John F. Kennedy photo

Annual Budget Message to the Congress, Fiscal Year 1964.

January 17, 1963

To the Congress of the United States:

With this message I present the budget of the United States for the fiscal year ending June 30, 1964.

The Federal budget has a double importance: It is an agenda of our purposes and priorities in the form of a plan for the conduct and financing of the public business. It is also the most powerful single tool the Nation possesses for linking the private and public sectors of our economy in a common effort to achieve and maintain national prosperity. This budget presents a financial plan for the efficient and frugal conduct of the public business, and it proposes measures to set the United States firmly on the road to maximum production, employment, and purchasing power.

This budget is presented in a national economic climate which is greatly improved over that of two years ago, but which is capable of substantial further improvement. In the last two years, our total real output of goods and services has increased by 9%; total wage payments have risen by 10%; corporate profits have gone up by 1870; and well over a million additional nonfarm jobs have been created. At the same time, the price level of the United States has been one of the most stable in the world, and we have substantially reduced the deficit in our balance of payments.

Nevertheless, we cannot rest on this record. The performance of the economy in 1962 fell below our expectations. The gap between economic performance and potential which opened up in 1957 has not yet been closed. Un-utilized productive capacity remains too large, and unemployment remains too high. Our rate of economic growth lags behind our capability. We must not allow the progress of the last 2 years to blunt the recognition that our economy can produce both more jobs and greater abundance than it is now doing.

Our economy has been falling short of its productive potential for more than 5 years because total demand for goods and services by consumers and business firms has been insufficient to keep the economy operating at capacity. Yet, in the face of this persistent inadequacy of overall demand, the purchases of consumers and business firms have been restrained by tax and other collections-Federal, State, and local--which now total over $150 billion a year.

The checkrein of taxes on private spending and productive incentives must be loosened if our economy is to perform at maximum efficiency. To that end--as I pledged last year--the 1964 budget incorporates a major program of tax reduction and reform, designed to help speed the economy toward full employment and a higher rate of growth with price stability.

Although, with the passage of time, the economic expansion induced by reduction in tax rates may be expected to yield a higher level of Government revenues than the present tax system affords, the initial effect of the proposed tax program will be a revenue loss. In this setting, I have felt obliged to limit severely my 1964 expenditure proposals. In national defense and space programs--where false economy would seriously jeopardize our national interest or even our national survival--I have proposed expenditure increases. Fixed interest charges on the debt will also rise. But total 1964 expenditures for all other programs in the administrative budget, taken together, have been held to this year's level, and even reduced somewhat. Within this total, increases have been confined to those areas most important to the Nation's current welfare and future growth, and these will be offset--indeed, slightly more than offset--by the reductions I am recommending in expenditures under other programs.

In presenting this budget as the Government's financial plan for 1964, I am giving major emphasis to a consolidated cash presentation, covering not only the administrative budget but also other Federal activities-mainly the social security, highway, and other trust funds. This provides a much more complete picture of governmental activities and finances than the administrative budget. It is in accord with recommendations made by nongovernmental groups and independent scholars that a more meaningful and comprehensive budgetary concept be used.

On this basis, after taking into account the revenue loss associated with my tax recommendations, total receipts from the public in fiscal year 1964 are estimated at $112.2 billion, total payments to the public at $122.5 billion, with a resulting excess of payments of $10.3 billion.

This step toward consideration of the Government's program and budget in more complete form than heretofore entails no change in the legal status of the trust funds; the assets of these funds will be held inviolate as always. Moreover, the administrative budget, which has received the most attention in the past, continues to be identified. Using this older concept, which covers only Government-owned funds and thus excludes trust fund transactions, the outlook is for receipts of $86.9 billion in 1964, expenditures of 198.8 billion, and an excess of expenditures totaling $11.9 billion.


[ Fiscal years. In billions ]

1962 1963 1964

Description actual estimate estimate

FEDERAL RECEIPTS Administrative budget receipts $81.4 $85.5 $86.9

Trust fund receipts 24.3 26. 9 29.5

Deduct: Intragovernmental transactions 3.8 3.9 4.2

Total cash receipts from the public 101.9 108.4 112.2

Add: Adjustment from cash to accrual basis 2. 5 1.4 --0.1

Deduct: Receipts from loans, property sales,

and other adjustments 0.4 1.0 0.7

National income account receipts--Federal sector 104.0 108. 8 111. 4

FEDERAL PAYMENTS Administrative budget

expenditures 87. 8 94.3 98.8

Trust fund expenditures

(including Government-sponsored enterprises) 25.2 27. 3 28.4

Deduct: Intragovernmental transactions

and other adjustments 5.3 4. 8 4.7

Total cash payments to the public 107.7 116.8 122. 5

Add: Adjustment from cash to accrual basis 0. 9 0. 3 -0.1

Deduct: Disbursements for loans, land purchases,

and other adjustments 2.9 3.9 3.4

National income account expenditures--Federal sector 105.7 113.2 119.0


Administrative budget --6.4 --8.8 --11.9

Receipts from and payments to the public --5.8 --8.3 --10.3

National income accounts--Federal sector --1. 7 --4.3 --7.6

NOTE--Receipts, including those on a national income account basis, reflect retroactively to January 1, 1962, revenue losses occasioned by both the Revenue Act of 1962 and the 1962 administrative depreciation reform. To this extent, receipts shown for fiscal 1962 differ from those published to date by the Department of Commerce in the national income accounts.

A third concept of Federal finances, which is used in our national income accounts, provides an important measure of the economic impact of the Government's fiscal activities; Federal fiscal data in these terms are estimated on an accrual rather than a cash basis, including the trust funds but eliminating transactions not directly affecting production and income. These data indicate an excess of expenditures over receipts of $7.6 billion in fiscal year 1964.

Whichever measure is used, the immediate effect of my proposed tax program will be to increase the deficit which would otherwise be incurred in the coming fiscal year. In accepting this prospect, I have considered both the lessons of the recent past and the outlook for the future.

The sluggish rate of economic growth in recent years has not produced the revenues required to obtain budget surpluses under our present tax system. During the past 5 fiscal years, on an administrative budget basis, the Government's cumulative deficits totaled $24.3 billion, in marked contrast with the original budget estimates of cumulative surpluses totaling $8.0 billion. The major reason for the shortfall was the continued failure of the economy to reach the levels which had been assumed as reasonable. It is now clear that the restraining effects of the tax system on the economy were not adequately recognized.

This issue must be faced squarely. Our present choice is not between a tax cut and a balanced budget. The choice, rather, is between chronic deficits arising out of a slow rate of economic growth, and temporary deficits stemming from a tax program designed to promote fuller use of our resources and more rapid economic growth. Considerations of sound fiscal policy as well as concern for the Nation's economic wellbeing have led me to the conviction that the latter choice is the only sensible one. Unless we release the tax brake which is holding back our economy, it is likely to continue to operate below its potential, Federal receipts are likely to remain disappointingly low, and budget deficits are likely to persist. Adoption of the tax program I am proposing will strengthen our Nation's economic vitality, and by so doing, will provide the basis for sharply increased budget revenues in future years.

Nevertheless, the prospect of expanding economic activity and rising Federal revenues in the years ahead does not mean that Federal outlays should rise in proportion to such revenue increases. As the tax cut becomes fully effective and the economy climbs toward full employment, a substantial part of the revenue increases must go toward eliminating the transitional deficit. Although it will be necessary to increase certain expenditures, we shall continue, and indeed intensify, our effort to include in our fiscal program only those expenditures which meet strict criteria of fulfilling important national needs. Federal outlays must be incurred only where the resulting benefits to the security and well-being of the American people are clearly worth the costs.

Furthermore, we shall maintain pressure on each department and agency to improve its productivity and efficiency. Through improved management techniques, installation of modern equipment, and better coordination of agency programs, important productivity gains have already been realized, and further advances will be forthcoming. I mean to insure that in each of the various Federal programs, objectives are achieved at the lowest possible cost.

The Federal deficit which will be incurred in fiscal year 1964 should neither raise fears of inflation nor cause increased concern about our balance of international payments. With the tools of monetary policy and debt management always available, our program for sustained economic expansion with increasing productivity is an objective quite compatible with continuance of the relative price stability we have known in recent years; this is of importance not only at home but also for our foreign trade. Moreover, the favorable effects of a strong economic expansion on the profitability of domestic investment and on the productivity of American industry, in combination with all of our efforts to achieve balance of payments equilibrium, will contribute to the strength of the dollar--as our friends abroad increasingly recognize.


My tax proposals include substantial permanent reductions in individual and corporation income tax rates as well as a number of important structural changes designed to encourage economic growth, increase the equity of our tax system, and simplify our tax laws and administration. Some reductions in rates would start in the calendar year 1963. The remainder of the program, including additional income tax rate reductions for both individuals and corporations, together with structural reforms and other revisions, would become effective in 1964 and 1965. The entire tax program, which I will shortly recommend to the Congress as a single comprehensive measure, is a major step in the effort to strengthen and improve our tax system.

The recommended tax rate reductions extend over every bracket of individual income tax rates. The largest proportionate tax reductions, measured as a percentage of tax liability and in relation to the total revenue loss to the Government, are proposed for those with the lowest incomes. The recommendations also provide for more equitable tax treatment through changes affecting the tax base and remove certain tax concessions that will no longer be appropriate. In every respect, the proposals are consistent with generally accepted American standards of fair play, while at the same time they are designed to provide needed economic incentives.

The proposed corporation income tax reductions are supplemented by recommended structural changes to strengthen the position of small business and to correct distortions in the existing structure which result in the misallocation of energy and resources. Part of the loss in Treasury tax collections attributable to rate reductions would be offset by the introduction of a gradual program to place payment of income tax liabilities of large corporations on a more current basis.

The proposed tax program, when fully effective, would reduce tax liabilities by about $10 billion compared to the present tax system, when both calculations are based on the same calendar year 1963 levels of income. Incomes, however, will not be the same under the new tax program. Because my proposals incorporate lower rates of taxation as well as tax reform measures, they will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased-not a reduced--flow of revenues to the Federal Government.

Revenue estimates.--Estimates of Federal receipts must be based upon specific economic assumptions. The revenue estimates in this budget assume a gross national product in the calendar year 1963 of $578 billion.

This figure is the midpoint of a range of expectation which extends $5 billion on each side. The anticipated rise in the gross national product from the calendar 1962 level of $554 billion takes into account some initial economic stimulus expected from adoption of my tax recommendations.

That part of the proposed reductions in tax rates becoming effective in calendar 1963 would, by itself, reduce fiscal 1964 tax revenues by some $5.3 billion. Placing the payment of corporate income taxes on a more current basis, however, will reduce this revenue loss, as will the initial spur provided by the tax program to private production and incomes. Taking account of these factors, the net revenue loss in fiscal 1964 from my tax program is estimated at $2.7 billion. Despite this revenue loss, administrative budget receipts are estimated to rise by $1.4 billion in fiscal year 1964 because of the anticipated expansion in economic activity.

As we learned again this past year, there are many uncertainties in estimating economic developments and Federal revenues so far ahead. If the economy grows more strongly and quickly than we now foresee, revenues would be higher than now estimated. On the other hand--although I consider this unlikely if my proposals are approved promptly by the Congress--slower growth in the economy would be accompanied by smaller revenues. This would indeed be unfortunate, both because of the effect on Government finances, and because of the lost opportunities and the human misfortune that would accompany a sluggish economy and growing unemployment.

Tax extension.--Legislation is needed to extend certain excise tax rates for another year. Without such legislation, these tax rates would be reduced or would expire on July 1, 1963, resulting in a revenue loss in fiscal year 1964 of $1.6 billion.

Under present law, the maximum corporation income tax rate would be reduced from 52% to 47% on July 1, 1963. My legislative proposals include an extension of the 52% maximum rate for six months, but provide, in accordance with my tax program, for certain changes in the tax treatment of corporations which will also be applicable to that period.


[ Fiscal years. In billions ]

Source 1962 1963 1964

actual estimate estimate

Administrative budget receipts:

Individual income taxes $45.6 $47.3 $45.8

Corporation income taxes 20. 5 21. 2 23. 8

Excise taxes 9.6 9.9 10.4

Other 5.7 7.1 6.9

Total, administrative budget receipts 81.4 85.5 86.9

Trust fund receipts:

Employment taxes 12.6 14. 8 16.6

Deposits by States, unemployment insurance 2.7 2.8 2.8

Excise taxes 2.9 3.2 3.3

Federal employee and agency payments for retirement 1. 8 1. 8 1. 9

Interest on trust investments 1. 4 1.5 1.6

Veterans life insurance premiums 0. 5 0.5 0.5

Other 2.4 2.3 2.9

Total, trust fund receipts 24.3 26.9 29.5

Intragovernmental transactions (deduct) 3.8 3.9 4.2

Total receipts from the public 101.9 108.4 112.2

User charges.--I am renewing the recommendations I made last year for the enactment of a series of user charges for commercial and general aviation and for transportation on inland waterways. The purpose of the recommendations is to assure that passengers and shippers who benefit from special Government programs will bear a more equitable share of the costs of these programs. Appropriate fees should also be assessed in other areas in which the Government provides special benefits or conveys special privileges to the users and beneficiaries. Where new legislation is needed to carry out this policy--such as to update the schedule of fees for issuing patents, established in 1932--the necessary proposals will be sent to the Congress.


The expenditure program which I am proposing in this budget is, I believe, the minimum necessary to meet the essential needs of our complex and growing society in an era of cold war.

All levels of Government have been subject to sharp pressures for increased expenditures during the postwar period as our population has grown, as wages and prices have risen, and as demands for improved governmental services have expanded. Since 1948, State and local government expenditures have more than trebled and Federal expenditures for nondefense purposes, including a rapidly expanding level of grants-in-aid to State and local governments, have more than doubled. The Federal Government has also borne a sharply increased burden in the areas of national defense, international affairs, and space.

In this budget for 1964, most of the increase in expenditures over the current year is also for national security and space programs, carrying forward efforts already begun to strengthen our defenses and to participate more actively in man's attempt to explore outer space. Expenditures for fixed interest charges and for activities financed through trust funds will also increase, chiefly reflecting continued expansions in the self-financed social security and highway programs.

The total of administrative budget expenditures for all other programs, combined, has been held slightly below the 1963 level, despite the fact that we face such rising costs as the second step of the civilian employee pay reform enacted last year and various increases under program commitments already made, such as urban renewal and public assistance grants.

Other moderate expenditure increases being proposed within the reduced total represent a necessary payment on future progress and should not be postponed. They include new programs and increases in present programs for education and health, which are investments in our human resources; retraining for those whose present skills are no longer in strong demand; enlargement of employment opportunities for young people who have left school; redevelopment of depressed areas, including the program enacted last year for accelerating public works in these areas; improvement of urban areas through better transportation and more adequate housing, especially for moderate income families; and encouragement of science and technology important to our civilian industries.

These increases are offset by decreases in other administrative budget expenditures. For example, lower expenditures are estimated for the postal service, as a result of a full year's return on the rate increases enacted last year; for certain housing, international, and other lending programs, through substitution of private for public credit; and for agricultural price supports.

National defense.--There is no discount price on defense. The free world must be prepared at all times to face the perils of global nuclear war, limited conventional conflict, and covert guerrilla activities.

The 1964 budget carries forward this administration's policies to develop and strengthen the flexible and balanced forces needed to guard against each of these hazards, and to equip and operate these forces at the lowest possible cost. For the coming year, total expenditures for national defense are estimated at $56.0 billion, of which $55.4 billion are administrative budget expenditures. This is about $10 billion more than the level of expenditures in 1960 and, together with the growth in the space program, accounts for the major part of the increase in the budget since this administration took office.

The 1964 budget proposals for national defense continue the emphasis which in recent years we have placed on:

A strong strategic retaliatory force capable of surviving a surprise attack and responding effectively in a controlled and flexible manner against the aggressor. Additional numbers of land-based Minuteman missiles will be procured and placed in hardened and dispersed sites. Six more Polaris submarines will be procured, and further work done on improved versions of the Minuteman and Polaris missiles.

Improved air and missile defense forces. Our anti-bomber defense system and our ballistic missile warning systems will be strengthened. High levels of effort will continue on developing a defense against missiles, including further testing of the Nike-Zeus anti-missile missile and initial development of the more advanced Nike-X surface-to-air missile.

More powerful and flexible conventional forces--ground, sea, and air--to increase the range of nonnuclear response to aggression. Procurement of conventional weapons, equipment, ammunition, helicopters, and Air Force tactical fighter and reconnaissance aircraft for more effective support of ground units will be speeded. Provision is made for 16 combau-ready Army divisions, 3 divisions and air wings in the Marine Corps, further modernization of the naval fleet, and an additional 15,000 men for the Army to test the concept of an air assault division and other new air units.


[ Fiscal years. In billions ]

Function 1962 1963 1964

actual estimate estimate

Administrative budget expenditures:

National defense $51. 1 $53.0 $55.4

Space research and technology 1.3 2.4 4.2

Interest 9.2 9.8 10. 1

Subtotal 61.6 65.2 69.7

All other functions:

International affairs and finance 2. 8 2.9 2.7

Agriculture and agricultural resources 5.9 6.7 5. 7

Natural resources 2. 1 2.4 2.5

Commerce and transportation 2.8 3.3 3.4

Housing and community development 0. 3 0. 5 0. 3

Health, labor, and welfare 4.5 4.9 5.6

Education 1. 1 1. 4 1.5

Veterans benefits and services 5.4 5.5 5.5

General government 1. 9 2.0 2.2

Subtotal, all other functions 26.9 29.7 29.4


Comparability pay adjustment 0.2

Contingencies 0. 1 0. 2

Interfund transactions (deduct) 0. 6 0. 6 0. 7

Total, administrative budget expenditures 87. 8 94.3 98.8

Trust fund expenditures:

Health, labor, and welfare 20. 4 21.8 22.8

Commerce and transportation 2.7 2.9 3.2

Housing and community development 1. 5 0. 5 1. 0

Veterans benefits and services 0. 7 0. 9 0.6

All other 0. 4 1. 7 1. 2

Interfund transactions (deduct) 0. 5 0. 5 0. 5

Total, trust fund expenditures 25.2 27.3 28.4

Intragovernmental transactions and other

adjustments (deduct) 5.3 4.8 4.7

Total payments to the public 107. 7 116. 8 122.5

A civil defense fallout shelter program to improve the chances that a large portion of our population would survive a possible nuclear attack.

Strengthened counter-insurgency forces to help our allies deal with Communist subversion and covert armed aggression within their frontiers.

In this era of increasingly complex weapons and military systems, a large part of the effectiveness of our defense establishment depends on the retention of well-trained and devoted personnel in the Armed Forces. General military pay was last increased 41/2 years ago. Since then, higher wages and salaries in private industry have provided strong inducement for highly trained military personnel to leave the service for better paying jobs in civilian life. To help meet this serious problem, and in fairness to the dedicated personnel in our Armed Forces, I will shortly submit to the Congress specific recommendations for increases in military compensation rates effective October 1, 1963.

Space research and technology.--The accelerated programs for exploration and use of outer space moved ahead vigorously during the past year, and further significant advances are anticipated in the year ahead. This budget provides for an increase of $2 billion in appropriations for the National Aeronautics and Space Administration to proceed with the top priority manned lunar landing program and with its wide range of programs of scientific investigation and development of useful applications such as communications and meteorological satellites. Expenditures in 1964 are estimated to rise to $4.2 billion, which is $1.8 billion over the current year's level--an increase of 75%.

Efforts are being concentrated on the continued development of the complex Apollo spacecraft and the large Advanced Saturn launch vehicle needed to boost the Apollo to the moon. A lunar orbit rendezvous approach will be used to accomplish during this decade the first manned lunar landing. Under this technique the Apollo spacecraft will be boosted directly into orbit around the moon, where a small manned lunar excursion module will be detached and descend to the surface of the moon. It will later return to the orbiting Apollo which will return to the earth.

The recent Mariner flight past Venus attests to the progress we are making in unmanned space investigations. Development of geophysical, astronomical, meteorological, and communications satellites will also continue. This budget provides for strong research efforts aimed at developing the technology needed for advanced space missions, including future manned space flight and unmanned explorations of Venus and Mars.

International affairs and finance.--We are steadfast in our determination to promote the security of the free world, not only through our commitment to join in the defense of freedom, but also through our pledge to contribute to the economic and social development of less privileged, independent peoples. The attack on India by Communist China, and Vietnam's continuing struggle against massive armed subversion supported from without, are current reminders of the need and importance of our assistance. The increasing pace of modernization and the mounting efforts at reform and self-help in many nations merit our support and encouragement.

I am convinced that the budgetary amounts proposed are essential to meet our commitments and achieve our purposes. The basic objective of these international military and economic expenditures is to serve the security interests of the United States. Because these programs are often addressed to complex problems in distant lands, their contribution to our security objectives is not always directly apparent, but it is nonetheless vital. And because the problems we encounter are grave and complex, they present us with a constant challenge to improve content, administrative efficiency, and overall effectiveness.

Fundamental to our efforts is recognition that we are dealing with a combination of military, political, and economic measures which must be complementary and reinforcing. Our overseas military assistance program is vital to assure the continued survival of independent states so situated that they are prime targets for open aggression or subversion. While direct military assistance greatly enhances the ability of these less developed countries to defend themselves and thus contributes to the peace and security of the free world, their contribution depends ultimately upon the strength of their economic and social structures. The economic and social development process is long and arduous, primarily dependent upon the efforts of the less developed nations themselves. We must assist and accelerate this process by providing critical increments of material and human resources which, along with measures of self-help and reform, will ultimately spell success for these efforts.

Expenditures in fiscal year 1964 for military and economic assistance, combined, are estimated at $3,750 million, $100 million less than in the current year. In providing these sums, we will be highly selective, stressing projects and programs crucial to the rapid development of countries which are important to the maintenance of free world security and which demonstrate willingness and ability to marshall their own resources effectively.

Of special concern are the Latin American Republics, with whom we have joined in the Alliance for Progress. As our neighbors to the south undertake far-reaching economic and social reforms, we are pledged to provide a critical margin of resources necessary for the achievement of our common goals. In the fiscal year 1964 I am recommending a program which will provide a total of over $1 billion for these countries through the Agency for International Development, the Inter-American Development Bank, the Export-Import Bank, and the Food-for-Peace program. We shall also be according priority in this area to the highly successful program of the Peace Corps.

We are not alone in seeing the relationship between free world security and rapid economic and social development. Other free world countries, particularly the European countries and Japan, are increasing their overseas programs, and we will continue to encourage these nations to increase them further in both size and scope. Similarly, we must support and encourage development programs carried out under international auspices. Negotiations are now underway for replenishing and enlarging the resources of the International Development Association. After these negotiations are completed, I expect to ask the Congress to authorize U.S. agreement, thereby enabling the operations of this important international organization to be continued and expanded. I also expect to request an authorization for the United States to join in providing additional resources for the Inter-American Development Bank.

The authority of the Export-Import Bank to exercise its functions expires on June 30, 1963. I shall shortly propose legislation to extend the life of the Bank for five years and to increase its resources by $2 billion, so that its significant contribution to the expansion of our foreign trade can continue. Without a further increase in the Bank's resources, the legislation will also increase by $1 billion the Bank's authorization for the highly successful programs of guarantees and insurance of exporter credits.

Agriculture and agricultural resources. To realize for the Nation as a whole the benefits of our increasingly efficient agriculture, farm production must be brought into line with domestic and export requirements, the incomes of persons engaged in farming must be maintained and increased, and constructive use must be made of the current agricultural abundance to raise the level of living of the Nation's low-income families and meet international needs through the Food for Peace program. As part of this effort, we must use the opportunities opened up by the Trade Expansion Act of 1962 to expand foreign markets for our farm products.

The temporary wheat and feed grain programs, as modified by legislation enacted in the last session of Congress, are continuing to supplement farm income and to reduce storage costs by achieving reductions of our excess stocks of these grains. However, new programs are needed for cotton and dairy products as well as for feed grains to enable us to utilize more effectively the benefits of increasing productive efficiency in agriculture and to reduce budgetary expenditures for farm programs. I shall be presenting to the Congress specific legislative proposals relating to these farm commodities.

Legislation is recommended to continue the food stamp 'program and funds are included to operate the program in 1964 at the same level as in 1963. In addition, the 1964 budget provides for a start on the broad land-use adjustment program and the enlarged loan program of the Farmers Home Administration authorized in the Food and Agriculture Act of 1962. These programs, along with some shifts in emphasis in existing programs of the Department of Agriculture, are an essential part of our rural areas development program--a significant undertaking to cope with problems of unemployment, underemployment, and poverty in rural areas.

Federal payments in 1964 for all agricultural programs are estimated at $5.8 billion, a reduction of $1.1 billion from the 1963 level. This reduction results largely from anticipated substantial sales by the Commodity Credit Corporation in 1964 of cotton expected to be placed under price support in 1963. In addition, legislation is being proposed to increase the role of private financing in the rural housing program.

Natural resources.--Orderly conservation and development of our natural resources are required to meet our future needs and to promote long-run economic growth. Expenditures of $2.6 billion are estimated in 1964 for these purposes.

The budget provides for continued water resources development through projects for flood control, navigation, irrigation, water supply, hydroelectric power, and related recreational and wildlife development. Funds are included for the Corps of Engineers, the Bureau of Reclamation, the Bureau of Indian Affairs, and the Tennessee Valley Authority to initiate construction on 43 new water resources projects with an estimated total Federal cost to completion of $792 million.

Major emphasis is being given within the Federal Government to coordinated planning of river-basin development and research on water resources. In addition, legislation is again recommended to provide for comprehensive and coordinated water resources planning by Federal and State agencies and to authorize limited Federal grants to strengthen State planning.

I am requesting funds to start construction of major extra-high-voltage interconnections linking the electric systems of the Pacific Northwest and Pacific Southwest. The interconnections will provide for the sale and exchange of power. between California and the Northwest, resulting in substantial economies to both regions. Prompt action is expected on legislation proposed last year to reserve necessary power supplies for the Pacific Northwest.

The provision of adequate outdoor recreational opportunities for our growing population continues to be a pressing problem. Legislation will shortly be transmitted to the Congress to assist the States in the solution of this problem and to provide for Federal acquisition of certain lands to be devoted to recreational and conservation uses.

Commerce and transportation.--I am gratified that the Congress enacted higher postal rates last year, permitting a reduction in net expenditures for the postal service in 1964. Expenditures for maritime operating subsidies are also estimated to be less in 1964 than in 1963. Despite these decreases, total Federal payments for commerce and transportation 'programs are expected to increase by $444 million to $6.7 billion in 1964. An estimated increase in grants to States for highway construction through the self-financed highway trust fund amounts to almost nine-tenths of the total rise; the remainder covers such recently enacted programs as area redevelopment, trade promotion, and acceleration of capital improvements in areas of substantial unemployment, as well as such older activities as small business loans and weather services.

To achieve a higher long-run rate of economic growth, and to take full advantage of the Trade Expansion Act of 1962 by competing successfully in the great markets of Europe and the developing nations of Africa and Asia, it is essential that we retain our current position of technological leadership in many industries. Accordingly, the Secretary of Commerce is undertaking a new program with the specific aim of stimulating through industrial research and development innovation in our civilian industrial technology. As an immediate step to help improve our balance of payments, I am recommending a substantial increase in the export expansion program.

Studies are progressing on the economic and technical feasibility of developing a supersonic air transport. I have directed that these studies be expedited and the results evaluated as soon as practicable.

The national transportation policy which I proposed last year is based upon greater reliance on competitive free enterprise, with less Federal regulation and subsidies. Under this approach, the Government would emphasize equal opportunity for all types of transportation. I hope that the new Congress will act promptly along the lines recommended previously to authorize the basic changes needed in existing law.

Housing and community development.-The development and rehabilitation of urban areas and the provision of adequate housing for all our citizens stand high among the Nation's objectives. To this end the new and broader housing and community development programs authorized in the Housing Act of 1961 will be carried forward at an accelerated pace in 1964. Commitments made in earlier years will result in increased expenditures for urban renewal grants and for mortgage purchases and loans to help provide adequate housing for low and moderate income families as well as for elderly persons. Several possible methods for improving the provision of housing for low-income groups are currently being tested. Moreover, Federal loans are being made to improve public facilities in smaller communities and in areas of substantial unemployment.

I urge the Congress to enact promptly. legislation, along the lines I proposed last year, to provide Federal aid to help urban areas solve their mass transportation problems.

The Federal Government is not properly organized at present to deal efficiently and effectively with the pressing problems of urban areas. I again recommend strongly that the Congress establish a Department of Urban Affairs and Housing to give urgently needed leadership in the solution of these problems.

Federal expenditures for housing and community development will rise from the current year's level of $874 million to $1.1 billion in fiscal year 1964. The substantial progress which will be made in this area will be financed in part through the substitution of private for public credit in a number of mortgage insurance and purchase programs.

Health, labor, and welfare.--One of our most important national purposes must continue to be the strengthening of human resources. A strong defense and a revitalized economy require a trained and productive labor force, relentless warfare on illness and disease, and continued progress in extending economic security to those in our society who lack the means to provide adequately for their own basic needs.

Under existing health programs, the budget provides for strengthening the National Institutes of Health and the Food and Drug Administration, for improving community and environmental health protection, and for combating mental illness and mental retardation. In addition, new legislation is proposed: to expand further the fight against mental illness and mental retardation; to broaden the scope and enlarge the authorization provided for construction of medical facilities in the Hill-Burton Act; and to authorize a new program to assist in the construction of medical schools.

I am also again proposing health insurance for aged persons, to be financed mainly through the social security system, but with benefits for those not covered by social security to be paid from regular appropriations.

To strengthen further the Government's labor and manpower activities, the budget includes funds to improve the Federal-State employment service, and I am again recommending legislation to revise the Federal State unemployment insurance program so that the needs of the unemployed will be more fully met in both good and bad times. Under the Manpower Development and Training Act of 1962, funds are included to provide training services to 140,000 unemployed workers in the coming fiscal year, and legislation is proposed to provide urgently needed opportunities for training and employment to the youth of our Nation.

Legislation is recommended to create a National Service Corps to help by example to strengthen the volunteer spirit in the provision of social services in our local communities.

Federal payments for health, labor, and welfare programs in 1964 are estimated to rise by $1.6 billion to $27.4 billion, of which over 80% will be paid from trust funds.

Education.--A strong educational system is necessary for the maintenance of a free society and a growing economy. Inadequacies in our educational system present serious obstacles to the achievement of important national objectives and prevent able individuals from obtaining the high quality training to which they should have ready access.

In these circumstances Federal action becomes imperative, but the Federal Government can provide only a small part of the funds in an area where outlays from all sources approximate $30 billion annually. Accordingly, I am recommending a program carefully designed to provide a major impetus to the solution of a selected number of critical educational problems.

This program, which will be outlined more fully in a special message, proposes significant new activities and greater utilization of the existing authority of the Office of Education. It also proposes greater use of the authority of the National Science Foundation to support science and engineering education. It is designed, first, to obtain improved quality in all levels and types of education; second, to help break crucial bottlenecks in the capacity of our educational system by providing funds for building expansion; and third, to increase opportunities for individuals to obtain education and training by broadening and facilitating access to colleges and universities and by providing an expanded range of technical, vocational, and professional training opportunities for teachers and students.

A recommended substantial augmentation of basic research by the National Science Foundation--necessary to progress in science and technology--will also contribute materially to graduate education.

This budget provides new obligational authority of $3 billion for education programs in fiscal year 1964, of which $1.5 billion is under proposed legislation. Expenditures are estimated to rise by $165 million to $ 1.5 billion.

Veterans benefits and services.--This country has recognized that the Government's primary obligation for veterans benefits is to those who incurred disabilities in the defense of our Nation and to the dependents of those who died as a result of military service. In keeping with this principle, the 87th Congress enacted a new program of vocational rehabilitation for servicemen disabled while in the Armed Forces and a cost of living increase in disability compensation rates. I recommend that the Congress enact a similar increase in benefits for the children and dependent parents of veterans who died as a result of military service.

Emphasis in veterans programs should continue to be placed on benefits and care for the service-disabled. This policy recognizes that veterans are increasingly benefited by the rapidly expanding general health, education, and welfare programs of the Government. Excluding these general benefits, total Federal payments for veterans programs in 1964 are estimated at $6 billion.

Expenditures of an Investment Nature

Success in achieving a higher rate of economic growth in the future depends, in large part, on our willingness to devote current resources to enlarging the Nation's capacity to produce goods and services in future years. About one-seventh of the expenditures proposed for 1964 are for activities which will promote increased productivity and economic growth, yielding substantial benefits in the future.

For example, the fiscal year 1964 program includes $10.8 billion of budget and trust fund expenditures for Federal civil public works; for highways, hospitals, and other additions to State, local, and private assets; for loans for such activities as rural electrification, education, and small business operations; and for other additions to Federal assets.

The Federal Government will also contribute directly and indirectly to economic growth through its support of more than two-thirds of all the scientific research and development undertaken in the Nation. Expenditures for research and development other than for national defense and space are expected to rise to $1.6 billion in fiscal year 1964. Moreover, the additional $8.8 billion devoted to defense research and development, including atomic energy, and the $3.6 billion devoted to space research and development, will produce many collateral benefits to the civilian sector of the economy as well.

Furthermore, during fiscal year 1964 an estimated $1.6 billion will be spent for nondefense education, training, and health programs, in addition to the amounts for facilities and loans. Apart from the intrinsic merits of these programs, helping to provide individuals with the opportunity to obtain the best medical care available and to maximize the development of their intellectual capacities and occupational skills improves the quality of the labor force. Indeed, growth in the Nation's education and skills has been a major factor in the long-run rise in the Nation's economic productivity.

Federal Expenditures Abroad

The United States continues to face a deficit in its international payments as we enter the calendar year 1963. As one part of the administration's program to reduce this deficit, the Federal Government, during the past year, has instituted a system of continuing review of all its activities affecting the balance of payments. This process is intended to insure that expenditures abroad for the Federal Government's activities are kept to the minimum consistent with our defense and other responsibilities at home and abroad.

In the preparation of the 1964 budget, all proposed expenditures which affect the balance of payments have received particular attention and review. Special efforts are being made to reduce Federal expenditures overseas without jeopardizing the defense of the free world. Measures already taken to assure maximum expenditure of foreign economic assistance funds in the United States will continue to reduce the portion of these funds spent abroad. We will continue to press ahead in the effort to encourage other nations, particularly European countries and Japan, to accept a greater share of the costs of economic aid to developing countries and to increase support for military defenses within their own borders.

The Federal Government is also seeking to increase receipts in the United States from foreign countries by obtaining advance repayments of loans previously made to them by this country and by promoting the purchase by foreign governments of military equipment in the United States. Continuing success is expected in these efforts during the coming year.


To carry out the program I am recommending for fiscal year 1964, the Congress is being requested to enact new appropriations and other obligational authority totaling 196.5 billion. This amount includes substantial increases for the Department of Defense, the National Aeronautics and Space Administration, and the Department of Health, Education, and Welfare, a large part of which will not be spent until later years. A sizable increase is also required for the Commodity Credit Corporation, to make up for losses incurred in past years under the price support and special export programs.

In addition, $42.2 billion will become available under permanent authorization without action by the Congress this year. Of this amount, $30.4 billion is for the trust funds, representing primarily the automatic appropriation to these funds of their own revenues. The largest permanent authorization in 1964 in the administrative budget is $10.0 billion for interest on the public debt.

The Congress is also requested to enact new obligational authority for the current fiscal year, 1963, in addition to the amounts already provided, largely to finance legislation enacted last year for which no appropriations were enacted or for which only partial provision was made--such as employee pay reform, revision in the grant formula for public assistance, and the program of accelerated public works in depressed areas. These and other supplementary requirements which the Congress is requested to enact, such as $2.0 billion for the Export-Import Bank, are now estimated to total $3-9 billion.


Under present law, a temporary debt limitation of $308 billion is now in effect. However, this limit will revert to $305 billion on April 1, 1963, and to $300 billion on June 25, 1963. After June 30, 1963, the permanent debt ceiling of $285 billion again becomes effective.

The present temporary debt limit was enacted last July on the assumption, clearly stated in the report of the House Committee on Ways and Means, that the expansion in the economy and in tax revenues would be sufficient to produce a balanced budget for fiscal year 1963. It is now evident that receipts will not reach the level hoped for at that time. As a consequence, the pending step reductions in the temporary limit on the public debt would render impossible the sound management of Government finances during the April-June quarter of 1963.

Although the total public debt subject to limitation is expected to decline to about $304 billion after the receipt of tax payments due in June 1963, the pattern of receipts and expenditures will tend to cause the debt to rise substantially above the $305 billion level at various times during those 3 months. Moreover, if the debt has to be held below this level, the Treasury would have little or no flexibility for taking advantage of favorable market conditions, or for dealing with any untoward developments in short-term interest rates which might complicate balance of payments problems. I therefore urge prompt extension of the temporary $308 billion debt limit through the remainder of this fiscal year.


[ Fiscal years. In billions. ]

Description 1962 1963 1964

actual estimate estimate

Total authorizations requiring current action

by Congress:

Administrative budget funds $81.6 191.8 196.1

Trust funds 0. 3 0. 4 0. 4

Total authorizations not requiring current

action by Congress:

Administrative budget funds 11.2 11. 4 11. 8

Trust funds 25.6 27. 8 30. 4

Total new obligational authority:

Administrative budget funds 92.9 103.2 107. 9

Trust funds 26. 0 28. 1 30.8


[ Fiscal years. In billions ]

Description 1961 1962 1963 1964

actual actual estimate estimate

Owned by Federal agencies and trust funds $55.3 $55.7 $56.7 $59.0

Owned privately and by Federal Reserve banks 233.7 242.5 246. 8 256.6

Total 289.0 298. 2 303.5 315.6

Seasonal variations in revenue will, as usual, cause the public debt to increase substantially from its June 30th level during the first half of fiscal 1964. The deficit foreseen for fiscal 1964 will add to this increase, and it will prevent a seasonal decrease in the debt from taking place during the final months of the fiscal year. The debt subject to limit as of June 30, 1964, is estimated at about $316 billion. To meet our financial requirements and to provide a margin of flexibility, I will request a further increase in the debt limit for fiscal 1964. The exact amount and nature of the increase required depends not only on the total amount of the deficit but also on the particular time pattern of receipts and expenditures. For this reason, the debt limit to be requested for fiscal year 1964 will be determined later this year when a more reliable estimate can be made of the requirements.

The financing of the cash deficits in fiscal years 1963 and 1964 can and will be accomplished without contributing to the development of inflationary pressures. During the past 2 calendar years, a basic aim of debt management policy has been to help assure that an adequate supply of credit would be available to support domestic expansion, while at the same time helping to maintain interest rates on short-term securities at levels that would deter flows to the other major money markets abroad. This policy has been successfully carried out. In the future, as in the past, debt management policies will be directed toward assuring that any increase in the debt will be so distributed in its ownership and composition as to promote continued price stability in the economy


In our society, Government expects continuing scrutiny and criticism of its efficiency. The search for greater efficiency is never finished. What was an efficient practice a few years ago may be obsolete today. New approaches to work practices, to information handling, and even to decision making itself are the order of the day throughout Government as well as private industry.

In striving for greater efficiency, we are pressing forward on three major fronts: Management improvement, cost reduction, and the reform 0f our public salary systems.

Management improvement and cost reduction.--This budget has been prepared with special attention to employment trends in the Federal Government. Requests for additional jobs have been reduced or denied wherever possible. Moreover, I have directed the heads of departments and agencies to join in a Government-wide program to improve manpower controls and increase productivity. This will be done by a continuing review of personnel needs, eliminating low-priority work, and adopting more efficient practices. A system of inspections and reviews will be carried on to measure the effectiveness and results of our efforts, and to help uncover new ways to economize.

As evidence of improved productivity and cost reduction in Government, I offer these examples:

In the Veterans Administration's insurance program, 6 million insurance policies were handled in 1950 by over 17,000 employees; now the same number of policies is being handled by 3,000 employees.

In the Treasury Department, nearly three times as many checks and bonds are now being issued per employee as were issued 10 years ago and management improvements have made it possible to close and consolidate a number of field offices.

In the Farmers Home Administration, a 35% increase has been achieved in 2 years in the number of loans processed per employee.

In the Bureau of Old-Age and Survivors Insurance, output per worker will increase during the current year by 5.5%. Had this not been achieved, the agency would have required 1,700 more employees at a cost of about $10 million. Further productivity gains are expected in the coming year.

In the Patent Office, a vigorous program to improve efficiency led to an increase in productivity of 13% in processing patent applications in fiscal year 1962 compared with the previous year.

Actions taken by the Department of Defense will produce savings of $750 million this year alone in the cost of logistical operations. The Department's goal is to reduce these costs by at least $3 billion annually within a 5-year period without affecting combat strength.

In the Corps of Engineers, improvements in organization completed in 1962 have eliminated 1,600 jobs and reduced annual costs by $ 13 million.

Despite a steady rise in mail volume, the Post Office is hiring fewer new employees than in previous years, and more efficient practices are king instituted. Savings this fiscal year are expected to reach $40 million.

Energetic management and employee cooperation in the Internal Revenue Service have brought a wide range of efficiency gains which translate into fiscal year 1963 savings of about $4.2 million.

In the Bonneville Power Administration, new design standards for power transmission facilities will effect savings of $7.5 million in costs of facilities started in 1963 and 1964.

In the Tennessee Valley Authority, a new system for handling coal at the Bull Run plant will save about $1 million in plant investment.

The Federal Aviation Agency, by consolidating traffic control centers, will save $7 million over a period of years. In addition, the discontinuance of nonstandard distance measuring equipment will save $1.4 million this year.

The Department of Agriculture expects to achieve an annual saving of $1.3 million after consolidating payroll functions and effecting efficiencies in certain personnel and fiscal management areas.

In the Atomic Energy Commission, greater efficiency in producing special nuclear material will save $7 million this year.

In the Veterans Administration, conversion of insurance accounting and benefit payment operations to electronic computer equipment will reduce operating costs by $1.7 million this year. A decision to buy rather than rent computers will lead to savings of $1.6 million annually. The closing of some nonessential field offices will produce annual savings of $1.2 million.

These are heartening examples of cost reduction. They are representative of the effort that is being made throughout the Federal Government, and they bring credit to the officials and employees who are responsible.

We will continue to give priority to the cost reduction program in all Federal operations.

Salary reform.--As I requested, the Congress last year enacted major legislation in the field of pay administration. The Congress accepted the sound principle that I had strongly urged: namely, that Federal salaries should be determined by comparisons with rates paid by private employers for similar levels of work. The comparability principle for the first time provides a reasonable and objective formula for judging the adequacy of Government salary levels. Moreover, this single reform will go far toward enabling the Federal Government to secure and retain the high quality personnel it needs.

Significant elements of my proposals for pay adjustments have not yet been acted on, however. Salaries of upper-level career personnel are still too low when measured by the compensation provided outside of Government. In addition, the pay rates scheduled to take effect on January 1, 1964, will need to be improved moderately to maintain comparability with pay in the private economy, in the light of data recently reported by the Bureau of Labor Statistics. I shall ask the Congress to take appropriate action on these matters at an early date.

Having taken a major step toward establishment of a proper system of compensation for career employees, we must wait no longer to initiate a review of the salaries of department and agency heads and their deputies. Existing salaries for these officials are inadequate by any reasonable standard of comparison. Taxpayers gain rather than lose when pay is adequate to attract and hold able people. When the Congress enacted the Federal Salary Reform Act of 1962, it requested that recommendations be submitted to the next session for appropriate increases in Federal executive salaries at all levels. Accordingly, I intend to establish an advisory panel, made up of distinguished private citizens, to examine the present compensation for top positions in the executive, legislative, and judicial branches, and to suggest appropriate adjustment in the pay for these positions. After the panel concludes its study, I will make recommendations to the Congress.


The budget and fiscal policies I am proposing will serve the most urgent needs of our people, promote efficient performance of Government functions, and help release the brake on the rate of growth of our economy.

Our practical choice is not between a deficit and a budgetary surplus. It is instead between two kinds of deficits: a chronic deficit of inertia due to inadequate economic growth--or a temporary deficit resulting from a tax and expenditure program designed to provide for our national security, boost the economy, increase tax revenue, and achieve future budget surpluses. The first type of deficit is a sign of waste and weakness. The second is an investment in the future.

It is of great importance for the years ahead that we act boldly now if we are to assure more jobs for an ever growing labor force, if we are to achieve higher standards of living, and if we are to continue to provide the leadership required of us in the free world community. I am convinced that the program encompassed in this budget represents a proper use of fiscal tools for achieving these important goals.


Note: As printed above, illustrative diagrams and references to the budget document have been deleted.

John F. Kennedy, Annual Budget Message to the Congress, Fiscal Year 1964. Online by Gerhard Peters and John T. Woolley, The American Presidency Project

Filed Under



Simple Search of Our Archives