Lyndon B. Johnson photo

Annual Budget Message to the Congress, Fiscal Year 1966.

January 25, 1965

To the Congress of the United States:

I am presenting to you today the budget of the United States for the fiscal year 1966.

A budget is a plan of action. It defines our goals, charts our courses, and outlines our expectations. It reflects hard decisions and difficult choices. This budget is no exception.

It is a budget of priorities. It provides for what we must do, but not for all we would like to do.

It is a budget of both opportunity and sacrifice. It begins to grasp the opportunities of the Great Society. it is restrained by the sacrifices we must continue to make in order to keep our defenses strong and flexible.

This budget provides reasonably for our needs. It is not extravagant. Neither is it miserly.

It stands on five basic principles:

--Government fiscal policies must promote national strength, economic progress, and individual opportunity.

--Our tax system must continue to be made less burdensome, more equitable, and more conducive to continued economic expansion.

--The Great Society must be a bold society. It must not fear to meet new challenges. It must not fail to seize new opportunities.

--The Great Society must be a compassionate society. It must always be responsive to human needs.

--The Great Society must be an efficient society. Less urgent programs must give way to make room for higher priority needs. And each program, old and new, must be conducted with maximum efficiency, economy, and productivity.

The major features of the 1966 budget translate these principles into action.

First, excise taxes are substantially reduced. Social security benefits, including hospital insurance, are increased. These are combined with other expenditure increases to yield an overall fiscal policy designed to maintain our steady economic expansion.

Second, the budget supports a massive defense establishment of steadily growing power, within reduced outlays.

Third, our international and space programs are being advanced at a satisfactory rate, but with smaller increases than in earlier years.

Fourth, expanded programs and higher expenditures are proposed to:

--Provide better and more education for our children.

--Extend the war against poverty.

--Promote advances in the Nation's health.

--Improve conditions in the urban areas where most of us live.

--Help the Appalachian region lift itself out of its present depressed condition.

--Strengthen our social security protection.

--Increase economic opportunities in rural communities.

--Encourage sound use of our natural resources.

--Conserve natural beauty in our land.

Fifth, a large part of the funds for needed program expansion has come from savings, reductions, and economies in other parts of the budget.

FISCAL POLICY This budget recognizes that a growing economy is needed to promote national strength and progress. It is also needed to move us toward a balanced budget. When the economy slows down, Federal revenues fall and spending tends to increase. The result is larger, not smaller, budget deficits.

Nearly 4 years ago, this Nation began its fourth postwar economic expansion. With the help of last year's income tax reduction-the largest and most comprehensive ever enacted--this expansion has already outlasted each of the previous three postwar recoveries.

During the past 4 years, the Nation's real output of goods and services--the gross national product--has grown at an average rate of about 5% per year.

New highs have been achieved in employment, income, and profits. Unemployment has been reduced. Price stability has been maintained.

This is a creditable record of achievement. And we look forward to continued growth in the year ahead. The Nation's output in calendar year 1965 is expected to reach $660 billion, plus or minus $5 billion.

Nevertheless, we must keep in mind that our economy is still producing at a level well below its potential. Nearly 4 million people are out of work. The unemployment rate is still nearly 5%. Plants and machines are standing idle while human wants and needs go unmet. An estimated 35 million people continue to live in poverty.

We cannot substitute last year's achievements for next year's goals; nor can we meet next year's challenge with last year's budget.

The revenue and expenditure proposals presented in the 1966 budget are carefully designed to promote continued economic expansion and improved economic opportunities.

This budget takes into account the need to reduce the Nation's balance of payments deficit. During the last calendar year, the deficit showed a significant decline. To help insure continued improvement, I will intensify efforts to carry out Federal activities with the least possible burden on our balance of payments.

BUDGET SUMMARY Administrative budget.--In preparing this budget, I have applied exacting tests of efficiency and necessity to all proposed expenditures. As a result, total administrative budget expenditures are being held to $99.7 billion in 1966. Although expenditures will rise by a relatively small amount, they will decline as a percent of the gross national product--to less than 15%, the lowest ratio achieved in 15 years.

Administrative budget receipts are expected to increase in 1966 to $94.4 billion. This is $3.2 billion over the estimated level for 1965. This increase reflects the economic growth anticipated in calendar year 1965. It also takes into account the revenue losses from proposed excise tax changes and from the second stage of income tax cuts enacted last year.

The resulting 1966 administrative budget deficit of $5.3 billion is $1 billion lower than the 1965 deficit, marking continued progress toward a balanced budget.

As our population increases, as science and technology change our methods of doing things, as our wants multiply with the growth in our incomes, and as urbanization creates new problems, there is growing need for more public and private services. It is evident that unless defense needs should decline substantially, Government expenditures will continue to rise over the long run.

At the same time, we have good reason to expect that Government expenditures in the years ahead will grow more slowly than the gross national product, so that the ratio of Federal spending to our total output will continue to decline.

The expenditures proposed in this budget reflect a careful balancing of national goals against budgetary costs. The budget I now present will, in my judgment, carry out the responsibilities of the Federal Government efficiently and wisely. It was constructed on that basis alone.

My budgets for both 1965 and 1966 have provided for major increases in areas of high national priority--particularly education, health, aid to the needy, housing, and the war on poverty. Also, for these 2 consecutive years, careful pruning of less urgent programs and vigorous cost reduction efforts have, on balance, resulted in lower expenditures in other major sectors of the budget. The application of these strict policies of priority and frugality is evident in the modest growth in administrative budget expenditures.


[Fiscal years. In billions] Administrative budget expenditures

Change, Change,

1964 1961 to 1965 1965 to 1966

Description actual 1965 estimate 1966 estimate

National defense and space $58.4 - $1.3 $57.1 -$0.4 $56.7

Interest 10.8 +.5 11.3 +.3 11.6

Health, labor, education, housing and community

development, economic opportunity program, and

aid to the needy 6.7 +.7 7.4 +3.6 11.0

All other 21.8 -.1 21.7 -1.3 20.4

Total, administrative budget 97.7 -.2 97.5 +2.2 99.7

Consolidated cash statement.--The administrative budget is based on a definition of Federal spending which excludes such important Federal activities as social security and highway construction that are financed through trust funds. A more comprehensive measure of the Government's finances is the consolidated cash budget which covers all of the Government's programs.

On the consolidated cash basis, total payments to the public are estimated at $127.4 billion in 1966. Total receipts from the public are estimated at $123.5 billion, resulting in a net excess of payments of $3.9 billion. The estimated increase of $4.0 billion in cash payments in 1966 over 1965 is mostly in trust funds which are financed by special taxes.

About $9.5 billion of the nondefense payments recommended in this budget--almost 21/2 times the size of the entire cash deficit-represent an investment in physical and financial assets which will provide benefits to the Nation for many years to come. These payments are made for Federal civil public works, equipment, and loans as well as for highways, hospitals, and other State, local, and private assets.

Federal sector, national income accounts. Another measure of Federal finance which includes trust funds emphasizes the direct impact of Government fiscal activities on the economy. This measure is based on the national income accounts. Under this concept, Federal fiscal data are estimated on an accrual rather than a cash basis. Purely financial transactions--such as loans--which do not directly affect production or income are excluded. On this basis, the deficit for 1966 is estimated at $6.0 billion.

Federal expenditures as measured by the national income accounts are estimated to rise by $4.0 billion in 1966. This increase-covering both purchases of goods and services and other types of payments--will provide a strong stimulus for continued economic growth.


[Fiscal years. In billions] 1964 1965 1966

Description actual estimate estimate


Administrative budget receipts $89. 5 $91.2 $94.4

Trust fund receipts 30.3 30.5 33.6

Deduct: Intragovernmental transactions 4.3 4.3 4.5

Total cash receipts from the public 115.5 117.4 123.5

Add: Adjustment from cash to accrual basis -.7 -.9 -1.8

Deduct: Receipts from loans, property sales, and other adjustments .2 .5 .7

National income account receipts--Federal sector 114.7 116.0 121.0


Administrative budget expenditures 97.7 97.5 99.7

Trust fund expenditures (including Government-sponsored enterprises) 28.9 19.0 32.9

Deduct: Intragovernmental transactions and other adjustments 6.2 5.1 5.2

Total cash payments to the public 120.3 121.4 127.4

Add: Adjustment from cash to accrual basis 1.8 1.7 1.1

Deduct: Disbursements for loans, land purchases, and other adjustments 3.6 2.1 1.5

National income account expenditures--Federal sector 118.5 121.0 127.0


Administrative budget -8.2 -6.3 -5.3

Receipts from and payments to the public -4.8 -4.0 3.9

National income accounts--Federal sector -3.9 -5.0 -6.0

FEDERAL REVENUES The Revenue Act of 1964 has played a major role in widening and strengthening our prosperity. At the beginning of this month, the second stage of the rate reductions provided under the Act became effective. In total, last year's tax law will decrease consumer and business tax liabilities by about $14 billion in the current calendar year.

With this substantial change in income taxes completed, it is now appropriate to revise and adjust excise taxes as well. Some of the present excises are costly and inefficient to administer. Some impose onerous recordkeeping burdens on small business. Some distort consumer choices as among different kinds of goods.

Within the revenue requirements for continued progress toward a balanced budget, I believe it is vital that we correct the most pressing of these deficiencies this year. I plan to transmit to the Congress recommendations to repeal some excise taxes and reduce others. In addition to improving the tax system, the recommended changes will increase purchasing power and stimulate further growth in the economy.


[Fiscal years. In billions] 1964 1965 1966

Source actual estimate estimate

Administrative budget receipts:

Individual income taxes $48.7 $47.0 $48.2

Corporation income taxes 23.5 25.6 27.6

Excise taxes 10.2 10.7 9.8

Other 7.1 7.9 8.8

Total administrative budget receipts 89.5 91.2 94.4

Trust fund receipts:

Employment taxes 16.8 16.7 18.7

Deposits by States, unemployment insurance 3.0 3.0 2.9

Excise taxes 3.5 3.6 4.0

Federal employee and agency payments for retirement 2.0 2.2 2.2

Interest on trust fund investments 1.6 1.7 1.9

Veterans life insurance premiums .5 .5 .5

Other 2.8 2.8 3.5

Total trust fund receipts 30.3 30.5 33.6

Intragovernmental transactions (deduct) 4.3 4.3 4.5

Total receipts from the public 115.5 117.4 123.5

These changes should become effective July 1, 1965. They will reduce tax liabilities on a full-year basis by $1.75 billion. Revenues collected by the Treasury in 1966 will be reduced by $1.5 billion.

My other major revenue proposals this year involve important activities financed through trust funds.

I am recommending prompt enactment of a hospital insurance program for elderly persons, who are finding hospital and medical costs far greater than their ability to pay. This program should be self-financing, with a combined employer-employee payroll contribution of 0.6% on the first $5,600 of income to start in calendar year 1966.

I am also recommending an increase from $4,800 to $5,600 in the wage base on which social security taxes are paid. This would take effect on January r, 1966, and would be coupled with a smaller increase in the payroll tax than is scheduled at that date under existing law. These changes will provide the funds for the needed increases being proposed in old-age, survivors, and disability insurance benefits.

While I am recommending reductions in certain excise taxes, I am also proposing increases in certain other excise taxes which are in the nature of user charges. The excise taxes for which I am recommending reduction or repeal are not associated with the provision of particular Government services. However, certain existing excises on transportation are in effect a charge for the use of facilities and services provided by the Government. In these cases, I am proposing changes in user charges for transportation so that different modes of transportation can compete on more equitable and efficient terms and users of special Government services will pay a greater share of the costs.

The estimated cost of completing the Interstate Highway System--which is financed by highway user taxes--has recently been increased by $5.8 billion. To avoid serious delay in completing the system, while remaining on a pay-as-you-go basis, I will include in my excise tax proposals specific recommendations for increasing certain highway user charges.

In contrast to the users of the highways, the users of the airways and inland waterways bear considerably less than the full cost of the Government investments and services provided them. Accordingly, I am recommending increased or new taxes on aviation gasoline and jet fuels and a new tax on air freight for commercial aviation. Receipts from the existing 2-cent tax on aviation gasoline should be kept in the general fund rather than transferred to the highway trust fund, and the 5% ticket tax on air passengers should be made permanent. A fuel tax for inland waterway users is also being proposed.

I will continue to press for other user charges in Government programs where benefits are provided to specific, identifiable individuals and businesses. Fairness to all taxpayers demands that those who enjoy special benefits should bear a greater share of the costs. Legislation is needed for some of the charges, such as patent and meat inspection fees. In other instances, equitable user charges will be instituted through administrative action.

I will also present recommendations to correct certain abuses in the tax-exempt privileges enjoyed by private foundations.

NEW OBLIGATIONAL AUTHORITY This budget includes new obligational authority for 1966 of $106.4 billion in the administrative budget.

--$93.5 billion of this requires congressional action this year.

--$12.9 billion represents permanent authorizations that do not require further congressional action, mainly the appropriation for interest on the public debt.

Most of the $34.5 billion in new obligational authority recommended for 1966 for trust funds represents revenues from special taxes which are automatically appropriated.

The 1965 estimate in the administrative budget includes $6.0 billion of recommended supplemental authorizations. These authorizations will provide funds for several programs for which I am requesting immediate consideration and enactment--for example, housing activities and aid to Appalachia. The new obligational authority and related expenditures under these supplemental proposals are reflected fully in the estimates presented in this budget.


[Fiscal years. In billions] 1964 1965 1966

Description actual estimate estimate

Total authorizations requiring current action by Congress:

Administrative budget funds $87.9 $94.5 $93.5

Trust funds .4 1.4 .5

Total authorizations not requiring current action by Congress:

Administrative budget funds 13.2 12.8 12.9

Trust funds 31.2 30.3 34.0

Total new obligational authority:

Administrative budget funds 101.1 107.3 106.4

Trust funds 31.55 31.8 34.5


The soundness of a budget can only be judged by the merits of the programs it proposes and the levels of expenditure it recommends. For both old and new programs, merit turns on a weighing of benefits against costs. In constructing this budget, I have tried to apply this approach to the entire range of Government operations.

As the year unfolds, developments may occur which call for prompt action by the Government. This is particularly true in international affairs, in the civil supersonic aircraft program, and in moving ahead with the recommendations resulting from various studies and analyses I am requesting, such as that related to military and civilian pay.


[Fiscal years. In billions] 1964 1965 1966

Function actual estimate estimate

Administrative budget expenditures:

National defense $54.2 $52.2 $51.6

International affairs and finance 3.7 4.0 4.0

Of which Food for Peace (1.7) (1.7) (1.7)

Space research and technology 4.2 4.9 5.1

Agriculture and agricultural resources

(not including Food for Peace) 5.6 4.5 3.9

Natural resources 2.5 2.7 2.7

Commerce and transportation 3.0 3.4 2.8

Housing and community development -.1 -.3 (1)

Health, labor, and welfare 5.5 6.2 8.3

Education 1.3 1.5 2.7

Veterans benefits and services 5.5 5.4 4.6

Interest 10.8 11.3 11.6

General government 2.3 2.4 2.5

Allowance for Appalachia (1) .1

Allowance for contingencies .1 .4

Interfund transactions (deduct) .7 .8 .6

Total administrative budget expenditures 97.7 97.5 99.7

Trust fund expenditures:

Health, labor, and welfare 22 7 13.4 26.5

Commerce and transportation 3.5 3.9 3.7

National defense .5 .8 1. 0

Housing and community development 1.9 .2 .8

Veterans benefits and services .7 .6 .5

All other .1 .6 1.0

Interfund transactions (deduct) .5 .6 .6

Total trust fund expenditures 28.9 19.0 32.9

Intragovernmental transactions and other adjustments (deduct) 6.2 5.1 5.2

Total payments to the public 120.3 121.4 127.4

..................................................................................................... 1 Less than $50 million.

Specific legislation and appropriations to meet such contingencies will be proposed as needed, but the amounts which may be required cannot now be estimated with any confidence. The budget therefore includes an allowance for contingencies of $650 million in new obligational authority and $400 million in expenditures. These amounts are larger than is customary. Their inclusion makes it clear that the budget totals are intended to provide adequately for meeting new needs that may arise or seizing new opportunities that may be presented.

Here are the highlights of my expenditure recommendations:

National defense.--We cannot afford second-best defense forces. Neither can we afford to be wasteful.

Our defense forces have reached new levels of strength. With the rapid strides made in the past 4 years and the future gains already scheduled, our powerful modern forces will be adequate to their tasks for years to come. In cooperation with our allies, we have now provided for:

--Forces able to deter nuclear attack.

--Forces able to counter conventional aggression and prevent the piecemeal erosion of the free world.

--Forces, in short, able to promote peace.

We still have improvements to make. We must maintain a strong research and development program to insure that our forces are always the most modern in the world.

The 1966 budget fully provides for these needs.

However, we are able to reduce our defense expenditures in 1966 because:

--The buildup of our forces which started in 1961 is nearly complete.

--The vigorous cost reduction program of the Department of Defense is producing large savings.

--Less effective and less economical forces are being retired or reduced as promptly as possible.

International affairs and finance.--We cannot achieve lasting world peace with armaments alone. Nor can greater worldwide prosperity be bought with money alone. These goals will be achieved only through the hard work, patience, understanding, and strength of men of good will everywhere.

Yet it is essential that we continue to put our best energies and some of our vast economic resources to work in solving the problems the world faces today. Prudent and careful expenditures for our international programs can help to keep men free, to promote understanding, and to substitute cooperation and negotiation for force in world affairs.

The 1966 budget calls for only a very modest increase in foreign economic assistance expenditures. With these funds, we will continue to concentrate our aid efforts in those less developed countries that are demonstrating the will and determination required to achieve political stability and economic growth.

We shall maintain our firm commitment to the Alliance for Progress--the focus of our efforts to achieve unity and understanding in this hemisphere. As an important part of this commitment, I recommend prompt action to permit our participation in the expansion of the Inter-American Development Bank.

This budget also enables us to:

--Continue our participation in and support for the United Nations.

--Maintain an adequate and alert network of diplomatic posts around the world.

--Improve our overseas information activities, so that others may know us not just as a rich nation, but as a free and responsible nation as well.

--Expand the Peace Corps, by now a proven experiment in international cooperation.

In an important step to strengthen the free world's financial system, the members of the International Monetary Fund are considering an increase in quotas. Upon completion of these discussions, expected shortly, I shall recommend that the Congress authorize promptly the funds needed to provide the U.S. share of this increase.

Space research and technology.--This Nation has embarked on a bold program of space exploration and research which holds promise of rich rewards in many fields of American life. Our boldness is clearly indicated by the broad scope of our program and by our intent to send men to the moon within this decade.

The costs are high--as we knew they would be when we launched this effort. We have seen a rise in annual expenditures for the space program from less than one-half billion dollars in 1960 to over $4 billion in 1964.

Expenditures are continuing to increase. However, we have built up momentum and are concentrating on our highest priority goals. Therefore, we will no longer need to increase space outlays by huge sums each year in order to meet our present objectives.

This budget proposes that expenditures increase by $200 million in 1966 over 1965. This is the smallest annual increase since 1959. The new obligational authority requested is about the same as enacted for 1965.

Agriculture and agricultural resources. The increased productive efficiency of our farms has contributed greatly to growth of the national economy. This efficiency, in turn, has contributed, along with our high per capita income, to making us the best-fed nation in the world, while men are leaving farms and entering other occupations.

However, because of lack of adequate employment opportunities, the rapidly declining need for people to operate our farms has also meant low incomes for all too many of our rural families. We must therefore find ways to help provide a greater share of our national prosperity for those rural families that do not farm or who can no longer look to farming as a sole source of income.

Progress toward this goal will be made both through broader programs to fight poverty and through programs specially aimed at increasing economic opportunities and improving living conditions for rural people. The latter include a proposal for an insured loan program which will help provide more and better housing in rural areas.

I shall shortly transmit to the Congress my recommendations to continue and improve our farm commodity programs.

For the longer run, we need to explore new approaches to the problems with which the farm commodity programs are designed to deal.

I have directed the Secretary of Agriculture to make a comprehensive review of the kinds of programs needed for the changing farm economy. I strongly believe that programs can be designed that will continue the national benefit from our present highly efficient commercial agriculture, bolster farm income, put less burden on the Federal budget, and direct more of our effort to the problems of low-income farmers.

Natural resources.--During its last session, the Congress passed a number of far-reaching laws that will advance significantly the development, conservation, and use of our natural resources. They include the Land and Water Conservation Fund Act, the Wilderness Act, and the Water Resources Research Act. The 1966 budget will implement these measures.

The budget also recommends the start of 37 new projects by the Corps of Engineers, 9 new projects by the Bureau of Reclamation, and 5 new projects by the Tennessee Valley Authority.

About two-thirds of the total expenditures for natural resources will be used to continue construction and operation of projects to provide water, control floods, improve navigation, and generate power.

Increased attention has been focused in recent years on the importance of the wise use and conservation of our water resources. Federal investment in water and related resources development has grown sharply-and is expected to grow further in the period ahead.

Urban, industrial, and recreational requirements for water have increased greatly in recent years and will continue to increase as our economy grows. The relative priorities of many historic water uses, including cropland, are changing. The implications of the changing needs for water resources programs and the most effective means of achieving our objectives are under intensified review to meet changing priorities.

The budget provides for a major expansion in research to develop improved technology for desalting water, including the use of nuclear energy. This program holds important promise in a world where water is a key to economic development and well-being.

I am also again recommending legislation to authorize river basin planning commissions and grants to States for planning the best use of water resources.

Nuclear energy will become increasingly important in meeting the rapidly growing demand for electric power. Power reactors must be improved, however, to make better use of nuclear fuel resources than they do today, as well as to provide economical electricity. In 1966, the Atomic Energy Commission plans to join with non-Federal groups in the construction of two different advanced power reactors which incorporate substantial improvements over those now in use.

The Commission is also working toward the long-range objective of high-gain breeder reactors which produce significantly more fuel than they consume. These breeders would insure a tremendous energy source for centuries to come.

Commerce and transportation.--The vitality of the millions of privately owned businesses is essential to our continued economic development. The Federal Government will continue to provide extensive encouragement toward this end.

In the depressed areas of our Nation, we must create a constructive partnership between industry and government which will improve opportunities for new investment and new jobs.

I urge prompt congressional action to:

--Extend the program begun by the Area Redevelopment Act of 1961, now scheduled to expire on June 30, 1965.

--Amend the act so that Federal aids can be concentrated in areas of greatest need and can emphasize the most effective types of assistance.

If the Nation is to have a truly efficient system of transportation, we must revise the traditional Government programs of regulation and operating subsidies to place greater reliance upon the forces of free competition. My proposals for charging users of Government transportation services a greater share of the costs incurred on their behalf are consistent with this objective. In addition, my proposals for transportation will provide for greater emphasis on the recreational and scenic aspects of our road system.

To encourage long-overdue improvements in surface transportation in our densely populated regions, I will propose legislation to authorize a comprehensive program of technical research and development on high-speed, intercity surface transport. As a first step, we will begin demonstrations of possible improvements in existing rail passenger services in the Northeast Corridor of the Nation.

By increasing efficiency and productivity, the Post Office Department has been able to avoid a general increase in postal rates since calendar year 1962. Despite these efforts, however, significant postal deficits are now estimated in the current and future years. At my request, a panel of distinguished citizens will consider whether certain postal rates should be increased to bring them into line with postal costs.

Housing and community development.-The Federal Government's role in the Nation's huge annual investment in housing and community development is largely indirect. The Government insures savings and loan accounts and mortgages, encouraging private investment and making large direct Federal investments unnecessary. Today these insurance programs are involved in about half of the homes purchased or being built.

Yet, some direct Federal aid is, and will remain, necessary. This type of aid gives incentives to forward-looking communities, lenders and builders, and private citizens, who share the national concern over the unsatisfactory state of American cities.

In a message on housing and urban development, I will present my proposals for further extension of the Federal-local-private partnership in meeting city problems. Revitalized Federal leadership through a new Department of Housing and Urban Development will be coupled with increased emphasis on comprehensive local planning.

Federal financial assistance will be offered to:

--Support the neighborhood facilities needed to serve the city's people.

--Increase the supply of low and moderate income housing.

--Continue the attack on urban blight.

--Encourage better standards of development and more adequate public facilities at the growing urban fringe.

No recent step in improving the prospects for future urban development has been more significant than the enactment of the Urban Mass Transportation Act of 1964. To extend similar opportunities to the local communities of the National Capital region, I urge authorization of the special Federal assistance required to provide the nucleus of an adequate system of high-speed urban transportation for this area.

Health, labor, and welfare.--The Economic Opportunity Act of 1964 rededicated the Nation to a vigorous attack on the causes of the poverty which grips one-fifth of our population--including 15 million children. Our objective is to mobilize local, State, and Federal resources in a coordinated effort to assist the poor--especially children and youth--to achieve a better life.

The 1966 budget provides for almost doubling the new obligational authority and quadrupling the expenditures for this effort. These funds will:

--Support 300 urban and rural community action programs.

--Provide work opportunities, remedial education, and vocational training for 330,000 youths in the Job Corps and the Neighborhood Youth Corps.

--Provide work-study opportunities for 100,000 needy college students and work experience for 110,000 unemployed adults.

--Support the Volunteers in Service to America (VISTA); finance literacy training for adults; and assist migrant workers, farmers, and other low-income rural families.

To improve health care and facilities for the American people, the 1966 budget includes new proposals for:

--Hospital insurance for the aged under social security.

--Multipurpose regional medical centers to provide the most advanced diagnosis and treatment for heart disease, cancer, stroke, and other major diseases.

--Grants for operating expenses of medical and dental schools.

--Initial staffing of community mental. health centers.

--Improved medical diagnostic and treatment services for preschool and school age children and youth.

--Grants for projects to reduce water pollution caused by combined storm and sanitary sewers.

--Increased aid to State and local air and water pollution control agencies for research and for more vigorous enforcement.

Our social security system provides needed day-in and day-out support to the millions who have contributed to it during their working years. This system needs strengthening.

In addition to hospital insurance for the aged, I am proposing legislation to provide an average 7% increase in social security benefits, retroactive to January 1, 1965. The increase in benefit payments will amount to about $a billion in 1966.

I am proposing legislation to authorize long overdue improvements in the unemployment insurance system.

Improvements are also needed in our public assistance and manpower training programs.

Legislation will be recommended to increase the Federal share of public assistance payments, establish a program of medical care for children in families unable to afford such care, and authorize payments for needy aged persons in mental and tuberculosis hospitals.

Recommendations will also be made to broaden the Manpower Development and Training Act and increase the Federal share of project costs to 90% from the 66% which would go into effect under present law in 1966.

Education.--Among the unfinished tasks of our Nation, the improvement of education deserves first priority.

It is our primary weapon in the war on poverty and the principal tool for building a Great Society.

This budget recognizes the increasing Federal responsibility to expand educational opportunity for all people and at all levels. It provides an increase in 1966 of over 60% in new obligational authority and over 75% in outlays. The programs of the Office of Education alone are more than doubled in 1966.

The 88th Congress enacted more education legislation than any previous Congress. About 30% of the estimated increase in expenditures for education in 1966 is to carry out the Higher Education Facilities Act of 1963, the Vocational Education Act of 1963, the Library Services and Construction Act of 1964, and the National Defense Education Act Amendments of 1964.

But much remains to be done. Federal aid to meet critical needs in elementary and secondary education has not been enacted. Such aid is vital if we are to end the situation in which children are handicapped for life because they happen to live in communities which cannot support good schools.


[Fiscal years. In millions] New obligational authority Expenditures

1964 1965 1966 1964 19651 1966

Agency or program actual estimate estimate actual estimate estimate

Office of Education:

Elementary/secondary $407 $488 $1,765 $404 $408 $971

Higher 164 668 1,167 150 182 496

Vocational and other 130 345 449 106 186 326

Subtotal, Office of Education 702 1,500 3,381 660 776 1,792

National Science Foundation 353 420 530 310 325 405

Other education programs 475 599 192 369 408 466

Total, education 1,530 2,519 4,103 1,339 1,509 1,663

Present programs (1,530) (2,519) (1,588) (1,339) (1,509) (2,063)

Proposed legislation (1,515) (600)

The program I am proposing emphasizes assistance to improve elementary and secondary education, particularly for children who live in poverty. It will step up research in education and help schools and communities to provide wider educational opportunities for all. It will also strengthen higher education by expanding assistance to colleges and to college students. My proposals were presented more fully in a special message on education.

I also propose to expand present programs of support for academic research and science education. In 1966, expenditures by the National Science Foundation will increase by 25%, primarily to help provide an adequate rate of growth in Federal support for basic research in universities. Consistent with these objectives, I recommend that the Congress remove its restrictions on payments to universities for indirect costs of research grants.

Veterans benefits and services.--Veterans benefits and services under the basic, continuing compensation, pension, and medical care programs will be at record levels in 1966.

--Nearly 4 1/2 million veterans or their survivors will receive compensation and pension payments.

--690,000 veterans will be admitted to hospitals, domiciliary homes, or nursing homes.

Legislation enacted in 1964 by the 88th Congress to increase pension rates and to establish new nursing home programs will entail expenditures in 1966 of more than $100 million.

In line with the trend of recent years, an increasing part of the expenditures for veterans will be for non-service-connected benefits and services. As we continue to improve our social security and health protection programs, we should place greater reliance on these programs for meeting veterans needs not connected with their military service. Our major emphasis in veterans programs should be concentrated on meeting fully our obligation to those who were disabled in the defense of the country and to their dependents and survivors.

The Appalachian region.--The Appalachian region of the United States has not shared fully in the great growth and prosperity enjoyed by the Nation as a whole. The 16 million people of this 165,000-square-mile area deserve a better opportunity to improve their region.

Many of the education, health, housing, and economic opportunity programs already outlined in the budget will help to overcome the problems brought on by chronic poverty. We need to make the most effective use of these programs. But a special effort is required to help this region. This means that Federal, State, local, and private institutions must combine to:

--Improve access to the region.

--Develop its natural resources.

--Promote better employment opportunities for its people.

I urge the enactment of legislation to make this possible.

Employee pay.--In preparing this budget, I have given close attention to the matter of Government pay.

Federal pay raises in the past 3 years have moved us much nearer to realizing the principle that civilian pay rates should be comparable to those in private enterprise for the same levels of work and that changes in pay and allowances of members of the uniformed forces should keep pace with advances in the general economy. These policies have been firmly established after careful congressional review. Taken together, they assure that civilian and military pay are effectively interrelated and maintained at rates which are fair to taxpayers and to Federal employees.

I believe, however, that it is equally essential to assure that any proposals for further pay adjustments during this calendar year accurately reflect pay developments in the private economy and be compatible with our national wage and price objectives.

For these reasons, I am appointing a special panel to make a prompt review of the present situation. This panel will be composed equally of distinguished public members and officers of the executive branch.1 It will report to me on April 1, 1965, after which I will make a recommendation to the Congress. Provision has been made in the allowance for contingencies for a possible military and civilian pay increase.

1 The panel of 10 members with Marion B. Folsom designated Chairman, announced by the President on January 28, 1965, was listed in a White House release of that date.

PUBLIC DEBT Changes in the amount of public debt from year to year reflect primarily the amount of the budget surplus or deficit. Based on the estimates presented in this budget, the debt on June 30, 1965, will be $316.9 billion and on June 30, 1966, $322.5 billion.

Under present law, the temporary debt limit of $324 billion will continue in effect through June 30, 1965. Then--if no action is taken--the permanent legislative ceiling of $285 billion will again become effective. It will be necessary, therefore, to raise the legal debt ceiling before that date.

The size of the debt limit needed is strongly affected by the seasonal pattern of Federal receipts and expenditures. Since receipts are always larger in the last half of the fiscal year, the public debt during 1966 will, from time to time, exceed the level presently estimated for June 30, 1966.

These seasonal fluctuations will require a higher debt limit than would be necessary if we had only to consider the amount of debt at the end of the fiscal year.

The need for flexibility in managing the debt must also be considered in fixing the debt limit. The Treasury generally borrows relatively large amounts of cash at periodic intervals during the year. These sizable financing operations are--and should be-carefully timed to take full advantage of favorable market conditions when they exist.


[Fiscal years. In billions] 1963 1964 1965 1966

Description actual actual estimate estimate

Owned by Federal agencies and trust funds $57.9 60.7 $62.5 $64.4

Owned privately and by Federal Reserve banks 248.6 251.8 254.4 258.1

Total 306.5 312.5 316.9 322.5

REDUCING GOVERNMENT COSTS As we focus attention on improving the quality of American life, we must also see to the quality of American Government.

The tasks we face are formidable. They require new dedication, new vision, and new skills. We have neither the resources nor the right to saddle our people with unproductive and inefficient Government organization, services, or practices.

This must be a year of renewal--a year that will be long remembered for what we accomplish in bringing the public service to its highest state of readiness.

To realize this renewal, action will be necessary on a wide front. I pledge that this administration will strive to conduct the work of the Government by the same exacting standards that would apply in the most expertly managed private business.

Government organization.--We must reorganize and modernize the structure of the executive branch in order to focus responsibilities and increase efficiency. I will shortly propose certain reorganizations which will constitute the initial and most urgent steps that I deem necessary to consolidate functions and strengthen coordination of related activities.

I will ask that permanent reorganization authority be granted to the President to initiate improvements in Government organization, subject to the disapproval of the Congress.

Controlling employment.--In this budget, as in the budget for 1965, I have insisted upon stringent criteria to control the growth of Federal civilian employment. It is important that we have enough people to carry on the Government's business efficiently, but we must also see that we have no more employees than we need.

Realistic guidelines and goals have been established to aid administrators in the effective management of the Government's large and diverse work force. Controls on employment have been established for each agency. To remove the guesswork from determination of employment needs, agencies are installing improved work measurement systems, and the Bureau of the Budget is providing advice and assistance in introducing measures of productivity into agency management systems. The result of such efforts has been and will continue to be a reduction in the size of the Federal work force relative to the work being accomplished. The effectiveness of these controls may be seen in the fact that had Federal civilian employment kept its 1955 relationship to total population, Federal employees would have totaled 2,747,000 on June 30, 1964, more than 275,000 above the actual number as of that date.

Modest and highly selective increases in employment are proposed in the budget for 1966, mainly to carry out new and expanded programs recommended in this budget and to reduce excessive overtime in the Post Office Department. At the same time, we will take full advantage of every opportunity to keep the work force at minimum levels by eliminating functions, consolidating operations, closing unnecessary offices and installations, and abolishing vacancies. Total civilian employment proposed for 1966 is about 1% above the totals for the current year, and I am confident that we will be able to keep actual employment somewhat below these estimates.

Management improvement and cost reduction.--The past year has been a successful one from the standpoint of improved management and cost reduction. Next year will be still better.

Led by the outstanding performance of the Department of Defense, Government agencies last year undertook cost reductions that saved almost $3.5 billion. These economies were not easy to come by. They have resulted from the concentrated work of Government officials and employees in all agencies, large and small. They reflect a wide variety of actions ranging from the abolition of reports and other publications to the introduction of computers, the application of modern business equipment, the adoption of new purchasing methods, and decisions to dose major installations.

I am counting heavily on the continuation and acceleration of cost reduction and management improvement efforts. Every dollar saved in this way can be put to better use in carrying on more urgent business. And today every dollar is important.

Among other things, we must:

--Continue our war on excessive paperwork.

--Increase our capacity to find and correct management weaknesses throughout the Government.

--Reexamine our career services, making certain that they are all they should be with respect to selection, training, placement, promotion, rotation, retirement, and removal.

--Seek legislation that will remove legal barriers to efficient operation.

I have instructed the Director of the Bureau of the Budget to give direction to a comprehensive, Government-wide cost reduction program to be put into effect in every department and agency. In general, this program will require the head of each agency to:

--Take personal charge of cost reduction efforts.

--Set specific goals for reductions in cost.

--Reassess priorities for all programs and operations.

--Identify and remove roadblocks to economy.

--Verify reported savings.

I believe the Congress and the American people approve my goals of economy and efficiency. I believe they are as opposed to waste as I am. We can and will eliminate it.

CONCLUSION Since I sent you my first budget a year ago:

--4 million Americans have been born.

--3.2 million young people have reached college age.

--1.7 million new families have been formed.

--1.3 million persons have entered the labor force.

--1.5 million persons have reached retirement age.

Thus, our Nation faces growing responsibilities. But we also possess growing resources to meet them.

One result of our expanding economy is a larger revenue potential. This means a potential for:

--Necessary increases in Federal expenditures.

--Reductions in taxes.

--Reductions in the public debt.

No one of these goals is paramount at all times. Each must be balanced against the others to assure our continued progress toward a Great Society.

This progress does not rest on economic growth alone. It is aimed at improving the quality of our way of life. And it is aimed at insuring that all Americans share in this way of life.

The Federal Government must do its part.

This does not mean simply spending more. It does mean spending more on some new and vital activities. But it also means cutting back or eliminating activities which are less urgent or no longer necessary.

Where there is waste, to end it; where there are needs, to meet them; where there are just hopes, to move toward their fulfillment--that is the object of the budget which I now submit to your consideration.


January 25, 1965

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

Lyndon B. Johnson, Annual Budget Message to the Congress, Fiscal Year 1966. Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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