Lyndon B. Johnson photo

Annual Budget Message to the Congress, Fiscal Year 1967.

January 24, 1966

To the Congress of the United States:

With this message I transmit to you today the budget of the United States of America for the fiscal year 1967.

A budget is not simply a schedule of financial accounts.

It is a program for action.

The program of the Federal Government which this budget recommends is grounded on these fundamental premises:

• In international affairs we are determined to seek peace with every means at our command

--but we are fully prepared to meet the costs of opposing aggression.

In domestic affairs we are determined to press confidently forward toward the Great Society

--but we shall do so in an orderly and responsible way, and at a pace which reflects the claims of our commitments in Southeast Asia upon the Nation's resources.

The budget for 1967 bears the strong imprint of the troubled world we live in.

It provides the funds we now foresee as necessary to meet our commitments in Southeast Asia. If our efforts to secure an honorable peace bear fruit, these funds need not be spent. Yet it would be folly to present a budget which inadequately provided for the military and economic costs of sustaining our forces in Vietnam. And those costs are substantial.

In this setting I have sought to frame a balanced program.

•We are a rich nation and can afford to make progress at home while meeting obligations abroad--in fact, we can afford no other course if we are to remain strong. For this reason, I have not halted progress in the new and vital Great Society programs in order to finance the costs of our efforts in Southeast Asia.

• But even a prosperous nation cannot meet all its goals all at once. For this reason, the rate of advance in the new programs has been held below what might have been proposed in less troubled times, many older and lower priority activities have been reduced or eliminated, and economies have been sought in every operation of the Government.

• At the same time, I want to insure that the necessary increase in budget expenditures is so financed as to promote economic stability. For this reason, I am proposing several tax measures designed to increase Federal revenues.

With this balanced program we can:

• Meet our international responsibilities with firmness.

• Maintain continued prosperity and economic stability at home.

• Raise the productivity, earnings, and living standards of our poorer citizens.

• Improve the quality of life for all citizens.

• Preserve and protect our national resources for the generations to come.

And we can achieve these ends without unduly straining our economic resources or impairing our steady economic expansion.


The unprecedented and uninterrupted economic growth of the past 5 years has dearly demonstrated the contribution that appropriate fiscal action can make to national prosperity. Aided by the judicious use of tax and expenditure policy, the Nation continues to benefit from the longest period of sustained economic growth since the end of World War II.

With proper policies, this growth will extend through the current calendar year and beyond. In calendar year 1966, the Nation's output of goods and services--the gross national product--is expected to grow by $46 billion over 1965, reaching $722 billion, plus or minus $5 billion. This increase will follow on the heels of last year's healthy growth, when the real gross national product advanced by 5 1/2 %.

During that year:

• Nearly 2 ½ million additional jobs were created.

• Countless new and previously idle plants and machines were drawn into productive use.

• Consumer and business incomes reached record levels.

• The unemployment rate fell to 4.1%, the lowest in more than 8 years.

A growing economy provides rising Federal revenues and expanding economic resources both for meeting our military and international commitments and for moving closer to our Great Society goals. But this does not relieve us of the obligation to weigh expenditure decisions carefully and carry them out efficiently. Inflation need not be the price of social progress; nor should it be a cost of defending freedom.

Our fiscal and monetary policies must also be designed to help reduce further the balance of payments deficit. During the past calendar year, the deficit declined by more than half from the preceding year. Private banks and other businesses contributed significantly in a variety of ways through voluntary programs announced last February. In addition, the Federal Government has been eliminating or reducing payments abroad wherever possible and consistent with essential program requirements. We will continue these efforts.


This budget presents a responsible fiscal program. It accommodates our foreign and domestic responsibilities in an environment of strong but noninflationary economic growth.

The 1967 fiscal program consists of the following elements:

First, apart from the special costs of operations in Southeast Asia, increases in Federal expenditures for high priority Great Society programs and for unavoidable workload growth have been largely offset by reductions in lower priority programs, management improvements, and other measures. As a consequence, total regular administrative budget expenditures--i.e., outside of special Vietnam costs--rise by only $0.6 billion between 1966 and 1967--and this increase is virtually the same amount as the congressional additions to my 1965 pay proposals for military and civilian employees.

Second, I propose to supplement the expansion of Federal revenues which is a consequence of economic growth by a series of tax measures which will yield $1.2 billion in fiscal year 1966 and $4.8 billion in 1967:

• A plan for improving the pay-as-you-go effectiveness of the withholding system on personal income taxes.

• A corresponding plan to accelerate the transition of corporate income tax payments to a full pay-as-you-go basis.

• A temporary reinstatement of the excise taxes on passenger automobiles and telephone service which were reduced at the beginning of this calendar year and deferral of the further reductions scheduled in the future.

Third, the combined increase in revenues from economic growth and from my tax proposals will amount to $11.0 billion in 1967. This is substantially larger than the growth in administrative budget expenditures. In fact, it virtually covers the total special costs of operations in Vietnam as well as the small increase in regular budget expenditures from 1966 to 1967.

Fourth, as a consequence, the overall 1967 deficit in the administrative budget is $1.8 billion, sharply lower than in 1966 and the smallest deficit in 7 years, despite the added costs we are incurring in Southeast Asia.

Fifth, on a consolidated cash basis--which is the most comprehensive measure of budget totals--the 1967 budget will show a surplus of $0.5 billion.

No one can firmly predict the course of events in Southeast Asia. They depend not only upon our own actions but upon those of our adversaries. As a consequence, ultimate budgetary requirements could be either higher or lower than amounts I am now requesting. Prior experience shows that such estimates are extremely difficult to make. During the Korean war, for example, actual military expenditures fell substantially below the original budget estimate. The amounts which I am presenting here reflect the best judgment which can be made at this point in time.

Because of the uncertainties inherent in this situation, the 1967 budget is designed to provide flexibility of response to changing conditions. In the new programs authorized by Congress in the last several years, we have an effective array of weapons to attack the major domestic problems confronting the American people--in the fields of health, education, poverty, housing, community development, and beautification. The 1967 budget provides funds to press forward vigorously with these new programs. But because of the costs of maintaining our commitment in Vietnam, those funds are, in many cases, less than the maximum authorized in the enabling legislation. Should our efforts to find peace in Vietnam prevail, we can rapidly adjust the budget to make even faster progress in the use of these new programs for the solution of our domestic problems.

If, on the other hand, events in Southeast Asia so develop that additional funds are required, I will not hesitate to request the necessary sums. And should that contingency arise, or should unforeseen inflationary pressures develop, I will propose such fiscal actions as are appropriate to maintain economic stability.


Administrative budget.--Administrative budget expenditures in the fiscal year 1967 are estimated at $112.8 billion, an increase of $6.4 billion over 1966. Apart from the special military and economic assistance costs in Vietnam, expenditures for the regular programs of the Federal Government in 1967 are estimated at $102.3 billion, a rise of $0.6 billion from 1966, only six-tenths of one percent.

Administrative budget receipts are also expected to increase in 1967, to $111.0 billion. Of the $11.0 billion increase over 1966, $3.6 billion results from the tax measures I am proposing. Most of the remainder results from the sound and orderly economic growth expected for calendar year 1966.

Excluding both special Vietnam costs and the recommended tax measures, the 1967 administrative budget could have been in surplus. When I urged the Congress to enact the Revenue Act of 1964, I stated that the growth in economic activity yielded by the tax reduction, in combination with economy and efficiency in Government expenditures, would lead to a balanced budget in a prosperous economy. Barring the then unforeseen costs we are incurring in Southeast Asia, that forecast remains a correct one.

Consolidated cash statement.--The administrative budget does not include a number of important Federal activities which are financed through trust funds, such as social security, medical care for the aged, and aid for highway construction. A more complete measure of the Government's finances is the consolidated cash budget which covers all of the Government's programs and transactions with the public.

Total payments to the public on the consolidated cash basis are estimated at $145.0 billion in fiscal year 1967, an increase of $10.0 billion over 1966. Excluding special Vietnam costs, cash payments are estimated to rise by $4.2 billion in 1967, primarily because of the recently enacted hospital and medical insurance programs for the aged which begin in 1967 and are being financed in large part by special taxes.

Total receipts from the public are estimated to be $145.5 billion in 1967, an increase of $17.4 billion over 1966. Of the total in 1967, $6.5 billion represents the yield from special trust fund taxes that were recently enacted or are proposed in this budget.

Federal sector, national income accounts.--A third measure of Federal finance is based on the national income accounts. This concept is designed to indicate the direct impact of Federal fiscal activity on the economy. In this set of accounts, Federal receipts and expenditures, including trust fund transactions, are generally estimated on an accrual rather than a cash basis. In addition, purely financial transactions are excluded because they do not directly result in current output and income. Total Federal sector receipts and expenditures are estimated to show a deficit of $2.2 billion in 1966 and $0.5 billion in 1967.


[ Fiscal years. In billions ]

1965 1966 1967

Description actual estimate estimate


Administrative budget receipts $93.1 $100,0 $111.0

Trust fund receipts 3 1. 0 33.5 41.6

Deduct: Intragovernmental transactions

and other adjustments 4.4 5.4 7.1

Total cash receipts from the public 119.7 128.2 145.5

Deduct: Loans, differences in coverage,

and other adjustments 1.0 .6 .7

Add: Cash to accrual basis and

other adjustments .9 1.2 --2.6

National income account

receipts--Federal sector 119.6 128.8 142.2


Administrative budget expenditures 96.5 106.4 112.8

Excluding special Vietnam costs (96.4) (101.7) (102.3)

Trust fund expenditures

(including Government-sponsored enterprises) 29.6 33.8 37.9

Deduct: Intragovernmental

transactions and other adjustments 3. 7 5. 2 5.7

Total cash payments to the public 122.4 135.0 145.0

Excluding special Vietnam costs (122.3) (130.3) (134.5)

Deduct: Loans, differences in

coverage, and other adjustments 5.8 4.0 1.6

Add Cash to accrual basis and

other adjustments 1.7 --.7

National income account

expenditures--Federal sector 118.3 131.0 142.7

Excluding special Vietnam costs (118.2) (126.3) (132.2)


Including special Vietnam costs:

Administrative budget --3.4 -- 6.4 --1. 8

Receipts from and payments to the public --2.7 --6.9 +.5

National income accounts--Federal sector + 1.2 --2.2 --.5


Since 1962, private demands for investment and consumption have been stimulated by several major tax revisions. The stimulus resulting from these tax changes has been the single strongest contributor to 5 full years of sustained economic growth. In the current year, private wage earners and investors are benefiting from tax reductions totaling $20 billion as a result of:

• The Revenue Act of 1962, highlighting an investment tax credit for business.

• Liberalized depreciation allowances.

• The Revenue Act of 1964, providing a record cut in personal and corporate income tax rates.

• The Excise Tax Act of 1965, authorizing a broad program to abolish most Federal excise taxes and reduce others.

Despite this massive tax reduction, administrative budget receipts under existing legislation are estimated to be about $21 billion greater in 1966 than they were 5 years earlier in 1961. This increase is more than double the increase during the previous 5 years, when there were no significant tax cuts. Thus, we have a clear illustration of the direct relationship between tax policies, economic growth, and Federal revenues.

Tax policy, however, must be used flexibly. We must be equally prepared to employ it in restraint of an overly rapid economic expansion as we were to use it as a stimulus to a lagging economy.

The current situation calls for a modest measure of fiscal restraint. As a consequence, I am recommending a tax program which consists primarily of desirable reforms in tax collection procedures, having the effect of increasing revenues in the current and coming year. In addition, I am proposing the deferral of certain scheduled excise tax reductions.

Larger corporations are beginning the third step of a seven-stage transition to a full pay-as-you-go system for corporate income taxes by 1970. I propose that this transition be accelerated this year and completed in 1967 to produce increased corporate tax collections of $1.0 billion and $3.2 billion, respectively.

Similarly, higher income individuals now find that withheld taxes under the existing flat-rate system fail to cover the full tax liability at the end of the year. Establishment of a graduated withholding system will increase tax collections by $0.1 billion in fiscal 1966 and $0.4 billion in 1967, without a change in total personal tax liabilities.

In the case of the self-employment social security tax, individuals may now elect to make payments annually instead of quarterly. By requiring these payments to be made quarterly, trust fund receipts will be increased by $0.1 billion in both fiscal 1966 and fiscal 1967.

Together, these three changes in collection procedure will put higher income individuals and corporations closer to the full pay-as-you-go schedules which now apply to moderate and lower income wage earners.

However, it is desirable that the economic impact of these three collection speedup reforms should be supplemented by temporarily rescinding reductions in excise tax rates on automobiles and telephone service which took effect in January of this year and by postponing the reductions in rates on these items now scheduled to take place in the future. Together these temporary tax measures will yield $0.1 billion in 1966 and $1.2 billion in 1967.


[ Fiscal years. In billions ]

1965 1966 1967

Source actual estimate estimate

Administrative budget receipts:

Individual income taxes $48. 8 $51.4 $56.2

Corporation income taxes 25.5 29.7 34.4

Excise taxes 10 9 9.2 8.9

Other 7.9 9.7 11. 5

Total administrative budget receipts 93.1 100.0 111.0

Trust fund receipts:

Employment taxes 16.9 18.8 24.3

Deposits by States, unemployment insurance 3.1 2. 9 2. 9

Excise taxes 3.7 3.9 4.4

Federal employees retirement system 2.2 2.2 2.2

Interest on trust fund investments 1.8 1. 8 2.0

Veterans life insurance premiums .5 .5 . 5

Other 3.0 3.4 5.3

Total trust fund receipts 31.0 33.5 41.6

Intragovernmental transactions and

other adjustments (deduct) 4.4 5.4 7.1

Total receipts from the public 119.7 128.2 145.5

An increase in the payroll tax rate and wage base to finance higher social security benefits and the new hospital insurance programs took effect on January 1, 1966. A further increase in the rate will occur on January 1, 1967, under existing law. These increases are expected to provide additional trust fund receipts of $1.5 billion in fiscal year 1966 and $6.2 billion in 1967.

The nature of many government services is such that they should be provided without any charge or with only a nominal charge. However, in certain cases when a Government program provides special benefits or privileges to specific, identifiable individuals or businesses, appropriate user charges should be initiated. To this end, legislation will be proposed when necessary, and equitable user charges will be instituted administratively where authority exists to do so.

This budget proposes a number of new or increased charges, the largest of which are in the transportation field. I again urge the Congress to enact legislation so that the primary beneficiaries will defray a larger part of the costs incurred by the Federal Government in providing transportation facilities and services to these beneficiaries.

Increased highway user charges are essential for completing the Interstate Highway System on a pay-as-you go basis and for financing certain additional activities of importance to highway travelers, such as safety programs.

The users of the airways bear substantially less than the full cost of the Government investments and services upon which they rely. Accordingly, I am recommending an increase in the passenger ticket tax, increased taxes on fuels used by general aviation, and a new tax on air freight. Receipts from the fuel tax on general aviation which now go into the highway trust fund should be retained in the general fund.

The facilities of the inland waterways system, which have been improved steadily by the Federal Government, presently are available to general and commercial users free of charge. I propose that they meet a portion of the cost of the system through a fuel tax.


The recommendations in this budget will require $121.9 billion in new obligational authority for fiscal year 1967 in the administrative budget. The special costs of Vietnam represent $9.1 billion of this amount.

Of total new obligational authority:

• $106.3 billion requires action by the Congress this year.

• $15.6 billion represents permanent authorizations not requiring further congressional action; the largest of these is for interest on the public debt.

In addition to the new obligational authority required for the administrative budget, $42.6 billion will be available for the trust funds in 1967, an increase of $7.5 billion from the estimate for 1966. Most of this is in the form of automatically appropriated revenues from special taxes.

The total recommended for 1967 in the administrative budget is $4.1 billion below the estimate for 1966. Most of this decrease--$3.5 billion--is in the Department of Defense (including military assistance), reflecting the large supplemental appropriations requested for 1966 for financing special Southeast Asia costs.

New obligational authority in 1967 for all other agencies has been held at or below the 1966 levels wherever possible. The total estimated decline of $0.6 billion includes a number of significant changes in the authority requested for individual agencies and programs.

Major decreases other than for the Department of Defense are:

• $1.8 billion for the Department of Agriculture.

• $163 million for the National Aeronautics and Space Administration.

• $110 million for the Federal Aviation Agency.

• $103 million for the Atomic Energy Commission.

Major increases are:

• $1.4 billion for the Department of Health, Education, and Welfare.

• $750 million for interest on the public debt. (Pg. 55)

• $316 million for the Office of Economic Opportunity.


[ Fiscal years. In billions ]

1965 1966 1967

Description actual estimate estimate

Total authorizations requiring current

action by Congress:

Administrative budget funds $93.6 $111.6 $106.3

Trust funds 1.6 .6 1.7

Total authorizations not requiring

current action by Congress:

Administrative budget funds 13.1 14.4 15. 6

Trust funds 30.4 34.4 40.9

Total new obligational authority:

Administrative budget funds 106.6 126.0 121.9

Trust funds 32,0 35.0 42.6

The administrative budget estimate for fiscal year 1966 includes a recommended $15.8 billion in new obligational authority not enacted to date. The special Vietnam supplemental represents $12.8 billion of this total. Other supplemental funds will be required to finance legislation enacted last year for which no funds have yet been provided, such as higher military and civilian pay and a Teacher Corps to help in the education of underprivileged children. Additional funds will also be needed for the Asian Development Bank and for the new activities authorized by the Elementary and Secondary Education Act of 1965 and the new hospital and medical insurance programs for the aged. Finally, relatively uncontrollable veterans benefits, public assistance grants, and disaster relief will require more funds than provided by the Congress last year.


The programs proposed in this budget are designed to serve the national interest to the full extent possible within an expenditure level appropriate to the time,

Our military needs are heavy. But they have not led us to a short-sighted policy of abandoning the war on poverty, ignorance, blight, and disease. We will continue to advance toward our goals for a Great Society. This budget provides for a significant increase in programs which attack urgent domestic problems.

To achieve better returns for the taxpayer's dollar, every Government activity has been subjected to exacting standards of necessity and priority. Some have been redirected to increase the benefits they produce, some have been reduced, and others have been eliminated. Savings from these actions are permitting greater expansions in programs of more immediate urgency.

Over the 3 years--from fiscal 1964 to 1967--the structure of the Federal budget will change substantially. Excluding special Vietnam costs, total administrative budget expenditures for regular Federal programs will rise by $4.6 billion, an increase of only 1 1/2 % per year

Within the total, however, expenditure trends among various programs are sharply different. Between 1964 and 1967, combined expenditures on major programs directed toward the aims of the Great Society--

• in health

• in education

• in the war on poverty

• in manpower training

• in housing and community development will rise by $6.2 billion. Unavoidable interest costs will rise by $2.1 billion. But expenditures on all other activities will decline by $3.7 billion.

As we have moved forward with new programs to improve the quality of life for all Americans, we have sought to reduce or eliminate activities of lower priority, and to pursue every technique of modern management which reduces governmental costs. The expenditure trends since 1964 demonstrate anew what I have stated on many occasions in the past:

• a compassionate Government need not be a profligate Government.

• concern for the needs and aspirations of people can go hand in hand with responsibility and efficiency in the management of the public's business.

The 1967 budget continues this approach. Net expenditures for Great Society programs rise by $2.1 billion--reflecting a gross increase of over $3 billion, partly offset by the substitution of private for public credit in several of these programs; interest costs rise by $0.8 billion; while all other regular expenditures decrease by $2.3 billion.


[ Fiscal years. In billions ]

Administrative budget expenditures, excluding

special Vietnam costs

1964 1965 1966 1967 Change,

Description actual actual estimate estimate 1964 to 1967

Interest $10.8 $11.4 $12.1 $12.9 +$2.1

Health, labor, education, housing

and community development,

economic opportunity program,

and aid to the needy 6.7 7.3 10.8 12.9 +6.2

All other 80.2 77.6 78. 8 76.5 --3.7

Total 97.7 96.4 101.7 102.3 +4.6

During the course of the year, unforeseeable events may call for prompt action by the Government. We will also want to act on matters--such as developing a civil supersonic transport--for which the amounts required cannot now be precisely estimated.

In addition, there are other matters--such as the pay and retirement benefits of Federal civilian employees--which are under study and on which decisions have not yet been reached. To make it clear that the budget totals provide adequately for such situations, I have included $500 million in new obligational authority and $350 million of expenditures as an allowance for contingencies.

The following are my major expenditure recommendations:

NATIONAL DEFENSE--Aggressive forces are now testing our will and commitment to help a brave ally under attack. This Nation will continue to seek a just settlement in Vietnam. At the same time, we must provide the funds and forces required to sustain us until that goal is reached. The 1967 budget meets those requirements as we now see them.

The costs will not be light. Defense expenditures necessary to meet the special requirements in Southeast Asia will amount to $4.6 billion in 1966 and $10.3 billion in 1967. If early settlement is secured, many of these expenditures need never be made. But prudence requires that we budget for them at this time.

We must also continue to maintain defense forces equal to possible challenges elsewhere. The funds recommended in this budget provide for maintaining and improving the broad range of forces we need to meet all our defense requirements. In 1967, we will:

• Improve our strategic missile forces with additional Minuteman II and Polaris A-3 missiles, with further development of the Poseidon submarine-launching missile, and with initial procurement of the Minuteman III missile to be delivered in future years.

• Initiate procurement of the new, high performance FB-III to replace older. less effective bombers.

• Begin to purchase giant C-5A transport aircraft to increase greatly our airlift capability.

• Begin to build a new nuclear-powered aircraft carrier--our second--to augment the Navy's general purpose forces.

• Add to the readiness, mobility, and staying power of our conventional war forces.

• Continue the vigorous research and development programs vital to our continued ability to field the most modern and potent forces in the world.

While meeting our requirements in Vietham and bolstering our forces, we must maintain our unrelenting efforts to operate our defense establishment efficiently and economically. In 1967, we will continue to weed out those forces and installations which have served their purpose and which are no longer essential. The successful Defense Cost Reduction Program will seek further savings. Moreover, because of the rising costs in Vietnam, we will defer certain programs where this can be done without harm to our defense capabilities.


[ Fiscal years. In billions ]

1965 1966 1967

Function actual estimate estimate

Administrative budget expenditures:

National defense $50.2 $56.6 $60.5

Excluding special Vietnam costs (50.1) (51.9) (50.2)

International affairs and finance 4.3 3.9 4.2

Escluding special Vietnam costs (4.3) (3.8) (4.0)

Space research and technology 5.1 5.6 5.3

Agriculture and agricultural resources 4.9 4.3 3.4

Natural resources 2.8 2.9 3.1

Commerce and transportation 3.5 3.2 2.7

Housing and community development --.1 .1 .1

Health, labor, and welfare 5.9 8.4 10.0

Education 1. 5 2. 3 2.8

Veterans benefits and services 5.5 5.1 5.7

Interest 11.4 12.1 12.9

General government 2.4 2.5 2.6

Allowance for contingencies .1 .4

Interfund transactions (deduct) 9 .6 . 7

Total, administrative budget expenditures 96.5 106.4 112.8

Total, administrative budget, excluding

special Vietnam costs (96.4) (101.7) (102.3)

Trust fund expenditures:

Health, labor, and welfare 23.2 26.6 31.1

Commerce and transportation 3.9 3.8 3.9

Housing and community development 1.1 2.0 1.2

National defense .8 .9 .9

Veterans benefits and services 6 .6 .7

All other .7 .8 . 9

Interfund transactions (deduct) 6 .8 .8

Total trust fund expenditures 29.6 33.8 37.9

Intragovernmental transactions and

other adjustments (deduct) 3.7 5.2 5.7

Total payments to the public 112.4 135.0 145.0

Total payments to the public,

excluding special Vietnam costs (122.3) (130.3) (134.5)

These twin goals--insuring that we have the forces we need and operating them at the lowest reasonable cost--will require an increase of $4.0 billion in national defense outlays in 1967. In the absence of the special costs of supporting our operations in South Vietnam, however, defense expenditures would decline in 1967.

INTERNATIONAL AFFAIRS AND FINANCE.--AS we meet the direct military threat to freedom and security, we must also continue our pursuit of a world at peace, in which:

• Freedom can thrive,

• Hunger and disease are no longer a common condition of life.

• Education is available to everyone.

• All people and nations prosper together.

The long-run security and the innate compassion of the American people both call for policies which bring such a world closer.

The Congress and the public rightly demand that our assistance programs be effective in achieving their objectives. In the past several months I have carefully reviewed these programs. As a result of that review I am proposing the following steps:

First, I shall send to the Congress a special message proposing major initiatives in international health and education. Healthy and educated people are the most important resource a nation can possess. Therefore, the 1967 budget provides for expanded activities in education and health as next steps toward a better world.

Second, I am proposing to expand and reorient our food and agricultural assistance to the hungry peoples of the developing countries. We will emphasize assistance to the recipient countries in raising their own agricultural production so that they may eventually lessen their dependence on food aid from the United States. In this effort, increased economic aid for agricultural development will be closely coordinated with a new Food for Peace program.

Increased expenditures of the Agency for International Development for activities in health, education, and agriculture are provided within an economic assistance budget which, apart from special Vietnam costs, is no higher than in 1966.

Third, we will step up our efforts to encourage recipient nations to take vigorous measures of self-help. Our economic assistance will be provided to countries which are taking determined steps to help themselves.

Fourth, we will further concentrate our economic assistance efforts. In 1967 almost two-thirds of expenditures by the Agency for International Development outside of South Vietnam will be in nine key developing countries.

Fifth, to increase the effectiveness of our assistance, I am proposing that the program be authorized for a 5-year period.

My recommendations will be set forth in greater detail in other messages.

We will carry forward our long-term commitment to the Alliance for Progress. To this end, funds are included in this budget for continued expansion of the resources of the Inter-American Development Bank's Fund for Special Operations. Our own Alliance activities are also being increased.

As part of a cooperative effort to promote economic development in Asia, I will propose legislation to authorize the United States to become a charter member of the Asian Development Bank. The budget also includes funds to pay our share of the current replenishment of the resources of the International Development Association. As soon as future needs and an appropriate sharing formula are determined, I will seek legislation to authorize additional contributions to this highly successful affiliate of the World Bank.

This budget will also enable us to expand the Peace Corps, of which we can be justly proud; to continue our overseas information activities; and to maintain our firm support of the United Nations.

SPACE RESEARCH AND TECHNOLOGY.--Just over 60 years ago, man entered the age of controlled flight. Today, men orbit the earth at speeds measured in thousands of miles an hour. In 1967, less than 6 years after this Nation set the goal of a manned landing on the moon within the present decade, we will begin unmanned test flights of the giant Saturn V rocket and the Apollo spacecraft--the complete space vehicle required for achieving that goal. Later on in the 1960's, we will undertake the manned lunar mission itself

Our many space achievements--both manned and unmanned--have dramatically advanced our scientific understanding and technological capabilities. They have also clearly demonstrated our remarkable progress in the peaceful exploration of space. In 1967, our large space projects will be progressing from the more expensive development phase into operational status, and new projects of equivalent cost will not be started. Accordingly, expenditures of the National Aeronautics and Space Administration are estimated to decline by $300 million in 1967. This level will sustain our progress in space exploration and continue the advancement of science and technology.

AGRICULTURE AND AGRICULTURAL RESOURCES,--Our increasingly efficient agricultural production is a bulwark of strength for the Nation. It provides us with an ample supply of high quality food at home and a large volume of commercial exports. It also allows us to assist the economic development of other countries.

Our increasing productive efficiency, however, has not been fully matched by new employment opportunities for rural people who are no longer needed in farming and farm-related occupations. Consequently, large numbers of farmers and other rural people do not share fully in the benefits of this increased efficiency.

To help eligible rural people and communities participate more fully in all available Federal programs, the Department of Agriculture is expanding its services to advise and inform them about these programs and to furnish information to other Federal agencies about rural problems. The Department will also participate with other agencies and local representatives in establishing pilot multi-county development districts to coordinate the planning of programs to improve rural life.

The Food and Agriculture Act of 1965 represents a milestone in modernizing our farm commodity programs. Under this act, greater emphasis will be given to direct payments to farmers. Moreover, the Secretary of Agriculture will have more discretion in adapting farm programs to new conditions. Nevertheless, we must explore new approaches to the problems of commercial farming and seek new ways to adapt our programs for low-income people to rural conditions.

In November 1965, I appointed a National Advisory Commission on Food and Fiber and directed it to make a penetrating appraisal of all aspects of agricultural policy and to report in 18 months. The Commission's recommendations, along with valuable experience under the 1965 farm legislation and our general programs to help low-income people, should provide a firm basis for further improvements in programs for agriculture and rural people.

NATURAL RESOURCES.--In developing and conserving our natural resources, we must always look ahead to the Nation's changing needs.

We must act now to meet the outdoor recreation needs of our growing population and to preserve our historic and scenic sites. I again urge the Congress to authorize the national park, seashore, and lakeshore areas recommended in my message last year on Natural Beauty. I also recommend legislation to establish a Redwoods National Park in northern California. With some of California's magnificent State park lands as a nucleus and Federal acquisition of key adjoining lands, a substantial area of the redwoods will be preserved for future generations.

Water is a worldwide concern. It is often not available in the proper amount and quality, or at the time it is needed. Lack of water or poor use of it can be a major deterrent to the growth of developing nations. At my request, the Secretaries of the Interior and State, together with other concerned agencies, are preparing a program to cooperate with other nations in finding solutions to the world's water problems.

Future water supplies both at home and abroad can be greatly expanded by the economical conversion of sea and brackish water. The Office of Saline Water, in conjunction with the Atomic Energy Commission and other agencies, is intensifying its research efforts on this problem. The 1967 budget includes funds for the Office of Saline Water to complete construction of an advanced distillation unit at the west coast test center. This project will accelerate development of large-scale economical processes for converting sea water to fresh water.

The 1967 budget provides for starting construction on a number of new water resources projects. These projects represent a national investment in land, water, and power resources which will yield dividends for years to come.

Improved use of nuclear energy will assure a major source of economical power for the future. In working toward this objective, the Atomic Energy Commission is intensifying its long-term program to develop "fast breeder" nuclear power reactors which, by producing more fuel than they consume, would greatly expand usable energy resources.

COMMERCE AND TRANSPORTATION.--In the year ahead, strong overall economic growth will contribute importantly to the improvement of conditions in the Nation's depressed areas. In addition, the 1967 budget provides for an orderly expansion in Federal assistance for those areas.

The Public Works and Economic Development Act of 1965 has given us new means for helping develop depressed areas throughout the Nation. Loans, grants, and technical assistance will be provided. The Federal Government will also offer special incentives in 1967 for consolidating such areas into development districts better able to plan and achieve economic expansion.

The special development program for the Appalachian region will continue at a rapid pace. This unique Federal-State effort provides new opportunities for the 17 1/2 million people of the region through highway construction, natural resource development, and construction of needed public facilities.

The new Office of State Technical Services in the Department of Commerce will be in its first full year of operation in 1967. This Office will make grants to State and regional centers to provide the latest scientific and technical findings to American business.

An efficient and safe transportation system is essential to a nation whose economy is growing, whose population is increasing, and whose urban areas are expanding at a very rapid rate. Nearly one-fifth of our annual gross national product is spent on transportation of people and goods.

The Federal Government is not now organized to deal effectively with this major segment of the American economy. Public programs for research, promotion, and investment in transportation are scattered among a host of Federal agencies. Where we need consolidation we find fragmentation. I shall propose, in a later message to the Congress, the creation of a new Department of Transportation to provide a realistic and consistent approach to the Nation's transportation problems.

There is no single statistic of American life more shocking than the toll of dead and injured on our highways. Each day we kill 135 of our fellow citizens--each year we injure 3 million more. I will shortly recommend to the Congress a major new highway safety program providing for the reorganization and centralization of the Federal Government's highway safety activities and a sharp expansion of their scope. The program will give particular attention to comprehensive research into the causes and prevention of highway accidents and to cooperative efforts with State and local governments in strengthening accident-prevention programs.

We will continue to give special attention to the transportation problems facing our growing cities and metropolitan areas. Research and demonstrations to improve intercity high speed ground transportation and urban mass transit will be actively pursued next year.

During the past year progress made by industry on the development of a civil supersonic transport aircraft has been promising. I will therefore propose to the Congress a joint Government-industry program to build the prototype of a safe and commercially profitable supersonic airplane.

Housing AND COMMUNITY DEVELOPMENT.--During its last session, the Congress passed two far-reaching acts that greatly improve our ability to solve the problems of:

• Providing good housing for those who cannot now afford it.

• Restoring the central cores of the cities.

• Achieving a rational pattern of growth in metropolitan areas.

The Housing and Urban Development Act of 1965 is the most important piece of substantive legislation for the American city since the Housing Act of 1949. The act creating the Department of Housing and Urban Development will enable the Government to launch a coordinated attack on the problems of housing and the city.

The new programs authorized by the 1965 legislation must be effectively carried out. Accordingly, this budget provides funds for:

• Maximum use of existing housing in the low-rent public housing program.

• Well-planned water and sewer systems.

• Beautification of our cities.

• Facilities to house social services and recreation in lower income neighborhoods.

The 1967 budget also provides for full use of the rent supplement program. I ask that the Congress immediately take the action needed to start this necessary program.

Federal aid will be approved in 1967 for over 160,000 additional housing units for low- and moderate-income families and elderly individuals. Progress will continue on restoring older areas of cities, and greater emphasis will be given to rehabilitation and provision of land for housing that most people can afford.

Public actions to improve poor housing conditions, to upgrade deteriorating neighborhoods, and to tackle the social blight associated with slums too often have not worked to support each other's objectives. The leadership resources of private business, civic, and labor organizations have not been fully utilized in formulating and carrying out the actions needed to preserve for all citizens the human dimensions of city life. I am requesting legislation authorizing assistance to qualifying cities across the Nation to show how complex and intertwined urban problems can be effectively attacked on a large scale through the coordinated use of local, State, and Federal programs.

I again urge the Congress to grant home rule to the District of Columbia so that its citizens may exercise the right of self-government enjoyed by other Americans.

HEALTH, LABOR, AND WELFARE.--Outside of defense, the Federal Government's largest outlays are devoted to improving the Nation's health, protecting workers and their families against loss of income, and assisting the disadvantaged to overcome poverty and unemployment.

Last year, the Congress enacted more than a score of major bills which will advance us toward the goal of a better and more secure life for our citizens. This was an unsurpassed achievement. However, there are still a number of important gaps which we should begin now to fill.

Health.--Last year, the enactment of Medicare marked a milestone in the social history of the United States. To make that legislation effective and to assure that the American people have access to high quality medical care at reasonable costs, we need to concentrate our efforts on the provision of adequate medical facilities and manpower. The 1967 budget is designed to that end. Increased funds are made available under legislation enacted last year to help educate more doctors, dentists, nurses, and graduate public health personnel. Funds are also provided for newly enacted programs to increase the number of community mental health centers and help support their staff. I shall propose legislation to assist our communities in modernizing and replacing older hospitals. Similarly, legislation should be enacted to extend training assistance to medical assistants and other health personnel not now eligible.

Apart from Medicare and other programs I have already mentioned, the impressive listing of health measures passed last year and financed in this budget includes:

• Regional medical programs to provide up-to-date diagnosis and treatment for heart disease, cancer, stroke, and related diseases.

• Comprehensive medical treatment and care for preschool and school age needy children in selected areas of low income.

• Increased efforts to safeguard and purify the air we breathe.

• Improvements in vocational rehabilitation so that over 200,000 disabled or handicapped people can return to productive work.

Pollution control.--Clean and sparkling rivers ought to be a part of every American's environment. I intend to propose a new and expanded program to combat the problem of polluted water. This program will call for the improved enforcement authority needed to conquer pollution. It will also provide for large-scale cooperative efforts of Federal, State, and local governments to show how pollution can be eliminated throughout entire river basins.

Labor.--I urge enactment of legislation to:

• Provide long-needed improvements in our unemployment compensation system.

• Repeal Section 14(b) of the Taft-Hartley Act.

• Increase the minimum wage and extend protection of the Fair Labor Standards Act to over 5 million more workers.

Activities under the Manpower Development and Training Act of 1962 will be reoriented in 1967 to place more emphasis on the training of persons who now have little or no skill. Special attention will also be given to training for skills in particularly short supply. Not only will this raise the earnings of the poor, but it will increase the availability of productive labor to meet the demands of our expanding economy.

Economic opportunity programs.--The war on poverty launched in 1965 will continue to help low-income people develop the skills and abilities needed for them to break out of the cycle of poverty handed down from one generation to the next. The budget will increase this program to reach individuals whom even full prosperity does not touch.

In 1967, community action programs will be in effect in 900 communities, making a concerted attack on the poverty in their midst. The Head Start preschool program, the Neighborhood Youth Corps, and the Job Corps will again help at least 1 million children and youths. Work experience, adult literacy, small business loans, and special employment projects will help over 250,000 adults.

Other aids to the needy.--I intend to propose legislation to: • Strengthen programs giving assistance to unemployed parents of needy children by providing work experience, services, and training to equip them for regular employment.

• Improve the nutrition of needy children. Older programs will be redirected, shifting more of their resources to helping the disadvantaged:

• The school lunch and special milk programs will focus more on needy children, helping to provide them with adequate and well-balanced meals.

• The public assistance program will pro-vide more financial aid and better medical care to families with dependent children.

• The Federal-State vocational rehabilitation program will enroll more handicapped persons who are receiving public assistance.

EDUCATION.--There is no greater challenge than that of providing our children and youth with the opportunity to develop fully their talents and interests. Education is vital to the achievement of a Great Society and is our major weapon in the war on poverty.

The 89th Congress has made education history. It has truly opened the doors of opportunity to preschool, elementary, secondary, and college education for millions of our young people. The Elementary and Secondary Education Act of 1965 and the Higher Education Act of 1965 will benefit this generation and clear the way to greater opportunity for future generations.

This budget reflects the added Federal responsibility for improving our Nation's educational system. The expenditures proposed for 1967 are more than 85% above the 1965 level. In 1967 this will make possible:

• An increase of $905 million in expenditures for school aid under the Elementary and Secondary Education Act of 1965, mostly for grants to improve the education of more than 7.5 million disadvantaged children.

• A Teacher Corps of more than 3,700 members to serve in schools with large numbers of children from low-income families.

• Scholarships, loans, and part-time work for well over one million college students, 3 times the number in 1965.

• Commitments exceeding $1 billion for loans and grants to help more than 1,300 colleges build needed academic and college housing facilities.

We should continue to build upon the programs to enlarge educational opportunity and improve the quality of teaching. The Elementary and Secondary Education Act of 1965 should be extended beyond June 30, 1966, and improved. To increase its effectiveness, the income criterion for allocating funds for fiscal year 1968 should be raised from $2,000 to $3,000 and the incentive grant provision should be dropped.

VETERANS BENEFITS AND SERVICES.--The Nation properly provides special help to those who suffer disabilities while in the service of our country; this help is extended through programs of income maintenance, vocational rehabilitation, and medical care. We also have a continuing obligation to the widows and children of those who have died in performing military service.

The first session of the 89th Congress recognized both of these basic trusts by:

--Increasing disability compensation payments.

--Liberalizing vocational rehabilitation benefits.

--Affording more generous allowances for children receiving educational aid under the War Orphans Act.

--Providing a new program of insurance coverage for men in our uniformed services.

We are currently engaged in armed conflict and have called upon the youth of our Nation to serve in that conflict. We should develop and expand programs to ease their readjustment to civilian life by providing education and training assistance.

The 1967 budget also provides for further improvements in the high quality of medical care administered in VA hospitals. New services will continue to be added to bring to veterans the latest advances of medical science.

Veterans programs should continue to emphasize the needs of the service-disabled. All veterans and their families are, of course, eligible to participate in the steadily improving general health, education, and welfare programs provided by the Government for all citizens.

GENERAL GOVERNMENT.--Action by the Congress is urgently needed in several different areas of governmental responsibility.

In recent years, we have made giant strides toward the goal of equal rights for all citizens. We still have far to go. To guarantee equal protection to individuals and to minorities under the law, there are clear and positive additional legislative actions which must be taken. I will shortly recommend such actions to the Congress.

A Great Society cannot be marked by rising crime rates. Americans, rich and poor, are as one on this. In 1965, I proposed and the Congress enacted the Law Enforcement Assistance Act. Under that program Federal, State, local, and private institutions can work together to:

-- Improve training of law enforcement personnel.

--Promote research and spread information on law enforcement and correctional techniques.

--Strengthen the administration of justice.

The 1967 budget provides for an 89% in crease in the funds allotted to this program. I am determined to take whatever further steps are necessary to combat crime. I will propose to the Congress additional legislation to meet that objective.

The stockpile of strategic and critical materials will be reduced further in 1967 as we continue to dispose of materials excess to our long-term needs. To permit management improvements and reduce costs, legislation should be enacted to consolidate inventories and facilitate disposals from the stockpile.


[Fiscal years. In billions ]

1964 1965 1966 1967

Description actual actual estimate estimate

Owned by Federal

agencies and trust funds $60.7 $63.0 $64.9 $69. 8

Owned privately and

by Federal Reserve banks 251.8 254.8 255.1 25 1. 9

Total 312.5 317.9 320.0 321.7


The size of the public debt varies from year to year primarily as a result of the Government's surplus or deficit. Based on the estimates of receipts and expenditures in this budget, the debt on June 30, 1966, will be $320.0 billion. On June 30, 1967, it will have risen to $321.7 billion.

Present law provides a temporary debt limit of $328 billion until June 30, 1966. After that date--if no action is taken--the limit will revert to the permanent ceiling of $285 billion. It is necessary, therefore, that the ceiling for the period after June 30, 1966, be raised.

A workable debt limit should allow for two factors in addition to the estimated size of the debt at the end of fiscal year 1967:

--Seasonal fluctuations in the size of the debt.

--The need for flexibility in managing the debt.

The first is necessary to allow for periods when the debt will exceed the end-of-year total. This results from the seasonal pattern of receipts, which are lower in the first half of the fiscal year.

Adequate provision for flexibility will permit the Treasury to take full advantage of favorable market conditions and thus avoid unnecessary interest costs.


As a Nation we have much to do. We have the will. We have the resources. But we must conserve these resources, investing them wisely. We dare not waste them.

This calls for improved Government organization, better programing, cost reduction, and effective employment policies. I intend shortly to present the Congress with a number of proposals designed to accomplish these objectives.

GOVERNMENT ORGANIZATION.--In moving toward the goals of the Great Society, the enactment of substantive legislation is only the first step. The 89th Congress has, through its accomplishments to date, provided the basis for advancing in such critical areas as civil rights, economic opportunity, medical care for our older citizens, improvement of our cities, and regional development.

However, if these laws are to produce the desired results--effectively and at minimum cost to the taxpayer--we cannot afford to cling to organizational and administrative arrangements which have not kept pace with our changing needs.

Government organization must provide for fast and flexible response to new problems and conditions. We must be as bold and imaginative in reshaping and modernizing the executive branch as we have been in devising new programs. A structure designed in major part to carry out programs and policies of the 1950's and earlier years will not give us the organization we need as we move toward the 1970's. I will propose shortly to the Congress a series of reorganization measures which will enable the Government to manage its business more effectively.

FEDERAL, STATE, AND LOCAL COORDINATION.--Many of our critical new programs involve the Federal Government in joint ventures with State and local governments in thousands of communities throughout the Nation. The success or failure of those programs depends largely on timely and effective communications and on readiness for action on the part of both Federal agencies in the field and State and local governmental units. We must strengthen the coordination of Federal programs in the field. We must open channels of responsibility. We must give more freedom of action and judgment to the people on the firing line. We must help State and local governments to deal more effectively with Federal agencies. We must see that information gets to the field and to cooperating State and local governments, promptly and accurately.

I intend to see to it that this dimension of the new public management receives major attention and action in the coming year.

PLANNING - P R O G R A M I N G - BUDGETING SYSTEM.--I have directed the executive branch to develop and introduce a new planning-programing-budgeting system which will incorporate the most modern management techniques now used in government and industry. This system will enable us to:

--Be more concrete and precise about the objectives of our programs.

--Examine longer term problems and consequences more systematically.

--Consider more alternatives before reaching decisions.

--Link our planning efforts more directly to budget decisions.

--Get more effectiveness for the dollars we spend.

--Provide more benefits to the American people in more economical ways.

During the next year, I expect to see much progress made in this system with results that will be reflected in the budget for fiscal year 1968.

SUBSTITUTION OF PRIVATE FOR PUBLIC CREDIT.--In recent budgets, I have pressed for the encouragement of private financing in the major Federal credit programs wherever I have felt it to be consistent with the public interest. I will need the cooperation of the Congress to carry this effort still farther in the coming year.

This is an important and sensible way to manage our Federal credit programs. t, therefore, urge prompt action on legislation being proposed to authorize a considerable expansion in the sale of participations in Government loans. The budget assumes its enactment. With the authority provided by such legislation, my budget proposals for encouraging the substitution of .private for public credit will reduce 1967 expenditures by $4.7 billion from what they would have been otherwise.

AUTOMATIC DATA PROCESSING.--The Federal Government has obtained great benefits from the use of electronic computers. With the direct annual cost of acquiring and operating this equipment now in the range of $2 billion, I intend to make sure that this huge investment is managed efficiently-through such means as research, equipment sharing, careful purchasing, and coordinated Government-wide utilization policies.

Cost REDUCTION.--During the past 2 years, I have not ceased to demand an exacting standard of cost-consciousness in every department and bureau of the executive branch. I believe neither in padded budgets nor in lax habits of organization and management. Every dollar of expenditures must produce results. I expect each Government employee to spend the public dollar with the same care and concern he would exercise if it came out of his own paycheck.

In preparing this budget, all existing programs have been re-examined closely. Wherever a program could be cut back on grounds of less priority, I have cut it. Despite the appeal of many of these programs to affected groups, I urge the Congress not to restore them to their previous levels.

There are many ways to reduce costs and eliminate unnecessary spending:

--By curtailing or eliminating activities of declining importance.

--By closing marginal branch offices or installations.

--By pooling common services.

--By simplifying organization.

--By increasing productivity.

--By installing up-to date systems and equipment.

--By interagency coordination of plans and operations.

--By stringent budgetary reviews.

Last March, I set in operation a Government-wide, formal program for systematic cost reduction in which each agency must identify savings goals for the year ahead and report to me on actual results. This program is working.

Agencies have identified specific savings in 1965 and 1966. Additional savings will be made in 1967. Altogether, the civilian cost reduction program will reduce the costs of operating the Government by some $1 billion in each of the fiscal years 1966 and 1967.

The Department of Defense accomplished $4.8 billion of savings in fiscal year 1965, and the annual rate of savings in that Department is expected to exceed $6 billion in 1969.

No agency, regardless of size or importance, is exempted from the duty to save the taxpayer's money by better management and alert business methods.

One of the most gratifying developments to come to my attention is the remarkable progress of Government agencies in improving productivity. With workloads increasing in nearly every category of Government activity, the only way to restrain mounting Federal employment is by persistent management improvement and higher productivity. These are just a few of the changes in productivity which are reflected in this budget:

• The Social Security Administration is achieving a productivity gain of 2 1/2% by automating the recomputation of benefits, with a saving of 1,742 man-years and $12.4 million.

• The Post Office Department's budget reflects an increase in mail processing productivity of 1.4%, resulting in a saving of 3,900 man-years and $23 million.

• The Federal Aviation Agency is increasing productivity by 5% in airways facilities operation and maintenance, thus absorbing nearly all the workload increase resulting from the growth in aviation activity, with a budget saving of almost $4 million.

• By using advanced medical techniques, the Veterans Administration has been able to reduce the duration of patient stay in its hospitals. In 1967, about 1% more patients can be accommodated than in 1966. This means that the same number of beds operated in 1966 will take care of 7,000 more patients in 1967.

These actions are the result of tireless effort by many officials and employees of the Federal Government. It is often harder work to save money than to find productive ways to spend it. But it is equally important to the public interest.

I believe we are making good progress in reducing costs and improving efficiency, but I will never be satisfied that we have done all we should. I expect the top officials of every department and agency to press hard in the coming year to do still better--and not only in headquarters operations. Only 10% of all Federal employees are in Washington-most of our employees and operations are spread throughout the 50 States and overseas. I intend to stress particularly this year the urgency of management improvement and better public service in the field establishment of the Federal Government.


This Nation has committed itself to help defend South Vietnam against aggression. We are determined to fulfill that commitment.

This Nation has also committed itself to a major effort to provide better economic, social, and cultural opportunities for all Americans. We are also determined to fulfill this commitment.

Both of these commitments involve great costs. They are costs we can and will meet.

The objectives we are seeking are interdependent.

We cannot fight for peace and freedom in Vietnam, while sacrificing individual dignity and opportunity at home. For it would be a hollow victory if our pursuit of world peace were carried out at the expense of domestic progress.

Yet we must also recognize that a truly Great Society looks beyond its own borders. The freedom, health, and prosperity of all mankind are its proper concern.

The struggle in Vietnam must be supported. The advance toward a Great Society at home must continue unabated.

This budget provides the means for both these goals.

I urge the support of Congress and all Americans for its principles and its programs.


January 24, 1966

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

For the President's remarks upon signing the message, see Item 25.

Lyndon B. Johnson, Annual Budget Message to the Congress, Fiscal Year 1967. Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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