Statement on the Summation of the 1937 Budget.

Continuing the practice inaugurated last year, the attached summation revises the Budget for the fiscal year 1937 by reflecting the changes affecting the estimates of revenues and expenditures which have occurred since the 1937 Budget was transmitted to Congress in January, 1936. Two outstanding events have taken place since that time which have materially affected the receipts and expenditures of the Government. The first of these was the decision of the Supreme Court declaring the Agricultural Adjustment Act unconstitutional, as a result of which the Government lost substantial revenue from processing taxes. The second was the passage by the Congress of the Adjusted Compensation Payment Act providing for the immediate payment at their face value of the veterans' adjusted service certificates, which by their terms were not due until 1945.

As a result of the Supreme Court decision the estimated revenue from processing taxes for the fiscal year 1936 was reduced by $452,000,000. Up to the time of that decision the Agricultural Adjustment Administration had expended in accordance with law the sum of $325,000,000 and had made substantial commitments for additional expenditures in anticipation of revenue from this source. To provide for carrying out the moral obligation of the Government with respect to the commitments already entered into with farmers and which on their part had been at least partially performed, Congress appropriated $296,000,000.

By the enactment of the Soil Conservation and Domestic Allotment Act, which included authority for an annual appropriation of not to exceed $500,000,000, Congress provided a new farm program to preserve to the farmers the benefits of fair and adequate prices for the product of their labors.

The passage of the Adjusted Compensation Payment Act caused an increase in payments to veterans for the past year of $1,674,000,000 and will result in further payments estimated at $560,000,000 on this account during the present fiscal year.

To meet the additional requirements of the Treasury on account of these expenditures the Congress was requested to provide sufficient additional revenue, (1) to make good the loss of processing taxes in the fiscal year 1936, (2) to defray the annual cost of operation of the new farm program, and (3) to amortize over a period of nine years the cost of payment of the adjusted service certificates.

The Revenue Act of 1936, enacted by the Congress in response to this request, will produce, on the basis of estimated business conditions for the calendar year 1936, annual revenue in the amount of $652,000,000. For the fiscal year 1937 the amount of this revenue will be only $328,000,000, since only the first and second of the quarterly payments of income taxes under this Act will be made to the Treasury within that year. For the same year, however, there will be a non-recurring revenue of $82,000,000 from the so-called windfall taxes.

REVIEW OF THE FISCAL YEAR 1936

The total receipts amounted to $4,115,956,615 against the estimate in the 1937 Budget of $4,410,793,946, a net decrease of $294,837,331. After taking into consideration the loss in processing taxes of $452,000,000, receipts from other sources amounted to $157,000,000 more than was estimated. Total receipts showed a net increase of $316,000,000 over those for 1935, and receipts from sources other than processing taxes showed an increase over 1935 of $760,000,000.

The total expenditures of the Government for the fiscal year ended June 30, 1936, amounted to $8,879,798,258. The estimated expenditure shown in the Budget of last January of $7,645,301,338 did not, of course, include $1,674,000,000 for adjusted compensation payments. Except for these payments the expenditures would have been about $439,000,000 less than the January estimate.

The deficit for the year amounted to $4,763,842,642, which included $403,240,150 for statutory debt retirement. Deducting this amount leaves a net deficit of $4,360,601,492. The estimated net deficit as shown in the Budget of last January was $2,682,482,392. Had it not been for the invalidation of processing taxes and the passage of the Adjusted Compensation Payment Act, the net deficit would have been less than the January estimate by more than $400,000,000.

The public debt increased during the year $5,077,650,869, but in that time the balance of cash in the general fund of the Treasury likewise showed an increase of $840,164,664.

FORECAST FOR THE FISCAL YEAR 1937

Total receipts in the fiscal year 1937 are now estimated at $5,665,839,000, a net increase of $12,000,000 over the amount of the 1937 Budget estimate. The estimated increases in general revenue more than offset the revenue losses, due in part to the invalidation of the special taxes levied under the provisions of the Agricultural Adjustment and Bituminous Coal Conservation Acts, and in part to the method finally adopted for collecting taxes under the Social Security Act which will defer to the fiscal year 1938 the collection of a portion of these taxes. The losses from these causes amount to $668,000,000, which are slightly more than offset by the following estimated increases in revenue: $410,000,000 (including $82,000,000 from the windfall taxes) resulting from the Revenue Act of 1936; $33,000,000 from delayed collections of taxes on carriers and their employees; and $237,000,000 constituting an upward revision of revenue estimates due chiefly to improvement in business conditions.

The expenditure requirements for the fiscal year 1937 are now estimated at $7,762,835,300, which includes $560,000,000 to complete the payments of adjusted compensations to veterans and $580,000,000 for statutory debt retirement.

Some of the principal items included in the expenditure requirements are as follows: The Agricultural Adjustment Administration will require $585,000,000 and the Civilian Conservation Corps $300,000,000. The requirements of the Agricultural Adjustment Administration will be greater for 1937 than for 1936, due to the interruption of that program in the past year by the Supreme Court decision and the consequent postponement of expenditures. The expenditures for the Civilian Conservation Corps for 1937 will be less than those for 1936 due to the reduction made in the number of enrollees as compared with the number for 1936.

The operations of the Social Security Board and the establishment of the Old-Age Reserve Account will require an additional $405,000,000. The Board commenced operations late in the fiscal year 1936 and its expenditures, therefore, were not large during that year. The Old-Age Reserve Account will require an initial contribution in 1937 of $265,000,000.

For interest on the public debt $825,000,000 will be required. In view of the general improvement in business conditions, it is estimated that there will be required a net amount of $1,835,000,000 for recovery and relief, an amount materially less than that for the fiscal year 1936.

The estimated expenditures for the other establishments are $448,986,000 greater than the expenditures for 1936, due principally to the development of the regular annual public works program and to increased expenditures for national defense.

The estimated deficit for 1937 is $2,096,996,300, which includes $580,000,000 for statutory debt retirement and $560,000,000 for further payments under the Adjusted Compensation Payment Act. Deducting the amount of the statutory debt retirement leaves a net deficit of $1,516,996,300. This does not mean that there will be an increase in the public debt of this amount for the reason that it is contemplated during the year to reduce the working balance of the general fund by approximately $1,100,000,000. The following statements show the contemplated changes during the year in the working balance of the general fund and in the gross public debt.

In estimating, moreover, the amount that would be necessary to care for a reduced number of unemployed during the current fiscal year, no account could be taken of the serious drought which has affected large sections of our country. To relieve this serious situation in the drought areas will require the expenditure of substantial amounts from the emergency relief appropriation, although the total amount that will be needed for this purpose cannot be determined at this time.

Another survey of the unemployment problem and the amount required for drought relief will be made early in the coming calendar year, and if additional appropriations for these purposes are found necessary, the amounts expended therefrom will, of course, increase the estimated expenditures shown in this summation. It is confidently expected that any such requests for additional funds will amount to less than $500,000,000.