations will provide for a needed expansion of research on marketing and utilization of farm products and of other scientific research conducted by Federal agencies, and increased payments to States for related cooperative research programs. This budget also will provide greater Federal contributions to the Federal-State extension program.

The recommended increase in Federal appropriations for cooperative research and extension work is accompanied by a recommended decrease in appropriations for certain regulatory activities carried on jointly with the States. The budget contemplates elimination of Federal contributions for tuberculosis and brucellosis indemnity payments and curtailment of Federal quarantine and similar operations in a number of insect and plant disease programs. The shift in responsibility for continuation of these programs is in accordance with the policy of this administration that the Federal Government should withdraw from activities which we believe can be more appropriately carried on by private enterprise or by State and local governments.

A strengthening of agricultural research and the wide dissemination of improved techniques through extension work will contribute to the efficiency of farm production and marketing, benefiting both producers and consumers. This will provide the solid foundation for a more prosperous and stable agriculture and ultimately for less reliance on Government price support and other financial aids.


My recommendations for the natural resources programs of the Government are based on a reappraisal of the responsibility which the Federal Government should exercise in the development of our resources. At the same time, the recommendations have been made with due regard to our overall fiscal position. To keep the Federal financial burden at a minimum while defense expenditures remain high, some improvements and program expansions which might be desirable have not been included in this budget. Emphasis has been given to careful planning to insure sound development of our natural resources. Such development should be timed, whenever possible, to assist in leveling off peaks and valleys in our economic life.

A strong program of resource conservation and development is necessary to support the progressively expanding demands of our increasing population and to contribute to the economic growth and security of the Nation. Achievement of this goal requires a combined effort on the part of States and local communities, citizens, and the Federal Government. To the greatest extent possible, the responsibility for resource development, and its cost, should be borne by those who receive the benefits. In many instances private interests or State and local governments can best carry on the needed programs. In other instances Federal participation or initiative may be necessary to safeguard the public interest and to accomplish broad national objectives.

Estimated net expenditures of 1.1 billion dollars in the fiscal year 1955 will provide for the management and protection of the resources which belong to all the people and which are under the jurisdiction of the Federal Government. About three-fourths of this total will be for flood control, irrigation, power, and multiple-purpose river basin development. The remainder will be spent on the management, development, and protection of our national forests, parks, and other public lands, and for mineral and fish and wildlife resources and basic surveys. Activities to advance the peacetime applications of atomic energy, which will be of increasing significance in 1955, are discussed with other activities of the Atomic Energy Commission in the national security section of this message.


[Fiscal years. In millions]

Gross expenditures Net expenditures Recom-

mended new

1954 1955 1954 1955 obligational

1953 esti- esti- 1953 esti- esti- authority

Program or agency actual mated mated actual mated mated for 1955

Land and water resources:

Corps of Engineers: Flood

control and multiple-

purpose projects:

Existing program $579 $416 $361 $579 $416 $361 $342

Proposed legislation: Aid

for non-Federal de-

velopment of water re-

sources 5 5 5

Department of the Interior:

Bureau of Reclamation:

Irrigation and mul-

tiple-purpose proj-


Existing program 235 182 167 231 180 164 160

Proposed legislation:

Federal projects (1) (1) (1)

Proposed legislation:

Aid for non-Federal

development of water

resources 5. 5 5

Power transmission agen-

cies 65 64 53 65 64 53 39

Indian lands resources 32 36 35 29 35 34 27

Bureau of Land Manage-

ment and other 14 16 15 14 16 15 16

Tennessee Valley Author-

ity 315 366 439 184 195 212 142

Department of State 15 9 5 15 9 5 2

Federal Power Commis-

sion 4 4 4 4 4 4 4

Forest resources 107 116 110 107 116 110 108

Mineral resources 41 41 39 38 38 36 36

Fish and wildlife

resources 34 37 38 34 37 38 36

Recreational use of re-

sources 30 34 34 30 34 34 29

General resource surveys

and other 28 28 27 28 28 27 27

Total 1,499 1,349 1,337 1,358 1,172 1,103 2978

1Less than 500,000 dollars.

2Compares with new obligational authority of 1,396 million dollars in 1953, and 1,026 million dollars in 1954.

Land and water resources.--Under my recommendations in this budget, the Federal Government will spend an estimated 858 million dollars for the conservation and development of land and water resources in the fiscal year 1955. A major part of this represents investment in assets which will yield benefits long into the future.

This administration is developing a sound and uniform national policy for the conservation, improvement, and use of water and related land resources, designed to assure that future programs are not only responsive to local requirements but are consistent as well with the needs of the Nation as a whole. As a step in this direction, a statement of principles has been issued on the generation, transmission, and disposal of electric power. Standards for the justification of proposed water resources projects are currently being reviewed by the executive branch. Special attention is being given to requirements for the sharing of costs among private beneficiaries, State and local groups, and the Federal Government. Also, the Congress has established commissions to examine resource programs, as well as other Federal activities, and to make recommendations with respect to them. As the various studies are completed, I shall make specific legislative recommendations to the Congress.

This administration has also taken and will continue to take steps to encourage non-Federal interests to formulate plans and undertake development of water resources, including hydroelectric power, which are consonant with the best use of the natural resources of the area. An outstanding example of cooperation between various levels of government-State, Federal, and international--in multiple-purpose development of a resource is the proposal for the development of the St. Lawrence River. It would also be in the public interest for construction to be undertaken, on a non-Federal basis, to realize the power potential of the Niagara Falls site.

Basic resource surveys and advance engineering and design activities will be carried on in 1955 at rates necessary to provide for further development of our resources. Federal activities in projects or plans will not imply any exclusive reservation of such projects to Federal construction or financing or preclude local participation in them. Needed projects to be constructed by the Federal Government may include those which, because of size and complexity, are beyond the means of local, public or private enterprise.

My budget recommendations also provide for the continuation of river basin work now underway. Less urgent features of the projects, not required for operation of going or completed units, will be deferred. Budget expenditures of the Bureau of Reclamation and the Corps of Engineers include an estimated 443 million dollars in the fiscal year 1955 to carry on construction of about 160 river basin development projects. A substantial amount of these expenditures is for multiple-purpose development for irrigation, flood control, navigation, and hydroelectric power. During the fiscal year 1955, 20 projects will be completed or substantially completed, including 9 flood control projects, 5 irrigation projects, and 6 multiple-purpose projects with power facilities.

In furtherance of the policies of this administration, I am recommending the starting of some new projects or new units of existing projects by the Corps of Engineers and the Bureau of Reclamation, as well as the resumption of some previously deferred projects. The budget recommends commencing work on 6 irrigation and water supply projects, 8 local flood prevention projects, and 8 navigation projects, one of which I recommend starting in the fiscal year 1954 with supplemental funds. In addition, it provides for resumption of work on 2 flood control reservoirs and 2 river and harbor improvements. This work is estimated to cost a total of 184 million dollars, with expenditures of 20 million dollars scheduled for the fiscal year 1955. Together with the St. Lawrence Seaway, this totals to 23 new projects and 4 resumptions in the budget. The navigation projects, including the St. Lawrence Seaway, are discussed in this message with the transportation and communication programs. Recommendations for related watershed protection and flood prevention activities of the Department of Agriculture are discussed in the section on agriculture and agricultural resources.

The new local flood prevention works, to be constructed by the Corps of Engineers, are relatively small projects and can be completed within 3 years. The detailed plans preliminary to construction have been completed. Each of the projects has a favorable ratio of benefits to costs and provides for a reasonable degree of financial cooperation by local interests. Resumption of work is proposed on 2 flood control reservoirs, each of which is about one-third completed.

The new projects recommended for the Bureau of Reclamation include 3 projects already authorized and 2 projects under legislation I am proposing. Commencement of work is also recommended on a new pumping unit of an irrigation project now under construction. These are small or intermediate-sized developments. In their selection, consideration has been given to the benefits of supplemental irrigation for established farming areas, to more intensive and beneficial use of existing water supplies, and to the ability of the water users to make a reasonable repayment of the investment. In the case of one of the projects which requires authorization, I have recommended to the Congress that provision be made in the legislation for repayment within 50 years of all reimbursable costs, and that construction of the project be made contingent on the assumption by the State, together with local organizations, of financial responsibility for reimbursable costs beyond the ability of the water users to repay. This principle is in line with the policy of this administration that, to the greatest extent possible, the cost of these developments should be borne by those who receive the benefits.

In accordance with this administration's policy of encouraging State and local undertakings, there is included in the budget an initial appropriation of 10 million dollars under proposed legislation to enable the Corps of Engineers and the Bureau of Reclamation to cooperate with States, local governments, or private groups in the development of their water resources. It is thought that there are projects on which State and local interests could go forward with some Federal assistance. Such assistance should be provided on an equitable financial basis and should be limited to projects from which benefits would accrue to the general public.

The power policy of this administration recognizes the willingness of State and local groups to participate in providing additional power facilities. Where the necessary transmission facilities are not being provided on reasonable terms by other public or private agencies, the Department of the Interior will construct and operate transmission lines that are economically feasible and are necessary for proper interconnection and operation of Federal generation plants, and those that are required to carry power to load centers within economic transmission distances. As a result of this policy and the approaching completion of transmission systems required for carrying out arrangements for marketing power from Federal projects under construction, combined expenditures of the Bonneville, Southeastern, and Southwestern Power Administrations in the fiscal year 1955 will be less than in 1954.

Under the Federal Power Act, licensees of hydroelectric projects which benefit from headwater impoundments of other projects, either public or private, must make annual payments to the upstream developer in accordance with benefits received. The Federal Government is not required to make similar payments when Federal projects derive such benefits. In simple equity, this should be done. I recommend enactment of legislation which would require such Federal payments.

Although no appropriations are included in the 1955 budget for new power generation units by the Tennessee Valley Authority, expenditures will increase for continuation of construction of power plants presently underway, and for operation of power plants after they are completed. Expenses for operation of flood control, navigation, and fertilizer facilities will continue at about the 1954 level. Expenditures for power and fertilizer operations are more than offset by the income from sales. In order to provide, with appropriate operating reserves, for reasonable growth in industrial, municipal, and cooperative power loads in the area through the calendar year 1957, arrangements are being made to reduce, by the fall of 1957, existing commitments of the Tennessee Valley Authority to the Atomic Energy Commission by 500,000 to 600,000 kilowatts. This would release the equivalent amount of Tennessee Valley Authority generating capacity to meet increased load requirements of other consumers in the power system and at the same time eliminate the need for appropriating funds from the Treasury to finance additional generating units. In the event, however, that negotiations for furnishing these load requirements for the Atomic Energy Commission from other sources are not consummated as contemplated or new defense loads develop, the question of starting additional generating units by the Tennessee Valley Authority will be reconsidered.

In order to carry out the power policy of this administration which requires an interest charge on the Federal investment in power facilities to reimburse the Treasury for the cost of providing funds, a proposal is being developed for submission to the Congress to provide that an adequate rate of interest be paid to the Treasury on public funds invested in power facilities of the Tennessee Valley Authority. For this purpose, I have requested that a study be undertaken by the agency in cooperation with other executive agencies.

National forests and other public lands.--The development and use of our public lands should be on a businesslike basis with due regard for proper conservation and for the rights and interests of States and private citizens. Programs of the Forest Service and the Bureau of Land Management provide for the management, development, and increasing use of the valuable timber, forage, and mineral resources of the national forests and public lands, and also for the protection and use of these lands for their strategic watershed and other public values. Receipts from the use of these lands, estimated at 154 million dollars in the fiscal year 1955, are shared with the States and counties in which the lands are located.

The budget contemplates the withdrawal of Federal financial participation in certain phases of State and private forestry cooperation, with greater assumption of responsibility by local interests. At the same times emphasis will be placed by the Forest Service on cooperative research. Increased funds are recommended to complete construction of access roads needed to salvage the timber in the beetle-infested and windblown forest areas of Washington and Oregon.

Expenditures for the management and protection of our national parks, monuments, and historic sites will be somewhat above the current-year level, so as to provide for improved services to the increasing number of visitors. This increase is largely offset by a reduction in expenditures for construction. Federal aid to States for fish and wildlife restoration, financed by special taxes on fishing and hunting goods, will increase.

As a part of the administration's objective of charging reasonable fees for services or facilities provided by the Government for private individuals or groups, consideration is being given to adjustments which would result in increased receipts to the National Park Service, thus returning to the Treasury a larger amount of the costs of maintaining and operating our national parks.

Expenditures on Indian land resources will provide for soil conservation work and further development of water supplies and timber and range resources necessary for their economic development. In the fiscal year 1955 appropriations will be reduced from their level in 1954 as a result of the slowing down or deferring of some construction projects--which will be accomplished without jeopardizing the overall objectives of the Indian programs.

Mineral resources.--I have recently appointed a Cabinet committee to establish guidelines for the prudent use and development of domestic mineral resources and to assure our growing economy of necessary mineral supplies in time of emergency. The report of this committee, expected within the next few weeks, should be helpful in resolving many of the problems facing the mineral producers of the Nation.

The Bureau of Mines will continue its basic research programs in the fiscal year 1955 for the aid of private development of resources, with emphasis on expanding the utilization of minerals in abundant supply and the development of suitable substitutes for materials in short supply. The Federal Government will also encourage private development by undertaking basic resource surveys, providing incentives for exploration of high priority minerals, and assisting in the development of oil and gas reserves of the Outer Continental Shelf.


Efficient transportation and communication services are essential to the national economy and the national security. At my request, an intensive reappraisal of Federal responsibilities is underway both by the regular departments and agencies and by special commissions. The general principles guiding this reappraisal are that the national interest will usually be served best by a privately owned and operated industry, which is supported by a minimum of Federal funds or Federal basic facilities and services operated at the lowest feasible cost and financed, where possible, by charges levied on the users of the services.

In the fiscal year 1955 net budget expenditures for transportation and communication programs will decline to an estimated 1,418 million dollars, compared with 1,856 million dollars in 1954 and 2,077 million dollars actually expended in 1953. The largest decrease is the anticipated reduction of the postal deficit by operating savings and by increased postal rates. Sizable reductions have also been made in other large programs.

New legislative authority is required to move more rapidly toward putting the postal service on a self-supporting basis and to establish a corporation to operate the Washington National Airport. I am also recommending legislation to permit us to participate in the St. Lawrence Seaway, and to continue and strengthen the Federal-aid highway program.

Promotion of aviation.--The rapid development of aviation has been materially assisted by numerous services and by direct financial assistance provided by the Federal Government. These aids have included basic scientific research in aeronautics, establishment and operation of airways, enforcement of safety regulations, assistance in construction of airports, and direct provision of subsidies to airmail carriers. While need for some aid continues, the increasing maturity of this industry requires thorough reevaluation of the promotional responsibilities of the Federal Government. At my request, the Air Coordinating Committee is now undertaking a comprehensive review of our aviation policy.


[Fiscal years. In millions]

Gross expenditures Net expenditures Recom-

mended new

1954 1955 1954 1955 obligational

1953 esti- esti- 1953 esti- esti- authority

Program or agency actual mated mated actual mated mated for 1955

Promotion of aviation:

Civil Aeronautics Adminis-

tration $161 $146 $121 $161 $146 $121 $104

Civil Aeronautics Board

(subsidies to air carriers) 54 80 54 80 73

National Advisory Com-

mittee for Aeronautics 78 91 77 78 91 77 58

Promotion of merchant ma-


Maritime Administration 358 262 156 235 196 107 102

Inland Waterways Corpo-

ration 12 1 (1) -- 2 -- 1

Provision of navigation aids

and facilities:

Coast Guard 230 236 190 230 236 190 181

Corps of Engineers:

Present programs 113 102 106 113 102 106 103

Proposed legislation (St.

Lawrence Seaway) 6 6 105

Panama Canal Company 106 102 99 --10 --2 --1

Provision of highways:

Bureau of Public Roads:

Present programs 550 592 582 550 592 582 10

Proposed legislation 598

Alaska roads and other 22 20 17 22 20 17 13

Postal service:

Present program 2,775 2,775 2,775 659 440 330 329

Proposed increase in postal

rates --240 --240

Regulation of

transportation 17 16 16 17 16 16 16

Other services to transporta-

tion 45 42 45 15 -- 40 21 22

Regulation of communica-

tion 7 7 7 7 7 7 8

Total 4,474 4,446 4,277 2,077 1,856 1,418 21,482

1Less than 500,000 dollars.

2Compares with new obligational authority of 1,925 million dollars in 1953 and 1,756 million dollars in 1954.

With growing maturity, the airline and aircraft manufacturing industries should assume increased responsibility for air safety. Improved procedures of traffic control, elimination of older-type facilities, and curtailment of less essential services should permit an expanded volume of air traffic to be handled safely with reduced Federal expenditures for operating programs. Expenditures for construction programs are likewise declining.

As a result of these developments, expenditures of the Civil Aeronautics Administration can be reduced and we can still fulfill the basic Federal responsibilities for providing air-navigation aids, traffic control, and safety services. Budget expenditures in the fiscal year 1955 are estimated to be 25 million dollars less than in 1954, and 40 million dollars less than in 1953.

I am recommending appropriations for new airways facilities amounting to 5 million dollars, which will permit further progress on the modern very high frequency system of navigation aids and certain other improvements. Pending completion of current studies, no provision is made in the budget for additional appropriations for grants to State and local governmental units for airport construction.

In addition, the time has come when consideration should be given to requiring the users of the airways facilities to share the costs of providing this service.

Reorganization Plan No. 10 of 1953, transferring the subsidy portion of airmail payments from the Postmaster General to the Civil Aeronautics Board, makes it possible for the first time for Congress to consider this major aid to aviation as a separate budget item. For both 1954 and 1955, these subsidy payments are estimated at approximately 80 million dollars, based primarily on existing route patterns and mail rates. The subsidy expenditures were included in the Post Office Department through September 1953. The separation of compensatory mail payments, which remain in the Post Office, from subsidy payments is a necessary first step toward a more effective review of expenditures for civil aviation as well as for the postal service.

The scientific research in aeronautics conducted by the National Advisory Committee for Aeronautics will continue in the fiscal year 1955 to be devoted almost entirely to support of the military programs for the development of new and improved aircraft, guided missiles, and propulsion systems. The budget provides for a strong continuing program in aeronautical research and for initial operation of the three new large supersonic wind tunnels now under construction. Nevertheless, expenditures will be 14 million dollars less than in the fiscal year 1954 because of the sharp decrease in construction expenditures as projects are completed. The superior performance of our jet aircraft in Korea and the even better performance of newer types now in production has been possible because of the basic research and wind-tunnel testing done in previous years. Much of the work will also contribute eventually to improving the performance, safety, and comfort of civil aircraft. Future possibilities are hinted by the recent performance of our research airplanes, one of which attained a speed of over 1,600 miles per hour--two and one-half times the speed of sound.

Merchant marine.--Federal aid to the merchant marine consists primarily of operating and construction subsidies to offset the differences between American and foreign costs. This program is designed to promote a healthy merchant marine as a nucleus capable of rapid expansion to meet national-defense needs. The sharp reduction in expenditures will result almost entirely from virtual completion of construction of the 35 Mariner-class vessels authorized in 1951.

Expenditures for operating subsidies have been rising steadily, and in 1955 will account for 85 of the 107 million dollars in net expenditures for maritime programs. These increases reflect not only faster payment of earlier obligations but also higher levels of subsidy resulting from the increased operating costs in recent years. The size and rising trend of expenditures for these subsidies make it essential to consider legislative changes to provide for more effective budgetary. control consistent with the basic objectives of the maritime program.

Operating programs of the Maritime Administration show a downward trend. By the end of the fiscal year 1955 the emergency operation of Government-owned cargo vessels will be reduced to about 47, compared to a high of 538 in 1952. Ships withdrawn from operation are being maintained in the national-defense reserve fleet to meet future emergency needs.

The physical assets of the Inland Waterways Corporation were sold as of July 1, 1953, in accordance with this administration's policy of removing the Federal Government from an activity which is appropriately private. The terms of sale fully protect the public interest in the continuance of the common-carrier barge service along the Mississippi and Warrior Rivers.

Navigation aids and facilities.--The expanded search-and-rescue facilities of the Coast Guard established in support of Department of Defense activities are being curtailed. Moreover, the fact that our transoceanic civil aviation no longer has a requirement for ocean weather stations has made it possible to reduce the number of these stations to those required by the Department of Defense, which in the future will finance them. These and other realignments will permit Coast Guard financed expenditures to be reduced from 236 million dollars in fiscal 1954 to 190 million dollars in fiscal 1955.

The Corps of Engineers will carry forward at minimum levels the maintenance work required for continued operation of river and harbor projects. Construction will also continue in 1955 at economic rates on 13 channel, harbor, or lock and dam projects, including one project to be initiated by a proposed 1954 supplemental appropriation. Seven other projects will be initiated and 2 deferred projects resumed in 1955. These projects have been selected on the basis of assuring the expeditious movement of traffic in existing harbors or waterways serving important requirements of commerce or national security. Emphasis has been given to small- or intermediate-sized projects for which detailed engineering plans have been completed. Not only do the benefits of these projects exceed their costs, but also, except for four high-priority projects of national interest, local beneficiaries will make a reasonable financial contribution.

In my State of the Union Message I again strongly recommended enactment of legislation to create a Government corporation to work, along with Canada, on the construction and operation of the proposed St. Lawrence Seaway. This proposal, now before the Congress, represents one part of a broad development of the great potential of the St. Lawrence River for electric power and for navigation. The power features of the International Rapids section are expected to be constructed in part by the Province of Ontario and in part by the State of New York. The seaway legislation would permit the Federal Government, in cooperation with Canada, to build the remaining navigation facilities needed for oceangoing vessels to reach the Great Lakes. The total amount to be invested by the United States in the seaway is now estimated at 105 million dollars, with first-year expenditures of 6 million dollars. As I have previously indicated, not only would the seaway make a major contribution to national security, but over a period of years the tolls received by the United States from the prospective commercial use should permit the Federal investment to be fully repaid. Joint participation with Canada in this undertaking will assure that all legitimate American interests are taken into account in the construction and operation of this vital transportation link.

Highways.--Expenditures under the Federal-aid highway program of grants to States for highway construction have .been rising during the past year, and will continue to rise in the fiscal year 1955 under commitments made pursuant to the Highway Act of 1952. The 1955 expenditures will be the highest in history. Emphasis in the selection of new projects will be given to the national system of interstate highways, which comprises the most important routes for interstate commerce and national defense. Of the 555 million dollars of estimated expenditures under the Federal-aid program in the fiscal year 1955, about 150 million dollars will be spent for projects in the interstate system. Other construction programs of the Bureau of Public Roads will involve expenditures of 27 million dollars, mainly for direct construction of forest highways and defense access roads.

We should give increased attention to eliminating the existing inadequacies of the national system of interstate highways. Pending development and review of detailed proposals for extension of the Federal-aid highway program, I am including under proposed legislation the 5765 million-dollar level of the existing authorization. Similarly, I am including the prevailing annual rate of 29.5 million dollars for the forest highway program. No appreciable expenditures will be made under the proposed authorizations in the fiscal year 1955.

Postal service.--Measured both in dollars and in employees, the postal service is big business. But, in its management, the modern methods which have so greatly increased the efficiency of private business have too often been ignored.

Last February, I announced "a program directed at improving service, while at the same time reducing costs and decreasing deficits." Progress is being made toward achieving these objectives and will continue.

First, we are speeding the delivery of mail by many new steps without significant change in costs of handling. Later window hours, later pickups, changes in transportation patterns and schedules, experiments in carrying first-class mail by air, and many other projects have been made effective or are now being tested. The results will become increasingly apparent in the next year.

Second, to obtain a clear-cut measure of the cost of operating the postal service, the payment of airline subsidies has been transferred by reorganization plan to the Civil Aeronautics Board, and legislation enacted to require Government agencies and the Congress to reimburse the Post Office for the cost of handling their mail.

Third, we have initiated many economies and are planning others. Reduced mail-handling costs through efficient modern techniques already have resulted in substantial savings. This program is well underway but will take a long time to complete, since the new methods will require employee training and development of new machines.

Fourth, the deficit has been further reduced by increases in rates which the Postmaster General could change. Increases in parcel-post rates, foreign-mail rates, and others subject to administrative discretion have in the main put these services on a self-supporting basis.

The results of these and other improvements are already visible in the financial operations and outlook. Despite an estimated increase in mail volume of almost 2 billion pieces, gross expenditures of 2,775 million dollars in the fiscal year 1955 will remain unchanged from 1954. With higher operating revenues, the deficit under existing postal rates will continue to decline:


1953 (actual) $659

1954 (estimated) 440

1955 (estimated) 330

No business, public or private, can prosper unless its management is free to use the best available methods of operation and to set prices adequate to cover the costs of an efficient operation. Legislation is already before the Congress to authorize the Post Office Department to acquire needed modern postal facilities, through long-term leases with title acquired at the end of the term. Other legislation is required to correct archaic administrative and personnel practices, and to enable expanded use of more modern transportation methods.

Most important, prompt and favorable action by the Congress is needed to increase postal rates. I am recommending increases in rates sufficient to yield as a minimum an additional 240 million dollars in revenues in the fiscal year 1955. These revenues would reduce the 1955 postal deficit to 90 million dollars. Adequate rates, together with further major economies in postal operations, are expected to put the postal business on a self-supporting basis. This will continue to be our policy.

Regulation.--Three regulatory commissions carry out the Government's responsibility to protect the public interest in reasonable rates and adequate, safe transportation and communication: Interstate Commerce Commission, Federal Communications Commission, and Civil Aeronautics Board. Although their duties have substantially increased in recent years, anticipated improvements in management and procedures make it unnecessary to request any significant appropriation increases. For example, the centralization of administrative responsibility and the reorganization of existing activities in the Interstate Commerce Commission should make possible more effective use of available funds. By the end of the fiscal year 1954, the Federal Communications Commission should be substantially current in handling applications for television stations, so that the funds required for its activities, except for a new program of monitoring frequency usage, will be smaller in the fiscal year 1955 than in 1954.

Receipts of public enterprise funds.--Two-thirds of the gross expenditures of 4,277 million dollars for transportation and communication programs in the fiscal year 1955 will be financed from receipts of public enterprise funds. Postal receipts account for the bulk of these revenues. Substantial receipts are also anticipated from tolls and other revenues of the Panama Canal Company, and from vessel operations of the Maritime Administration.


Within the limits set by requirements of national defense and the needs of the national economy, we are steadily reducing direct banking and business operations of the Federal Government. For example, the Reconstruction Finance Corporation is being liquidated, and the Government's synthetic rubber plants are being offered for sale. At the same time, the programs of the Department of Commerce to promote trade and industry are being strengthened and the Small Business Administration has been established to meet the special needs of small business. Regulatory agencies are simplifying their procedures and putting greater stress on cooperation rather than compulsion, without reducing protection to the public.


[Fiscal years. In millions]

Gross expenditures Net expenditures Recom-

mended new

1954 1955 1954 1955 obligational

1953 esti- esti- 1953 esti- esti- authority

Program or agency actual mated mated actual mated mated for 1955

Promotion of defense


Expansion of defense

production $390 $562 $546 $89 $381 $308

Reconstruction Finance

Corporation 516 349 270 -- 98 --233 --65

Other 121 27 16 84 --5 --4 $4

Business loans and


Reconstruction Finance

Corporation (Treasury):

Loans 128 44 10 7 --95 --121

Other 18 122 5 --29 97 --19

Small Business

Administration 13 31 12 25

Promotion or regulation of

trade and industry:

Department of Commerce 17 17 22 17 17 22 22

Other 9 10 11 9 10 11 11

Promotion or regulation of

financial institutions 6 7 6 --3 --20 5 5

Total 1,205 1,151 917 76 164 162 1 42

1Compares with new obligational authority of 134 million dollars in 1953 and 97 million dollars in 1954.

Gross expenditures for finance, commerce, and industry programs are expected to be 917 million dollars in the fiscal year 1955, a reduction of 234 million dollars from 1954. About 60 percent of these expenditures are for financial assistance provided under the Defense Production Act. Another 30 percent are for the production programs administered by the Reconstruction Finance Corporation--primarily rubber and tin. Anticipated receipts of these enterprises as a group will decline about as much as their expenditures. Accordingly net expenditures of 162 million dollars in 1955 will be about the same as in 1954.

Expansion of defense production.--The Defense Production Act authorizes extensive financial assistance to assure expansion of productive capacity and of the materials supply necessary for our defense. With the help of purchase commitments, loans, and advances already made, much of the needed expansion is now under way. As a result, the aluminum productive capacity of the United States has doubled since 1950 and supplies of machine tools, titanium, copper, nickel, and other critical items have also substantially increased.

These programs are financed under the borrowing authority of 2.1 billion dollars provided in the Defense Production Act. Gross expenditures in the fiscal year 1955 are estimated at 546 million dollars. Of this amount 296 million dollars will be spent for purchases of materials and 165 million dollars for loans and advances to producers. Most of these expenditures arise from commitments already outstanding. Since a large part of the materials to be acquired under this authority will be sold to the military stockpile of strategic and critical materials to meet its objectives, this program is intimately related to the stockpiling program discussed in the national security section of this message. Receipts from these sales and from sales to private industry, together with repayments of loans and advances, are estimated at 238 million dollars in 1955, reducing net expenditures to 308 million dollars.

Reconstruction Finance Corporation--production programs.--Expenditures and receipts of the rubber, tin, and abaca fiber programs currently administered by the Reconstruction Finance Corporation will continue to decline sharply in 1955, primarily as a result of reduced operations anticipated in the tin program.

By the end of the present fiscal year, the Government will have completed purchases of tin for the national stockpile. World supplies are already adequate to meet current requirements. As a result, there may no longer be a need for continued operation of the Government tin smelter in 1955. Pending outcome of international negotiations, the budget assumes withdrawal of the Government smelter from operations at the end of the fiscal year 1954.

During the fiscal years 1954 and 1955, annual production of synthetic rubber is estimated at about 600,000 tons-- a reduction from the 712,000 tons produced in 1953. Present experience indicates that this level of production will meet all of the anticipated national needs for synthetic rubber. Although the Rubber Facilities Disposal Act authorizes sale of Government plants to private ownership before the end of the fiscal year 1955, plans are not yet far enough advanced to include estimated receipts from such disposal in the 1955 budget.

The production programs will be transferred to another agency before June 30, 1954, as provided in the Reconstruction Finance Corporation Liquidation Act.

Business loans and guarantees.--The regular business loan program of the Reconstruction Finance Corporation is now in liquidation as a result of legislation enacted last year on the recommendation of this administration. The Treasury Department will administer the liquidation after June 30, 1954. We plan to sell a major part of the Corporation's loans to private financial institutions. To meet commitments previously made, some expenditures will continue, but repayments and sales of loans will result in estimated net receipts of 121 million dollars in 1955.

A new program of loans to small businesses has recently .been established in the Small Business Administration. The 1955 budget assumes that about 350 loans will be authorized in the fiscal year 1954, and about 700 in 1955. This would almost exhaust the available appropriation of 55 million dollars by the end of 1955. Loans will be made where private credit on reasonable terms is unavailable, and, whenever possible, they will be made jointly with private banks. The Small Business Administration also assists small concerns in obtaining a fair share of Government contracts, and provides them with technical and financial advice.

Department of Commerce.--In accordance with this administration's declared policy, most emergency controls over business have been removed. The business programs of the Department of Commerce have been reorganized to provide a simpler and more effective basis for carrying on both regular business services and continuing responsibilities under the Defense Production Act. The Business and Defense Services Administration provides general services to business, assists in mobilization preparedness, and administers relevant current defense activities. The Bureau of Foreign Commerce assists in promoting international trade, primarily by providing American business with information on opportunities to buy and sell abroad. The Office of Business Economics provides data on the American economy and analyses of economic and business trends for a wide range of business and Government purposes. I am recommending small increases in the appropriations for these programs so that the Department can adequately carry out its responsibilities to foster and promote industry and commerce.


My budget recommendations for the labor and manpower programs of the Federal Government are designed to help the Nation's productive system function smoothly and efficiently, by providing economic safeguards for workers, by helping bring together jobseekers and jobs, and by helping to recruit the working forces for defense and other industries. Workers will continue to be given protection against substandard wages and working conditions and against income losses due to unemployment. Orderly labor relations will be fostered, and the amicable settlement of disputes will be assisted by mediation.

Including proposed legislation, budget expenditures for labor and manpower programs are estimated at 281 million dollars during the fiscal year 1955, an increase of 16 million dollars from the current fiscal year. Approximately three-fourths of total budget expenditures for these programs is for administering the job placement and unemployment compensation services.

Although many of our workers benefit from the existing Federal-State unemployment compensation system, the present Federal law does not include employees of firms with fewer than eight persons nor does it include Federal civilian employees. I recommend prompt extension of the system to these workers. Seventeen States already provide coverage of most firms with one or more employees, and most other States have legislation which will permit immediate coverage when the Congress acts. Amendments to State laws to achieve full coverage will be needed in only a dozen States. This preparedness on the part of the great majority of States will permit rapid extension of this valuable protection after the Federal law is amended. Additional revenues will more than offset the administrative costs resulting from such extension. An estimate of the benefit costs for Federal employees is included under general government.

Placement and unemployment compensation administration.--Gross expenditures in the fiscal year 1955 for administering the Federal-State placement and unemployment compensation services under present law are estimated at 192 million dollars, 7 million dollars below the current year. A decrease of about 30 million dollars will result from a change in financial arrangements, by which advance payments to each State before the opening of each fiscal year will be reduced from an amount covering three months' operations to an amount for one month. Part of this reduction will be offset, however, by a higher estimated rate of expenditures for this program resulting from increases in salaries provided by State laws to employees who administer the services, some rise in the expected number of unemployment compensation claimants, and provision for weekly filing of claims and weekly payment of benefits. The weekly claims system, replacing the biweekly method currently in use in most States, will provide more satisfactory service to the claimants and, by permitting more frequent contact, should reduce the possibilities of fraudulent or erroneous payments. These factors may make necessary a request for a supplemental appropriation for the current fiscal year.


[Fiscal years. In millions]


Expenditures mended new


1953 1954 1955 authority

Program or agency actual estimated estimated for 1955

Gross expenditures:

Placement and unemployment com-

pensation administration:

Department of Labor:

Present program $212 $199 $192 $223

Proposed legislation to broaden un-

employment insurance:

Federal civilian personnel 2 2

Other workers 20 20

Labor standards and training:

Department of Labor 13 12 12 12

Mine safety (Department of the In-

terior and other) 4 5 5 5

Military manpower selection: Selective

Service System and National Security

Training Commission 33 30 31 32

Labor relations 13 14 13 13

Labor information, statistics, and gen-

eral administration: Department of

Labor 7 7 7 7

Defense production activities:

Department of Labor 2 (1)

Total 284 267 282 2314

Deduct applicable receipts: Farm labor

supply revolving fund 3 2 1

Net budget expenditures 281 265 281

1Less than 500,000 dollars.

2Compares with new obligational authority of 282 million dollars in 1953 and 267 million dollars in 1954.

This administration has already recommended enactment of legislation to transfer annually to a special account in the unemployment trust fund, an amount equal to the difference between the receipts of the Federal unemployment tax and the administrative costs of operating our joint Federal-State unemployment security program. The initial transfer, based on receipts and expenditures in the fiscal year 1955, would be made at the beginning of the fiscal year 1956.

My recommendations in this budget provide for continued operation of the system for recruiting qualified workers from Mexico for seasonal employment on farms in the United States. These workers are needed to supplement our domestic farm-labor supply. The 1954 appropriation for this recruitment program was based on legislation which was to have expired on December 31, 1953. This authority has now been extended until December 31, 1955, and funds are included in the budget to pay for operations during the rest of the fiscal year 1954, as well as in the fiscal year 1955.

The railroad unemployment insurance taxes and expenditures which were previously included in budget accounts are now entirely included in trust accounts.

Labor standards and training.--Budget expenditures for the minimum wage and maximum-hour regulatory programs in the fiscal year 1955 are estimated at about the 1954 level.

The social and economic plight of migratory farm workers has been studied repeatedly. Up to now, little positive action to better these conditions has been taken by the Federal Government. This budget includes a recommended appropriation of 100 thousand dollars to enable the Department of Labor to provide leadership in establishing a cooperative Federal-State program in the fiscal year 1955.

Military manpower selection.--Although a reduction in military personnel is planned, calls by the Department of Defense in 1955 to replace men drafted in 1953 will require an increase of 676 thousand dollars in estimated expenditures of the Selective Service System. This budget provides also for continuing a small staff for the National Security Training Commission.

Labor relations.--Budget expenditures of 13 million dollars in the fiscal year 1955 are estimated for the independent labor relations agencies-the National Labor Relations Board and the mediation services. Emphasis will be placed on providing improved services to employers and employees of industries and establishments strategically situated in interstate commerce.

Unemployment trust fund.--Under present law, unemployment compensation benefit payments in the fiscal year 1955 are expected to be somewhat higher than in 1954 because of an increase in claims of short duration and liberalization of benefits by States. Receipts in 1955 are estimated somewhat lower than in the current fiscal year. The legislation I am recommending to broaden unemployment compensation coverage will increase both the receipts and the benefit payments. Trust-fund transactions are not included in the totals of budget receipts and expenditures.


[Fiscal years. In millions]

1953 1954 1955

Item actual estimated estimated


Deposits by States and railroad unemployment


Present programs $1,391 $1,344 $1,329

Proposed legislation extending coverage 145

Interest 203 222 216


State and railroad withdrawals for benefits:

Present programs --1,004 --1,095 --1,195

Proposed legislation extending coverage --60

Net accumulation, including proposed

legislation 590 471 435

Balance in fund at close of year 9,244 9,715 10,150


Net expenditures for general government functions are estimated at 1,160 million dollars for the fiscal year 1955, compared with 1,175 million dollars in the fiscal year 1954. These expenditures are chiefly for the traditional Government activities not specifically classified elsewhere--making and enforcing the laws, collection of revenues, management of the public debt, and custody and management of public buildings and records.


[Fiscal years. In millions]


Expenditures mended new


1953 1954 1955 authority

Program or agency actual estimated estimated for 1955

Gross expenditures:

Legislative functions $48 $46 $47 $46

Judicial function 27 29 30 30

Executive direction 11 13 11 11

Federal financial management:

Tax collection 269 277 265 266

Customs collection, debt management,

and other 173 177 166 165

Other central services:

Central property and records manage-

ment 179 158 156 155

Civil Service Commission 21 16 15 16

Other 14 19 21 23

Unemployment compensation for Fed-

eral civilian employees (proposed

legislation) 25 25

Retirement for Federal civilian em-

ployees 324 34 32 32

Protective services and alien control:

Federal Bureau of Investigation 7 77 78 78

Immigration and Naturalization Serv-

ice 40 41 39 39

Other 22 29 22 21

Territories, possessions, and District of


District of Columbia:

Present programs 12 16 20 14

Proposed legislation 15 17

Territories and possessions 48 47 46 42

Other general government:

Payment of claims and relief acts 137 149 135

Weather Bureau 27 26 25 25

Other 21 24 16 14

Total 1,444 1,178 1,164 11,019

Deduct applicable receipts 5 3 4

Net budget expenditures 1,439 1,175 1,160

1Compares with new obligational authority of 1,337 million dollars in 1953 and 1,033 million dollars in 1954.

Federal financial management.--During the past year the Internal Revenue Service has improved greatly the administration of Federal revenue laws. Further economies will be made by cutting overhead expenses. These savings of several million dollars will be used to strengthen the field audit staff and to obtain more effective collection and enforcement. Auditing of tax returns and settlements are being speeded up. Tax collection has been decentralized so that most decisions in individual cases can now be made in district offices near the taxpayer. The reduced staff in Washington is concerned primarily with developing overall policies and assuring uniformity in administration throughout the country. Nevertheless, serious problems remain. For example, despite the improvement in auditing, the backlog of unaudited returns and uncollected accounts has increased for several years. Strenuous efforts are being made to reverse this trend, both to increase collections and to permit a more prompt determination of taxpayers' liabilities.

Further reduction in expenditures by the Bureau of the Public Debt will be achieved in the fiscal year 1955 by revisions in the savings bond promotion program to place greater emphasis on the sale of larger denomination bonds, elimination of uneconomic sales outlets, and other economies. A large volume of savings bonds is now reaching maturity, but redemptions of these matured bonds are relatively low, since most owners are taking advantage of their right to continue to hold them at 3 percent interest.

Central property and records management.--Substantial reductions have been made in the expenditures of the General Services Administration for management of Government property and records. The fiscal year 1955 estimate of 156 million dollars is 23 million dollars below actual 1953 expenditures and 2 million dollars below the revised 1954 estimate. These savings primarily result from material reductions in building space rented for Government use, made possible in part by reductions in the scope of Government operations and accomplished through an aggressive and critical examination of requirements. In addition, numerous savings are being achieved by the General Services Administration which reduce the budget requirements of other agencies throughout the Government. Real property requirements and holdings are being reexamined and property determined to be surplus is being disposed of as rapidly as possible. Purchases of new materials have decreased as a result of elimination of unnecessary inventories by reduction in the number of separate types of items carried in inventories and by better utilization of property already on hand. Significant progress also is being made in controlling the volume of records, in their economical storage, and, when they are no longer essential, in accelerating their disposal.

Civil Service Commission.--As part of the program for strengthening the merit system of the Federal civil service, the budget provides funds to improve the standards used for the recruitment and transfer of personnel and to further the career development of Government employees. The Civil Service Commission expenditures as a whole, however, will decrease with improved management practices and with a decline in prospective workloads for the examination and placement of applicants and for the investigation of persons employed or seeking employment in the Federal service.

I am recommending legislation to strengthen further the merit system and to provide conditions of employment for Federal personnel more nearly comparable to those in private enterprise. Certain legal restrictions initiated at the beginning of the present national emergency on the appointment and promotion of Federal workers should be removed. The present statutory limits on the number of high-level executive and scientific positions should be raised. Government agencies should be permitted to select employees from among the top five rather than the top three on Federal civil-service registers. Existing inequities in overtime-pay practices should be corrected. Building and maintenance workers should be added to the categories of employees paid at rates prevailing locally in private employment for similar occupations. The incentive-awards program should be consolidated and improved in order to eliminate costly administration and to increase employee interest in greater efficiency and economy. The cost of these changes in the main can be absorbed within the appropriations recommended for the agencies concerned.

Unemployment compensation for Federal workers.--I strongly recommend extension of the unemployment compensation system to give Federal employees the same benefits as are now provided to most workers in private employment. This will require an estimated 25 million dollars in expenditures for benefit payments in the fiscal year 1955. This program could be administered under contractual arrangements made through the Department of Labor with existing State unemployment compensation systems.

Retirement for Federal civilian personnel.--An appropriation of 30 million dollars is recommended to permit the continued payment to retired Federal workers of temporary cost-of-living increases as authorized by the Congress in 1952. The budget also includes 2 million dollars to pay annuities under special laws.

The civil-service retirement system is financed jointly by employee contributions and appropriations by the Government. The Congress, at its last session, however, did not appropriate for the Government's payments to the fund. The resumption of these payments is not included in this budget. Recommendations for financing this system as well as other retirement programs for Federal personnel will be determined after the Committee on Retirement Policy for Federal Personnel completes its study and reports to the Congress on or before June 30, 1954.

Protective services and alien control.--The Federal Bureau of Investigation, as the investigative arm of the Department of Justice, obtains evidence for use in legal actions involving violations of Federal law. The crime rate throughout the country has put an increasing burden on the Bureau. The Bureau also has primary responsibility for coordinating investigations in the executive branch necessary for the Nation's internal security. Such investigations continue at peak levels. It is essential, therefore, that the Bureau staff be adequate to discharge these responsibilities.

District of Columbia.--I strongly recommend enactment of legislation to finance the expanded public works construction urgently needed in the National Capital. This legislation would authorize an increase of 9 million dollars in the annual Federal payment to the general fund of the District of Columbia, and an additional 1 million dollars for full payment for all water and related services. It would authorize 107 million dollars of additional interest-bearing loans to the District over the next decade, of which an estimated 5 million dollars would be spent in the fiscal year 1955. These expenditures by the Federal Government would be accompanied by substantial increases in taxes paid by District taxpayers. This legislation would, for the first time in recent years, place Federal payments to the District government on a level commensurate with the Federal Government's position in and its demands upon the District. It would permit the District to start a long-term program of public works necessary to make the Capital City worthy of our great Nation.

Territories and possessions.--The Federal Government also has special responsibilities for administering the various Territories and possessions, including the Canal Zone and the Trust Territory of the Pacific Islands. Included in this budget are certain necessary increases in expenditures for continuing the civilian administration of the Trust Territory, except those islands in the northern Marianas returned to the jurisdiction of the Navy. I recommend that the Congress enact at an early date legislation establishing the basic form of government for the Trust Territory to replace the present temporary arrangements.

Intergovernmental relations.--A Commission on Intergovernmental Relations is now studying the proper role of the Federal Government in relation to the State and local governments. It is giving particular attention to fiscal relationships, such as Federal grants-in-aid, tax sources, and intergovernmental tax immunities, and will report shortly on certain aspects of its assignment.

Claims and relic[ acts.--The payment of certified claims makes up the total expenditure figure of 135 million dollars estimated for claims, judgments, and private relief acts in the fiscal year 1955. Most of these payments are for claims resulting from activities of the Department of Defense. The apparent decline of 14 million dollars in expenditures in the fiscal year 1955 is due to the usual omission in the budget year Of any specific estimate for other claims, judgments, and relief acts.

Receipts of public enterprise funds.--The operations of the Virgin Islands Corporation account for most of the 4 million dollars in receipts of public enterprise funds.


Primarily as a result of the large increase in the public debt during World War II, interest payments now account for about 10 percent of Federal expenditures. Interest payments are fixed primarily by the size of the public debt and by interest rates on debt already outstanding.

Interest on the public debt.--Interest payments on the public debt in the fiscal year 1955 are estimated at 6,800 million dollars. This is an increase of 275 million dollars over estimated expenditures for the current fiscal year, and 297 million dollars above actual expenditures in 1953.

The increase in 1955 reflects both the higher average interest rates and the larger public debt. The average rate on the interest-bearing public debt rose from 2.33 percent on June 30, 1952, to 2.41 percent on December 31, 1953, primarily because of the refinancing of maturing obligations at the higher market rates prevailing. As the result of the deficit financing during the same period the public debt has increased from 259 billion dollars to 275 billion dollars (including about one-half billion dollars not subject to the statutory debt limitation).


[Fiscal years. In millions]


Budget expenditures (net) mended new


1953 1954 1955 authority

actual estimated estimated for1955


Interest on public debt $6,503 $6,525 $6,800 $6,800

Interest on refunds of receipts 75 70 70 70

Interest on uninvested trust deposits 5 5 5 5

Total 6,583 6,600 6,875 16,875

1Compares with new obligational authority of 6,583 million dollars in 1953 and 6,600 million dollars in 1954.

The budget of the United States is the financial expression of the administration's program for the coming fiscal year. An understanding of its scope and content is a high challenge to every citizen.

When I took office a year ago, I promised the Congress and the people that this administration would seek to chart a fiscal and economic policy which would reduce the planned deficits and bring the budget into balance.

I warned that this would not be easy. There still are heavy national security requirements. Substantial expenditures are by law relatively nondiscretionary. The far-reaching activities of the Federal Government are extremely complex.

Despite these inherent difficulties, we have made great progress. Federal expenditures have been cut substantially, tax reductions have been made justifiable, and the budgetary deficit has been sharply reduced.

We have, furthermore, made appropriate provision for our national security and for our international obligations and we have been able to propose certain increases in Federal expenditures to advance our domestic well-being and to foster economic growth.

I firmly believe, therefore, that this budget represents a plan of government which will not only protect our way of life but will also strengthen our economic base and enhance the welfare of all our people.


Note: As printed, references to special analyses appearing in the budget document have been deleted.

Dwight D. Eisenhower, Annual Budget Message to the Congress: Fiscal Year 1955. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/232149

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