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No. 10 "The Budget Message," June 30, 1936. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_10 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 10 "The Budget Message," June 30, 1936. American Liberty League. American Liberty League. Washington, D.C. 1936. This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. necessary to appropriate large additional sums to carry them on. The President has asked Congress to transfer $900,000,000 from unobligated emergency authorizations to direct relief needs during the remaining months of the current fiscal year. The effect of this method of appropriation is to use funds of the Reconstruction Finance Corporation and other agencies which might otherwise be returned to the Treasury. Such action tends to cut into revolving funds which represent assets recoverable at some future period. It would seem fairer to the public to appropriate such money as is needed for relief directly from the Treasury instead of using unobligated emergency funds. The method proposed seems to imply that the money is already available and that it involves no burden upon the taxpayers. This is not the fact. The entire situation with respect to emergency funds calls for a careful study by Congress to the end that it may properly exercise its powers and functions under the Constitution. The Budget Message A factual analysis of President Roosevelt's recommendations to the Congress for expenditures by the Federal Government for the fiscal year ending June 30, 1936 a general discussion of continuing deficits, and increased public debt  AMERICAN LIBERTY LEAGUE National Headquarters National Press Building WASHINGTON, D. C. Document No. 10 The Budget Message Three features of the Federal budget for the fiscal year 1936 are of a highly disturbing character. These are: I. A return to a level of regular expenditures as high as that which early in the depression occasioned a nationwide revolt. II. A prospective increase in the public debt by nearly two and a half billion dollars beyond the point which the people were told a year ago should mark the end of continued Treasury deficits. III. A huge emergency fund which permits executive allotments without adequate legislative direction for public works projects which may lack economic justification and may not accomplish the purpose for which they are intended. I. REGULAR EXPENDITURES The increase in the regular expenditures of the government has escaped the attention which it deserves. The new budget for regular purposes presents a startling increase. In effect, it wipes out the savings of upwards of a billion dollars in ordinary governmental costs which were accomplished in the attempted drive for economy which was commenced during the final year of the last administration and was carried forward with a marked degree of success in the early months of the present administration. Whatever may be claimed with respect to the sentiment of the people of the country regarding expenditures for emergency purposes, it can not be asserted that a mandate has been given for an expansion of regular expenditures. The two parties in the 1932 campaign sought to outdo each other in promises to reduce ordinary governmental expenditures. The Republican Party, then in power, urged "prompt and drastic reduction of public expenditure and resistance to every appropriation not demonstrably necessary to the performance of the essential functions of government, national or local." The Democratic Party promised "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance, to accomplish a saving of not less than twenty-five per cent in the cost of Federal government." Up to this time the policy of economy in regular expenditures ostensibly has remained in effect. On the basis of actual expenditures for regular purposes of about $3,000,000,000 in the fiscal year 1934, it has been possible for the party now in power to claim fulfillment of its pledge for a twenty-five per cent reduction from the former level of about $4,000,000,000. What has taken place in the preparation of the new budget may be realized from a highly significant paragraph which does not appear in the President's budget message but is buried in the body of the report in an analysis of appropriation and expenditure estimates. This paragraph in summing up a tabulation of regular expenditures says: "The foregoing expenditures, totaling for 1936 approximately $3,898,000,000, may be regarded as the regular requirements of the government. These expenditures for 1936 are $662,000,000 greater than the regular expenditures estimated for 1935, and $1,077,000,000 greater than the actual expenditures for these purposes in 1934." The total of $3,898,000,000 includes statutory debt retirements but does not include agricultural benefits, refunds of processing taxes and an item of $40,000,000 to meet estimated deficits. The estimate of expenditures for general purposes, which contains all of these items on the basis of the classification which has been used for the last year and a half in the daily Treasury statement, totals $4,398,-402,134. This total, which appears in the annual report of the Secretary of the Treasury, represents an increase of $1,297,487,600 over actual expenditures for the same purposes in the fiscal year 1934 amounting to $3,100,914,534. In grouping separately so-called general and emergency expenditures in its daily statement, the purpose of the Treasury has been to show under one heading the items that are properly a charge against the ordinary receipts of the government from taxa- )*' tion, customs duties and miscellaneous sources and under a different heading the items which are a part of the emergency program and which it has been the (1 policy to finance with borrowed money. The total of general expenditures as shown in the daily Treasury statement furnishes a guide to the amount of money which must be raised at such time as the entire budget is brought back into*a real balance. It is proper to include the annual debt  f3] retirement item in general expenditures inasmuch as this is a statutory charge against ordinary receipts. In the daily Treasury statement processing tax revenues have been included in general receipts, while agricultural payments and refunds of processing taxes have been included in general expenditures. These payments are supposed to be financed by processing tax receipts and are, therefore, not a charge upon borrowed money. In segregating general expenditures of a permanent character there is good reason to eliminate the agricultural benefits which at present at least have a temporary status. It does not make a great deal of difference in a computation bearing on the balancing of the general budget as to whether or not the self-financing agricultural emergency program is included. The situation is different with statutory debt retirements, which should be included in any statement of general expenditures if a proper perspective as to future regular governmental costs is to be maintained. In the President's budget message it was stated that except for expenditures to give work to the unemployed "every current expenditure of whatever nature will be fully covered by our estimates of current receipts." The President said that "such deficit as occurs will be due solely to this cause." In his tabulation supporting this statement the President eliminated processing taxes from general receipts and both agricultural benefits and public debt retirements from regular expenditures. Debt retirements were omitted from the President's tabulation of regular expenditures despite the fact that in the next paragraph he included them in an enumeration of various "regular" expenditures which have shown an increase. As against the President's assertion that regular expenditures will be balanced by ordinary receipts, the tabulation on the daily Treasury statement basis in the annual report of the Secretary of the Treasury tells a different story. The general budget was in balance in the fiscal year 1934, receipts exceeding general expenditures, including public debt retirements, by about $15,000,000. In the fiscal year of 1935 estimated general expenditures exceed receipts by about $225,000,000. The estimates for the fiscal year 1936 show an excess of general expenditures over receipts amounting to about $407,000,000. The deficit in the general budget is in prospect for the fiscal year 1936 despite the fact that receipts are estimated at a total about $876,000,000 greater than for the fiscal year 1934.  How the new level of regular expenditures for 1936 compares with that in the past may be seen from a tabulation of totals for the fiscal years between 1916, the year before our entrance into the World War, and 1930, which marked the beginning of the depression. To place the total for the fiscal year 1936 on a comparable basis with the figures as used in the annual reports of the Secretary of the Treasury and to which the public is accustomed, it is necessary to add $179,167,922 for trust funds which include such items as the government life insurance fund, the Civil Service retirement fund and District of Columbia expenditures. There is omitted from the trust fund total such items as are connected with the gold profit and silver purchases. Agricultural benefits are omitted. Statutory debt retirements are included. The following totals are for all expenditures for years between 1916 and 1930, the 1936 estimate being for only "regular" as distinguished from "emergency" outlays: 1916 ................ $734,056,202 1917] f 1,977,681,751 1918 [ World War.....\ 12,697,836,705 1919 J [ 18,522,894,705 1920 ................ 6,482,090,191 1921 ................ 5,538,209,189 1922 ................ 3,795,302,500 1923 ................ 3,697,478,020 1924 ................ 3,506,677,715 1925 ................ 3,529,643,446 1926 ................ 3,584,987,874 1927 ................ 3,493,584,519 1928 ................ 3,643,519,875 1929 ................ 3,848,463,190 1930 ................ 3,994,152,487 1936 (regular only).... 4,117,570,056 The estimated total of regular expenditures for 1936 is greater than the total of all expenditures for any year between 1922 and 1930, inclusive. The 1931 fiscal year total of $4,219,950,339 was abnormal to the extent of an outlay of about $190,000,000 for the Farm Board loan fund and a postal deficit of about $145,000,000, due largely to the slackening of business. The normal regular expenditures of that year amounted to about $3,900,000,000. In the fiscal year 1932 total expenditures soared to $5,274,-000,000, of which all above about $4,000,000,000 represented emergency items, including funds for the  Reconstruction Finance Corporation, the land banks, the Farm Board and a huge postal deficit. Expenditures in the fiscal year 1933, the last year in which general and emergency items are not segregated, amounted to $5,306,623,054. In the fiscal year 1934 general and emergency expenditures amounted to $7,105,050,084. The estimate for the present fiscal year of 1935 is $8,581,069,026, and for 1936, $8,520,413,609. The totals for 1934, 1935 and 1936 are given as they appear in the President's budget message. Trust funds, amounting respectively to $138,675,539, $179,672,622, and $179,167,-922, exclusive of gold profit and silver items, have been omitted. The administration is to be commended for having shifted from the emergency to the regular budget about $200,000,000 for ordinary public works, including river and harbor improvements and federal highways and for the Tennessee Valley Authority. Inasmuch as expenditures of this character are to go on indefinitely, it is proper to include them as part of the general budget. The appropriation of specific sums for these purposes will enable Congress to scrutinize these items more carefully than if the projects are financed by allotments from emergency funds. Unfortunately, a considerable part of the increase in regular expenditures is due to a greater liberality all along the line. While expenditures for veterans remain below the totals for 1931, 1932 and 1933, the 1936 estimated total is almost as high as in 1930. Interest on the public debt will account for an increase of about $205,000,000 over the amount used for this purpose in 1930. Expenditures for national defense will be about $180,000,000 greater in 1936 than in the current year of 1935. The restoration of the final five per cent of the fifteen per cent salary reduction of all government employees accounts for an increase of about $65,000,000 over the current year. Comparisons of estimated expenditures for the regular departments in the fiscal year 1936 with actual expenditures in 1934 make it appear that the economy policy is a thing of the past. Increases for these departments in the two-year period include about $21,000,000 for the Interior Department, about $20,000,000 for the Treasury Department, about $9,000,000 for the Department of Commerce, about $7,000,000 for the Department of Agriculture, about $5,000,000 for the Department of Labor, about $3,000,000 for the Department of Justice, about $2,000,000 for the State Department, and about $8,000,000 for miscellaneous permanent independent offices and commissions. It is shown in the budget that the total payroll of the government in the fiscal year 1936 will amount to $1,356,964,579, of which $1,130,500,909 is for civilian employees and $226,463,670 for commissioned officers and enlisted personnel in the army and navy and other services. The total payroll in the fiscal year 1934 was $1,152,668,420, amounts for the two classes being $966,293,813 and $186,-374,607. Congress in the present session should give close attention to the expenditures of the regular governmental establishment. Approval of the expanded regular budget means a postponement of the date when all expenditures can be brought into balance. It means, furthermore, that there can be little hope of a material lightening of the present heavy burden of taxation. II. THE PUBLIC DEBT The steadily mounting public debt presents a situation which calls for careful consideration by Congress. The soundness of the Nation's financial structure will be jeopardized by a debt burden which is excessive. Once the debt of a nation goes too high there is a weakening of confidence which is reflected in higher interest rates in the marketing of government securities. If it becomes too difficult to borrow, the next step is inevitably the issuance of fiat currency to meet expenditures. Such a course leads to a depreciation of currency and to inflation. It is impossible for anyone to state exactly how high our public debt may be allowed to go with safety. A year ago President Roosevelt in his annual budget message estimated that the debt would increase to $31,834,000,000 by June 30, 1935. The President then said: "It is my belief that so far as we can make estimates with our present knowledge, the government should seek to hold the total debt within this amount. Furthermore, the government during the balance of this calendar year should plan to bring its 1936 expenditures, including recovery and relief, within the revenues expected in the fiscal year 1936." Whether the $31,834,000,000 total represented a precise estimate of a proper limit for debt increase   or not, the country accepted it as a maximum to which the debt might go with safety. The assurance given that the government would seek to hold the debt within that total was a factor which tended to give confidence to business and to remove fear of inflation on a large scale. The President's statement in the new budget that the debt at the end of the fiscal year 1936 may increase to $34,239,000,000 injects a disquieting element into the situation. The failure of the President to fix this total as a new limit for debt increase adds further reason for a feeling of uncertainty. There is no assurance that the $4,000,000,000 lump sum appropriation which the President asks for relief of unemployment through public works and projects of other kinds will mark the end of emergency outlays which must be financed by borrowed money. We are at present in the fifth year of Treasury deficits. The first deficit was in the fiscal year 1931 when expenditures, including statutory debt retirements, exceeded receipts by $902,716,845. In the fiscal year 1932 the deficit was $3,153,097,507; in 1933, $3,068,266,874; and in 1934, $3,989,496,035. The official estimate of the deficit for the current fiscal year of 1935 is $4,869,418,338, and for 1936, $4,528,508,970. The 1935 and 1936 estimates are exclusive of deficits of $12,800,643 and $10,114,812, respectively, in trust fund accounts, which are not mentioned in the President's message. There is small consolation in the fact that the estimated deficit for 1936 is a little less than that for 1935. The total would be considerably greater except for the use of revolving funds such as of the Reconstruction Finance Corporation to meet new emergency outlays. The aggregate deficit of the six fiscal years from 1931 to 1936, inclusive, will be in excess of $20,500,-000,000. The deficit of the six years will be a total much larger than the entire public debt at the beginning of the depression. The debt on June 30, 1930, amounting to $16,185,308,299, showed a reduction of more than $10,000,000,000 from the peak of the war debt, $26,596,701,648 on August 31, 1919. On June 30, 1916, the end of the last fiscal year prior to our entrance into the World War, our entire public debt amounted to only $1,226,145,568. The per capita debt at that time was only $11.96. Our present public debt, which on December 31, 1934, amounted to $28,478,663,924, represents a per capita of about $232. The present annual interest on the public debt is a total greater than the entire ordinary expenditures in any year in the history of our country prior to the year 1917 with the exception of two years during the Civil War. The interest on the public debt for the fiscal year 1936 is estimated at $875,000,000, as compared with $835,000,000 in the current fiscal year of 1935 and $756,000,000 in 1934. In the fiscal year 1932 the interest on the debt dropped below $600,000,000. Before the World War our annual interest charges were less than $25,000,000. Every indication is that the present tremendous debt will be passed on to future generations. Such amounts as may be returned to the Treasury in the liquidation of emergency loans will be a relatively small part of the total debt. The present statutory sinking fund is not adequate for a rapid reduction. It was intended originally to be sufficient to retire in a period of about thirty-five years from the date of the World War the half of the war debt which represented our own expenditures. It was then supposed that the other half of the debt, representing loans to our allies, would be cared for through repayments. Not only have foreign nations ceased repayments on their debts but all the retirements effected through the sinking fund in the decade following the World War have been nullified by the deficits of the present depression period. Fortunately, our government has had but little difficulty thus far in borrowing sufficient money to meet its needs. The tremendous charges for general and emergency purposes have been met by ordinary revenues supplemented by borrowings by regular methods. The financing of deficits, however, has been carried largely by the banks, which have absorbed as much as five-sixths of the new offerings by the Treasury in recent years. It is estimated that as much as sixty per cent of the total public debt is being held by the Federal Reserve banks and the commercial banks, including both securities owned by them and those held as collateral on loans. The financing of deficits through the banks is an inflationary process which is menacing to the credit structure. There are danger signals ahead which warn that the government should eliminate deficits and consequent debt increases at the earliest possible date.  III. EMERGENCY FUNDS The President's request for blanket authority to use $4,000,000,000 for relief of unemployment illustrates strikingly the trend toward increased executive authority at the expense of the legislative branch of the government. Under the President's recommendation this vast sum would be "subject to allocation by the executive principally for giving work to those unemployed on the relief rolls." The details of the President's program have not been made known, but it is evident that it will involve operations of many different kinds and that numerous collateral issues of policy will be raised. What is proposed is that the President shall have power to decide all the different questions of policy arising in connection with an expenditure of an amount of money equal to the total annual costs of the government at the beginning of the depression. Congress is asked to waive entirely its right and duty to make proper segregation of the purposes for which the money is to be spent. There has been nothing so broad as this delegation of power with respect to expenditures heretofore. Not only is the sum larger than the $3,300,000,000 authorization for public works in the National Industrial Recovery Act but that Act set up certain limitations on the manner in which the money could be expended. While an even larger amount than the present $4,000,000,000 has been handled by the Reconstruction Finance Corporation, its funds have been used only in accordance with detailed specifications in acts of Congress. The authorization for the expenditure of $4,000,-000,000 would take the place of authority now granted in no less than three different laws. These are Title II of the National Industrial Recovery Act relating to public works, authority under which expires on June 16; the Federal Emergency Relief Act, authority under which expires on May 12; and the Civilian Conservation Corps Act, authority under which expires March 31. If the amount were to be used only for direct relief, there would not be the occasion for specific instructions by the Congress in respect to its expenditure. The President proposes to embark upon an extensive program for conservation and development of natural resources which is of a character that demands careful consideration by Congress. The principles which, according to the President in his annual mes-  sage to Congress, will govern the undertaking are excellent, but there remains the question as to what may be included or may develop in the actual carrying out of the plan. The Federal government should not shirk its full duty in providing relief for the unemployed. Primarily, relief is a concern of the states and local communities. The decision of the administration to return so-called unemployables to local relief rolls is proper. To the fullest extent possible the states, local governments and private relief agencies should bear the load of unemployment relief. The burden has become so great, however, that the Federal government can not escape a large share of the responsibility. The present public works program has failed to accomplish what its sponsors hoped it would do. The amount of employment created has not been sufficient to justify the use of funds for unnecessary projects. The American Federation of Labor's most recent figures show a decrease of only a few hundred thousand in the number of unemployed since July 1933 and an actual increase since November 1933. Of funds allotted for public works less than half has been expended. A reasonable amount of work relief is proper, provided the projects are useful and possess economic justification, and provided further that the governmental activities do not interfere with private business. It is a recognized fact that allotments from present public works funds have been given to projects which have previously been held by Congress to lack economic justification. The $4,000,000,000 appropriation is roughly equivalent to the estimated deficit for the fiscal year 1936, exclusive of statutory debt retirements. It is this amount which stands in the way of a balanced budget. If there could be assurance that it would be the last great expenditure of this character, the American people would not begrudge the amount provided it is spent wisely and without waste. It has been indicated by the President that the suggestions in the recent report of the National Resources Board will furnish guidance in the expenditure of the fund. The amount now requested is only a fraction of the total which might be expended over a period of years in the projects suggested in that report. What is likely to happen is that at the end of the fiscal year 1936 many projects will be only partly completed and as a consequence it will be