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No. 71 "Budget Prospects: A Discussion of the Choice between National Solvency and the Breakdown of Treasury Credit with Resulting Devastating Inflation and Chaos if the Administration Continues Its Flagrant Violation of Campaign Promises," October 21, 1935.
No. 71 "Budget Prospects: A Discussion of the Choice between National Solvency and the Breakdown of Treasury Credit with Resulting Devastating Inflation and Chaos if the Administration Continues Its Flagrant Violation of Campaign Promises," October 21, 1935. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_71 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 71 "Budget Prospects: A Discussion of the Choice between National Solvency and the Breakdown of Treasury Credit with Resulting Devastating Inflation and Chaos if the Administration Continues Its Flagrant Violation of Campaign Promises," October 21, 1935. American Liberty League. American Liberty League. Washington, D.C. 1935. 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. The Outlook for 1937 If the estimated expenditures for the fiscal year 1936 for general purposes are regarded as constituting the minimum which is necessary for the fiscal year 1937, it means that the new budget will start with a total of about $3,500,000,000. To this will no doubt be added at least $500,000,-000 as the normal annual outlay for construction and other ordinary activities which are now classed under "recovery and relief." This makes a total of more than $4,000,000,000 without regard to work relief, direct relief or agricultural benefits. Upwards of $1,000,000,000 from existing appropriations for public works and work relief will remain for expenditure in the fiscal year 1937. Presumably, more funds will be sought for work relief as well as substantial sums for direct relief and for agricultural benefits. Numerous other projects are certain to be pressed, including $2,000,000,000 for immediate payment of the soldiers' bonus. It is, therefore, apparent that unless underlying policies are sharply changed, there will be a strong tendency to spend as much in 1937 as in 1936. The Congress will have an opportunity to review the work-relief program. It will not be too late to discontinue some projects which lack economic justification. In the Work-Relief Act the Congress delegated undue authority to the President in the expenditure of the funds. Before granting additional money for any relief activity, the Congress should insist upon the exercise of its own constitutional prerogatives. The present work-relief program was not properly studied either by the administration or by the Congress before approval of the appropriation. Economies can and should be made in present general expenditures. Appropriations for both regular and "emergency" agencies are far greater than necessary. An investigation by the Congress of such part of the governmental establishment as has been built up by executive authority without specific authorization in law would be from the standpoint of the taxpayer highly desirable. BUDGET PROSPECTS A Discussion of the Choice between National Solvency and the Breakdown of Treasury Credit with Resulting Devastating Inflation and Chaos if the Administration Continues Its Flagrant Violation of Campaign Promises AMERICAN LIBERTY LEAGUE J^atioYial Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. Document No. 71 October, 1935 BUDGET PROSPECTS â˜… Important decisions respecting fiscal policies will confront the Congress in its coming session. The annual budget for the fiscal year 1937 is in preparation and will be submitted by the President in January. If the President and the Congress so choose, it is within their power to reduce the annual deficit in 1937 to an insignificant amount or even to attain an approximate balance between receipts and expenditures. To accomplish this, however, a drastic reduction in expenditures must be made and economy must be exercised by the Government exactly as by a family which lives within its income. If this program is put into effect for the next fiscal year, there will be no difficulty about a completely balanced budget for the fiscal year 1938. Rates of taxation are already so high that they act as a serious deterrent to recovery. Taxes can be increased practically only by including smaller incomes which are now exempt. The Congress and the administration have been afraid to broaden the base because of the political effect. Unless there is marked reduction in expenditures, this course must be ultimately followed. Soaking the rich cannot pay the enormous expenses this administration is piling up. No administrative or legislative action can give more certain promise of rapid business recovery than the abandonment of spendthrift policies. Waste and extravagance have characterized expenditures in the regular as well as the "emergency" branches of the Government. A vast network of bureaucracy has been created under executive orders without the specific legislative sanction intended under the Constitution. The wanton profligacy of the present administration represents a flagrant violation of campaign pledges. Prompt elimination of deficits, now in their sixth year, is one of the essentials for the preservation of American institutions. Indefinite continuation of an unbalanced budget will lead to a breakdown of Treasury credit, devastating inflation and chaos from which might come dictatorship and an end of constitutional government. Significant facts regarding the budget situation are: 2 1. By reason of a tremendous increase in tax burdens, revenues during the current and subsequent fiscal years will be greater than in any period since immediately after the World War. 2. In spite of record-breaking revenues, the deficit in the present year will be larger than in 1932 when tax receipts shrunk to the lowest recent level, less than half their present volume. 3. Reductions in estimated deficits below those at one time predicted by the President mean chiefly that it has been impossible to spend the money as fast as at first planned and do not involve any apparent change in administration policies. 4. If unsound spending policies are abandoned, existing Federal taxes, which are excessive at many points, will soon provide sufficient revenue to finance all legitimate expenditures, including necessary relief, and as business improves reductions should be possible. 5. A threat of continued deficits lies in the failure of the billions expended or appropriated for emergency work projects to provide permanent employment and in the inevitable pressure to appropriate more billions. 6. Continued expenditures for urgent relief needs, which will be necessary for a time on a reduced scale, can be financed without incurring substantial deficits, if economy is practiced throughout the Government. 7. Present policies in regular departments and "emergency" agencies countenance the greatest riot of extravagance in the history of the Government. 8. The Federal bureaucracy has been expanded as never before and many thousands of jobs have been dispensed on a spoils basis such as would not have been tolerated by any other administration of either party within the memory of the present generation. 9. The public debt has been increased far above the wartime peak and future generations will be saddled with the burden of paying for the present spending orgy. Revised Budget Statement The President's annual budget for the fiscal year 1936 was submitted to the Congress in January, 1935. In compliance with a promise made then, the President on September 29, 1935, submitted a revised budget statement. This statement contains a revised estimate of revenues for the fiscal year 1936, together with a revised 3 estimate of expenditures on the basis of appropriations and the present status of the spending program. The revised statement sheds some light on the present budget but injects a measure of confusion by use of a classification of general and "emergency" expenditures different from that used during the past two years. The effect is to shift a greater portion of expenditures from the general to the "emergency" column, thus making increasingly difficult any attempt to compare the years 1934, 1935 and 1936 with 1933 and prior years. Neither in the President's accompanying comments nor in the tabulations of revenues and expenditures is any specific information given as to prospects for the fiscal year 1937. Beyond a general tone of optimism, nothing in the President's comments justifies confidence that the submission of the new budget next January will mark a return to sound fiscal policies. While the President asserts that new taxes will not be needed to defray the cost of the "necessary annual operations" and to meet debt retirements, which is obvious in the light of the extra burdens imposed upon the taxpayers, he gives no pledge that these "necessary annual operations" will be so scaled down as to permit a lightening of the load. He notes that "the prevailing rate of recovery points to the speedy decline of Federal expenditures for emergency activities," but he does not admit the futility of any part of the public works or work-relief expenditures, nor does he express any intention to abandon the policy of making expenditures for the sole purpose of creating jobs. He gives no assurance that he will not ask a further appropriation in the 1937 budget to supplement the present $4,000,000,000 work-relief fund. No promise is made of a balanced budget in 1937 or at any other specific time. Nothing in the revised budget statement warrants an inference that the administration proposes to spend less than actually appropriated by the Congress. While the budget as submitted in January, 1935, showed the prospective expenditure of the entire $4,000,000,000 work-relief fund during the fiscal year 1936, the Congress made the amount available for expenditure during a two-year period up to June 30, 1937. The President says that "some of the heavier projects will continue under construction beyond June 30, 1936." He does not give the amount involved, but by a process of subtraction it appears that 4 as much as $920,000,000 will be spent during the fiscal year 1937 rather than during 1936. This deferment of expenditure and somewhat greater receipts than at first anticipated account in large part for the claimed reduction in the estimated deficit for the current year. Many of the frequent claims of prospective savings are based on comparisons with exaggerated estimates of expenditures. The budget for the fiscal year 1935, submitted to the Congress in January, 1934, and that for the fiscal year 1936, submitted in January, 1935, contained expenditure totals far in excess of amounts which it was physically possible to spend. A false impression has been given when figures of actual expenditures, representing substantial increases over previous years, have been pictured as savings in comparison with fictitious advance estimates of outlays. Promise and Performance The record of the administration with respect to the budget offers little reason for hope that great significance can be attached to the President's statement that "the 1937 budget is now being prepared with a view to sharply decreasing the spread between income and outgo." The Democratic party in its 1932 platform 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." In his campaign speech at Pittsburgh on October 19, 1932, the Democratic presidential nominee said that he regarded reduction in Federal spending as "one of the most important issues" and that in his opinion it was "the most direct and effective contribution that government can make to business." Following his inauguration, in a special message proposing economy legislation on March 10, 1933, the President told the Congress that it was his constitutional duty "to advise you as to the methods for obtaining drastic retrenchment at this time" and gave assurance that if his recommendations were followed "within a year the income of the Government will be sufficient to cover the expenditures of the Government." Despite this assurance the deficits in the fiscal years 1934 and 1935 and that in prospect for 1936 are each greater than in any previous year in the history of the Government, barring only two years during the World War. In his budget message in January, 1934, the President initiated a gigantic expenditure program for a two-year period embracing the fiscal years 1934 and 1935 but promised a balanced budget for the fiscal year 1936. A year later in his budget message for the fiscal year 1936 he changed his policy, proposing a spending spree greater than anything he had previously suggested, and did not attempt to promise a balanced budget in 1937 or any specific subsequent year. The budget for 1936 forecast a public debt at the end of the fiscal year nearly two and one-half billions greater than he had said in his 1935 budget message should be the top limit. If the revised budget statement proves correct, the debt will not go that high this year. That is all there is to the alleged saving. Expenditures for Three Years In the original 1936 budget the aggregate expenditures for the three fiscal years, 1934, 1935 and 1936, were estimated at $24,206,532,719, a total almost as great as all expenditures during the first 124 years of the Government from 1789 to 1913. The total for those years, extending to the first year of the Wilson administration, was $24,521,845,000. The recent revised budget statement shows that actual expenditures for the fiscal years 1934 and 1935, together with estimated expenditures for the fiscal year 1936, will amount to $22,233,-207,249, which is $1,973,325,470 less than was forecast in January, 1935. The claimed saving is merely an error in advance estimates and does not represent a tightening of the purse strings. Besides about $920,000-000 of work-relief money which the Government will not spend until the fiscal year 1937, the remainder of the difference appears to be accounted for chiefly by the failure of the Reconstruction Finance Corporation to call for as much money from the Treasury last year as expected. In part this was made possible by the revolving fund device which enabled this corporation to use repayments on loans that otherwise might have been available to retire debt created at the time of the original advance. The most definite suggestion from administration sources of the probable date of a balancing of the budget comes from an article in Collier's purporting to set forth views of the President without quoting him. This sets 1939 as the first year in which receipts and expenditures will be approximately equal. Any forecast of the fiscal status four years hence is obviously worthless, even if the present administration remains in power, because of the demonstrated habit of changing policies at frequent intervals. Comparative Totals The public has largely lost a sense of proportion in thinking of the huge totals involved in the finances of the Government. A few billions more or less lack significance in the minds of many people who might have been impressed some years ago by a threatened deficit amounting only to hundreds of thousands. The tabulation which follows is intended to give a picture of the changes which have taken place in the fiscal status of the Treasury since the pre-war period. It shows total receipts, exclusive of postal revenues, total expenditures and surpluses or deficits during the fiscal years from 1913 to 1935 and estimates for the current fiscal year 1936. For the years up to and including 1933, general, "emergency" and trust accounts are included. For the years 1934, 1935 and 1936, trust accounts are omitted in accordance with the practice followed in most budget statements. Surplus (+) Deficit ( ) S-^00,733 ^108,264 62,675,975 +48,478,346 853,356,956 9,033,253,840 -13,370,637,569 +212,475,198 +86,723,772 +313,801,651 +309,657,461 +505,366,987 +250,505,239 +377,767,816 +635,809,921 +398,828,281 +184,787,035 +183,789,215 902,716,845 -3,153,097,507 -3,068,266,874 3,989.496,035 3,575,357,964 3,281.982.860 Fiscal year 1913 . 1914 . 1915 . 1916.. 1917 . 1918. 1919.. 1920. 1921 1922 . 1923.. 1924.. 1925. 1926 . 1927.. 1928.. 1929 . 1930 . 1931.. 1932 . 1933 . 1934 . 1935.. 1936 . (Est.) Receipts $724,111,230 734,673,167 697,910,827 782,534,548 1,124,324,795 3,664,582,865 5,152,257,136 6,694,565,389 5,624,932,961 4,109,104,151 4,007,135,481 4,012,044,702 3,780,148,685 3,962,755,690 4,129,394,411 4,042,348,156 4,033,250,225 4.177,941,702 3,317,233,494 2,121.228,006 2,238,356,180 3,115,554,050 3,800,467,202 4,470,349,140 Expend $724,511,963 735,081,431 760,586,802 734,056,202 1,977,681,751 12,697,836,705 18,522,894,705 6,482.090,191 5.538.209.189 3,795,302,500 3,697,478,020 3,506,677,715 3,529,643,446 3.584.987.874 3,493.584,519 3.643.519.875 3.848.463.190 3,994,152,487 4.219.950,339 5,274.325,513 5,306.623.054 7,105.050,085 7,375,825,166 7,752,332,000 By this method complications due to gold and silver transactions are avoided. The "profits" from the devaluation of the dollar and from the purchase of silver are recorded in trust accounts. If trust accounts other than those relating to gold and silver were to be included for the current fiscal year, it would mean an addition of about $170,000,000 to receipts, about $180,000,000 to expenditures and about $10,000,000 to the deficit. It may be noted from the tabulation that the annual budget was below a billion dollars before the World War. The huge war expenditures, aggregating in 1917, 1918 and 1919 about $33,-000,000,000, included more than $10,000,000,000 of loans to the allied nations. The war deficit was financed by Liberty bonds. The budget was balanced in the fiscal year 1920 and every year thereafter up to and including 1930. Normal expenditures were about four billions in the years just prior to the depression of 1929. Then commenced a shrinkage of receipts and an expansion of expenditures for "emergency" purposes. Average annual expenditures of the fiscal years 1934, 1935 and 1936 will be more than $7,400,000,000. Revenues The following tabulation shows revenues from different sources in the fiscal year 1930, before the effect of the depression was felt; in 1933, at the low point of income tax receipts, and in the current fiscal year 1936: Fiscal years: 19S0 19JS UW 0lt.) Income taxes.............. 12,410,986,978 $746,206,445 $1,434,111,000 Miscellaneous internal revenue ................. 628,308.036 858,217,512 1,855,291,000 Customs ................. 587,000.903 250.750,251 353.000,000 M.-iManwus ............ 551,645,785 383,181,972 291.u47.140 Processing taxes ........... ................ 536,000,000 Totals ................ $4,177,941,702 S2.238.356.180 $4,470,349,140 Changing conditions over the years have necessitated new methods of raising revenue. Before the War about equal amounts were raised from customs duties and internal revenue taxes, the latter being chiefly on liquor and tobacco. Other sources of revenue were inconsequential. The income tax amendment to the Constitution, ratified in 1913, came in time to furnish a major means of raising revenue in the War period. In 1920, the first post-war year in which the budget was balanced, 59 per cent of all receipts came from income and profits taxes. The total from this source was about $3,945,000,000. Miscellaneous internal revenue accounted for about 22 per cent of receipts with a total of about $1,460,000,000. Customs revenues accounted for about 5 per cent, with a total of about $323,000,-000. The remaining 14 per cent came from miscellaneous sources. During the decade between 1920 and 1930 it was possible to reduce income tax rates and to repeal or reduce many miscellaneous taxes. By 1926 income taxes yielded less than half what they did in 1920 but nevertheless remained the chief source of revenue, and, with reduced miscellaneous taxes and customs revenues, were sufficient to maintain a balanced budget. Revenue from income taxes increased considerably during the period of speculative profits. In the fiscal year 1930, even with relatively low rates in effect, income taxes yielded about $2,410,000,000, representing about 58 per cent of all receipts. Internal revenue receipts amounting to about $628,000,000 accounted for 15 per cent of the total, customs duties amounting to approximately $587,000,000 for 14 per cent and miscellaneous items for the remaining 13 per cent. The depression was responsible for the shrinkage of revenues in 1932 to the lowest point of the period since the War. Income tax receipts shrunk even lower in the fiscal year 1933, new miscellaneous taxes being responsible for somewhat greater total receipts. Income taxes brought in only $746,000,000 in 1933, less than one-third the total of 1930. In 1933 income taxes accounted for only 33 per cent of total receipts, while internal revenue, amounting to about $858,000,000, accounted for 38 per cent. All ordinary receipts in that year amounted to only 42 per cent of expenditures, the remaining 58 per cent being borrowed. By reason of the instability of income taxes as a revenue producer in times of depression, a greater dependence upon excise taxes has been necessary. Many new miscellaneous taxes have been imposed in recent revenue laws. Simultaneously, income tax rates have been greatly increased, partly due to the insistence of those who would promote a redistribution of wealth by this means. Present income taxes are so high as to retard recovery and under existing conditions will not produce sufficient revenue to justify themselves. For the current fiscal year 1936 it is estimated that income taxes will yield about $1,434,000,000, or 32 per cent of all receipts, while miscellaneous internal revenue will amount to about $1,855,-000,000, or 42 per cent of the total. Processing taxes will yield $536,000,000, 12 per cent of the total, and customs duties $353,000,000, or 8 per cent of the total. The other 6 per cent of total revenues consists of receipts from various miscellaneous sources. An appreciation of the extent of the tax burden upon the people of the country may be had from the fact that even in this time of depression total revenue receipts in the current fiscal year will be greater than in any year since 1921, the last year in which War costs kept the budget at a high level. Only in the fiscal years 1919, 1920 and 1921 have ordinary revenues exceeded the expected total of the present year. In those years the greater revenues were from income and excess profits taxes upon war profits. Present taxation is on a level substantially as high as during the War and in some instances, notably in the case of individual income surtaxes, corporation income taxes and taxes on estates, existing rates are very much higher. Enactment of legislation like the Revenue Act of 1935, which was aimed at large corporations and wealthy individuals, will hamper rather than assist in the attainment of a balanced budget. This particular law is estimated to raise about $250,000,000 in additional revenue when fully effective. Such a sum is inconsequential in comparison with the total expenditures under the present administration. The handicaps upon industry embodied in the terms of the measure far outweigh any possible revenue gain. Without any question more reasonable rates, based on sound revenue principles rather than upon Communistic redistribution of wealth theories, will yield greater revenue over a period of years. It would be folly to attempt to balance the budget at its recent level by means of increased taxation alone. Comparisons of tax burdens in the United States and Great Britain frequently are made. The fact is that the larger incomes and larger estates now are taxed more in this country than in Great Britain. Political considerations have kept the Congress and the administration from broadening the present base of taxation by increasing normal rates and lowering exemptions. Such action would be advantageous from the standpoint of additional revenue and in that it would make a larger portion of the population tax conscious. The limits of income taxation are evident from a glance at statistics of taxable earnings. The aggregate net income of all individuals reporting $5,000 or more for the calendar year 1933 was 10 $4,053,653,532. The aggregate net income of all corporations for the same year was $2,506,058,-278. If 100 per cent of these two sums, totaling $6,559,711,810, were taken in taxation, it would fall $1,192,620,190 short of the revised total of expenditures of the current fiscal year, $7,752,-332,000. Expenditures The present level of expenditures is far above what can be continued long without jeopardizing the financial foundation of the Government. The President in his statement in connection with the revised budget properly looks forward to a reduction in emergency expenditures. It is impossible to return to any such level as existed before the War when a balanced budget could be maintained with three-fourths of a billion of receipts and expenditures. As an aftermath of the War the permanent level of expenditures necessarily must be much higher: thus in the fiscal year 1927 expenditures were cut to the lowest point since the War, a total of $3,493,-584,519. Of this total, amounts directly attributable to the World War and earlier wars aggregated $2,043,820,253, including $1,306,574,422 for interest on the public debt and statutory debt retirement, and $737,245,831 for pensions and benefits to veterans of all wars. All other expenditures totaled $1,449,764,366. Deducting war pensions, general expenditures in 1913 amounted to only $549,000,000. The Government spent $585,000,000 for national defense alone in 1927. There appears little possibility that any of these items will in the future be reduced below what they were in 1927. While veterans' costs were cut appreciably under the Economy Act of the early days of the present administration, the reductions have been almost wholly restored and the total for the current fiscal year is estimated at $710,000,000, substantially the same as in 1927. The interest on the public debt and statutory debt retirements in the current year, despite lower interest rates, will amount to $1,306,000,-000, almost exactly the same as in 1927. National defense, not including construction items listed as of an "emergency" nature, will cost $700,000,000 this year, an increase of $115,000,-000 over 1927. Expenditures for miscellaneous functions of a general character will amount to about $892,000,000 this year, an increase of $27,000,000 over 1927. 11 In the present segregation of general and "emergency" expenditures, some hundreds of millions of construction items of a normal character as well as various other items are listed as "emergencies." These should be added to the general total in any comparison of 1936 with 1927 and with future normal requirements. It is impossible to segregate these but it is probable that instead of $3,597,508,000 of general expenditures as estimated for the current year, the total comparable to 1927 and other pre-depression years would be far in excess of $4,000,000,000. Expenditures at the beginning of the Hoover administration were at a level of about $3,850,-000,000, which was increased to about $4,000,-000,000 as funds were needed for the revolving loan fund of the Federal Farm Board and to more than $5,000,000,000 when funds were appropriated for the Reconstruction Finance Corporation and other special purposes. It would appear to be probable that the future normal budget, without reference to relief needs or agricultural benefits, will be at least $4,000,-000,000, although it could be made considerably less if drastic economy were practiced. If $1,000,000,000 is appropriated for relief purposes, it will mean a budget of $5,000,000,000, or about $2,500,000,000 below the expenditures of the present year. Further reductions can be made when the states and local communities are able again to assume the entire burden of relief. Per Capita Costs The mounting costs of government are shown strikingly when estimated on a per capita basis. A little more than half a century ago, in 1880, expenditures of the Federal Government amounted to $5.34 per capita. By 1900 they had increased only to $6.85. Shortly before the World War, in 1915, the per capita cost was $8.27. In the low year of expenditures since the War, 1927, the amount per capita was $33.05. The relatively moderate emergency expenditures of 1932 boosted the per capita cost to $42.96. In the current fiscal year 1936 Federal expenditures will amount to $63.14 per capita, almost ten times the amount at the beginning of the century. These per capita figures, which are computed in each instance on the basis of the most recent decennial census, take no account of costs of state and local governments which similarly have mounted. 12 Deficits The present year is the sixth successive year in which expenditures have exceeded receipts from taxation and other ordinary sources. The grand total of the deficits for these years will be approximately $18,000,000,000, a sum greater than the entire public debt at the beginning of the depression. The first deficit of less than a billion in the fiscal year 1931 was due chiefly to a shrinkage of revenue from income taxes, although expenditures were a little more than the previous year. Of the deficit of more than $3,100,000,000 in the fiscal year 1932 about one-third was caused by expenditures for emergency purposes, while the remaining two-thirds was due to a further very heavy shrinkage of tax revenues as business profits disappeared. The deficit of more than $3,000,000,000 in the fiscal year 1933 was based on the continuance of both receipts and expenditures at about the level of the previous year. In the fiscal year 1934, the first full year of the present administration, receipts went up nearly $900,000,000 with the imposition of new taxes, but expenditures increased by about $1,800,000,-000, with the result that there was a deficit of nearly $4,000,000,000, the greatest of any of the six years. There was a further increase of receipts amounting to nearly $700,000,000 in 1935, but expenditures rose by $270,000,000, the deficit falling to $3,575,000,000. In the current year receipts will be $670,000,000 greater than in 1935 and expenditures about $380,000,000 greater, the prospective deficit being estimated at a little more than $3,280,000,000. If the present administration had kept the pledges made in the 1932 campaign and if it had not spent large sums for public works and work relief as part of a deliberate policy of creating employment, it could have held expenditures annually to $5,000,000,000 even with a considerable outlay for direct relief or other "emergency" purposes. This would have meant a deficit of less than $2,000,000,000 in 1934, a little more than $1,000,000,000 in 1935, only about half a billion in 1936 and a completely balanced budget in 1937. There would have been a saving in deficits and consequent increased public debt of more than $7,000,000,000 in three years. General and Emergency Expenditures Under the present administration, the Daily Treasury Statement for the fiscal years 1934 and 13 1935 included a segregation of general and "emergency" expenditures, and beginning with the present fiscal year has shifted to a classification in which general and "recovery and relief" expenditures are segregated. The following table shows actual general and "emergency" expenditures as originally segregated for the fiscal years 1934 and 1935, together with estimated totals on the revised basis for the fiscal year 1936: 1936 (Est. on basis revised 1934 1935 classification) General ... $3,100,914,534 $3,721,234,635 $3,597,508,000 Emergency 4,004,135,550 3,654,590,530 4,154,824,000 Total .... $7,105,050,084 $7,375,825,165 $7,752,332,000 Comparison of the general expenditure totals with receipts shows that the latter would have been a little more than sufficient to cover the former in 1934 and 1935 and much more than sufficient in 1936. This comparison, however, is of little value when account is taken of the fact that a considerable part of normal construction and other activities are included in the "emergency" figures for 1934 and 1935 and an even greater share of these activities is shifted to "emergency" expense in the 1936 classification. By comparing the revised budget statement with Treasury statements prior to the beginning of the present fiscal year, it is possible to appreciate the effect of the change in classification. The new classification is extended back over the fiscal years 1934 and 1935 in the revised budget statement. Thus it is found that "recovery and relief" expenditures totaled $4,283,315,473 in the fiscal year 1934 instead of $4,004,135,550, which is the figure given for "emergency" expenditures in the Daily Treasury Statement at the end of that year. General expenditures in 1934 are reduced from $3,100,914,534 to $2,821,734,611. "Recovery and relief" expenditures in the fiscal year 1935 totaled $4,282,257,208 rather than $3,654,590,530 which was the total given for "emergency" expenditures in the Daily Statement of June 29. General expenditures in 1935 are reduced from $3,721,234,634 to $3,093,-577,956. Under the new classification $279,179,-923 of expenditures in the fiscal year 1934, heretofore considered as of a general character, have been shifted to "recovery and relief," while $627,656,678 of general expenditures of 1935 have been similarly shifted. The revised 1936 estimate of general expenditures is $800,894,134 14 less than the estimate in the original 1936 budget. The estimate of last January was $4,398,402,134. It would appear that a substantial part of this reduction is due to the change in classification. The change in classification is an example of the juggling of figures which has taken place and which tends to leave the public hopelessly confused. The impression given from current figures is that "emergency" expenditures account entirely for the big increases in governmental costs. Actually the regular activities are being conducted upon as extravagant and wasteful a basis as those of an "emergency" character. The directors of a private corporation, faced with such indications of irregularity or deception, would immediately call in the services of an unbiased public accountant. Emergency Expenditures The revised budget statement makes it possible to show in a general way how money has been expended for "emergency" purposes during the present administration. The classification in the following tabulation is that which has been used in the Daily Treasury Statement since July 1. It shows what are designated as "recovery and relief" expenditures for the fiscal years 1934 and 1935, together with estimated expenditures for the fiscal year 1936: 19S4 19SS 1930 (Est.) Agricultural aids.......... $865,879,721 $885,300,123 $670,500,000 Relief .................... 1,844,424,580 2,341,739,464 952,900,000 Public Works (Including work relief) ............ 642,432,363 1,021,328,855 2,314,424,000 Aids to Home Owners.... 194,930,032 102,637,078 199,000,000 Miscellaneous ............ 158,788,965 10,378,085 4,000,000 RFC ...................... 565,823,017 "135,384,934 ............ TVA ..................... 11,036,795 36,148,537 14,000,000 Unclassified items................... 110,000 .......... Totals ............... $4,283,315,473 $4,262,257,208 $4,154,824,000 â€¢Excess of credits, deduct. According to the detailed items under the totals given above, the Federal Emergency Relief Administration spent $707,360,836 in the fiscal year 1934, $1,814,342,307 in 1935 and will spend $450,000,000 in 1936, a total of $2,971,703,143 in the three years. To this total must be added $1,267,449,494 spent or to be spent during the three years for emergency conservation work, $816,850,155 by the Civil Works Administration, and $83,061,250 for relief in drought areas. The total of all relief items for the three years is $5,139,064,042. Under the heading of public works the Works Progress Administration, which is in charge of the work-relief program, is to spend $1,300,000,-15 000 during the current fiscal year. Other items of expenditure in the current year are $442,924,-000 for miscellaneous public works and public buildings, $242,500,000 for highways, $180,000,-000 for river and harbor works, $100,000,000 for loans and grants to the states and municipalities, $25,000,000 for the Rural Electrification Administration, $10,000,000 for loans to railroads, $10,-000,000 for administrative expenses of the Public Works Administration and $4,000,000 for the Boulder Canyon project. It is shown that administrative expenses of the Public Works Administration during the three years will amount to more than $31,000,000. The total for all kinds of public works during the three years is $3,978,-185,217. This appears small in comparison with the original $3,300,000,000 public works fund authorized by the National Industrial Recovery Act of June 16, 1933, supplemented by an allotment of $400,000,000 from funds provided in the Emergency Appropriation Act of June 19, 1934, and the $4,000,000,000 for work relief in the act of April 8, 1935. A considerable part of the $7,700,000,000 of public works and work-relief funds has been allotted for purposes otherwise classified and at least $900,000,000 of the total allotted from the work-relief fund will not be expended until after the close of the current fiscal year. The total for aids to home owners during the three years is $396,567,109. This includes operations under the Home Loan system, Emergency Housing, Resettlement Administration and Subsistence Homesteads. Under the miscellaneous heading are the Export-Import Banks, the Federal Deposit Insurance Corporation and administrative expenses for the NRA amounting to more than $23,000,000. The totals for the Reconstruction Finance Corporation do not show the extent of its activities inasmuch as it makes use of repayments received from loans. The items given for the Tennessee Valley Authority represent only allotments from the public works fund for construction of dams and do not include its other expenditures which appear in the general budget. Relief and Work Relief The obligation of the Federal Government to meet urgent relief needs in the present emergency is recognized. Normally the states, local governments and private agencies should carry this load as intended under the Constitution. Under the policies of the Federal Emergency Relief Administration the Federal Government not only has assumed a greater share of the legitimate burden of public agencies but has countenanced the use of the taxpayers' money in a wasteful and improper manner. The integrity and self-reliance of our people have been weakened by loose methods which have permitted thousands of persons to obtain relief money who could care for themselves or who have relatives in a position to look out for them. In many areas farmers and industrial employers have found it difficult to get help because those receiving the dole are unwilling to work. In repeated instances relief workers have gone out with the avowed purpose of inducing people to go on the dole when they have not applied for help. The Civil Works Administration, through which work relief was provided during the winter of 1933-34, was marked by scandal and by a reckless waste of public funds. The virtual breakdown of the work-relief program has justified the fears of those who resisted the efforts of the administration to railroad the $4,880,000,000 work-relief and direct-relief appropriation through the Congress without adequate consideration. The program submitted to the Congress was of the haziest character, and even the rough allocation of funds, finally included in the law in an attempt to correct the flagrantly unconstitutional delegation of authority, has not been followed. The work-relief program has proved far more costly than direct relief. By reason of the selection of projects promising immediate employment and maximum payrolls, little economic benefit will be derived. Neither will the projects be productive of sufficient future revenues or economic advantage to justify them, nor will they assure continuous employment either directly or through the stimulation of private industry. When present funds are exhausted, the workers will require direct relief assistance or else more billions must be appropriated for the continuation of work-relief projects. The problem will not be solved until the administration adopts policies which will encourage private industry instead of harassing it. General Expenditures Expenditures other than for "recovery and relief" for the fiscal years 1934, 1935 and 1936 as classified in the revised budget statement are as follows: 17 Legislative, judicial and Civil Â°Ut departments '' and benefits Interest on Public Debt.. Debt retirements.......... Refunds.................. Supplemental items....... 1934 tm 1936 (Est.) $32,557,005 $35,719,149 $37,925,000 573,742,073 479,094,308 498,946,008 533,597,243 706,583,000 700,000,000 556,549,454 756,617,127 359,864,093 62,710,552 605,573,274 820,926,354 573,558,250 45,247,679 710,000,000 745,000,000 551,000,000 47,000,000 100,000,000 Totals $2,821,734,612 $3,113,567,957 $3,597,508,000 The above figures show very considerable increases between 1934 and 1936 in expenditures for the civil departments and agencies, for national defense and for veterans. Interest on the public debt has been held down by means of refinancing at lower interest rates but the statutory sinking fund for debt retirement automatically increases from year to year. While it is impossible to make accurate comparisons between the present activities of the cabinet departments and regular independent agencies of the Government and those at the time of the 1932 campaign when the Democratic party promised a reduction of 25 per cent in expenditures and the elimination of useless agencies and functions, enough evidence is available to show the utter disregard of that pledge. Expenditures for the regular departments and independent agencies as given in official statements for 1934, 1935, and 1936 do not tell the whole story for the reason that most of the departments and agencies have the benefit of additional amounts which are concealed in the "emergency" appropriations. Nevertheless, the totals in the revised budget statement under the classification of general expenditures show marked increases in many instances from those at the time of the 1932 campaign. It is evident that very considerable savings could be made if the policies pledged in 1932 were to be adopted. The following tabulation shows changes in expenditures of important regular departments and agencies during the fiscal years 1934, 1935 and 1936 on the basis of the revised budget statement : 19M 1935 1936 (Est.) Legislative, judicial and executive .......................... $32,557,005 $35,719,149 $37,925,000 Department of Agriculture..... 58,362,572 62,036,812 114,000,000 Department of Commerce...... 17,907,994 10,967,464 33,000,000 Department of Interior....... 48,932,246 55,211,498 80,000,000 Dept. of Justice (except judiciary) ....................... 17,053,150 16,640,949 18,500,000 Department of Labor.......... 10,831,943 13,012,158 16 000 000 Department of State........... 11,121,103 15,860,780 17,830,100 Treasury Department......... 184,053,871 147,132,322 140,000,000 War Dept. (non-military)..... 82,391,338 57,246,869 75,000,000 National Defense (War and Navy Depts.) ............... 479,694,308 533,597,243 700,000,000 Veterans' Administration...... 556,549,454 605,573,274 710,000,000 18 Expanded Payrolls One basis of comparison between the present activities of the Government and those at the beginning of this administration is found in the payroll reports of the Civil Service Commission. Between March 1, 1933, and the end of August, 1935, the civil officers and employees in the Executive branch of the Government increased by 206,641. The total at the time of the change in administrations was 563,487, including 66,802 in the District of Columbia and 496,685 outside. The total at the end of August, 1935, was 770,-128, including 105,679 in the District of Columbia and 664,449 outside. Many thousands of temporary employees are not included in the official totals of the Civil Service Commission. For example, a footnote in the Commission's report explains that besides the official total of employees of the Department of Agriculture 48,614 persons were hired under "letters of authorization." The actual increase in Government employees thus was much greater than 206,641. The following tabulation made from figures of the Civil Service Commission shows the number of employees in the ten Cabinet departments on March 1, 1933, and on August 31, 1935: No. employees No. employees Increase or March, 1933 August, 1935 Decrease State ...... 4,664 4,478 186 Treasury .. 52,266 54,142 + 1,876 War....... 44,188 68,555 +24,367 Justice .... 9,022 7,473 1,549 Post Office. 272,550 258,753 13,797 Navy ..... 46,879 61,840 + 14,961 Interior . . . 15,018 31,766 +16,748 Agriculture 26,132 38,783 +12,651 Commerce 17,971 17,156 815 Labor ..... 5,569 12,660 +7,091 Employees in the larger alphabetical agencies, according to the totals of the Civil Service Commission for August, 1935, were as follows: Works Progress Administration.................. 24,688 Home Owners Loan Corporation................ 19,891 Tennessee Valley Authority..................... 16,727 Resettlement Administration.................... 14,094 Public Works Administration.................... 7,474 Farm Credit Administration.................... 7,226 Agricultural Adjustment Administration......... 6,480 Reconstruction Finance Corporation............. 3,500 Federal Housing Administration................ 3,437 National Recovery Administration.............. 3,275 The National Recovery Administration at a more recent date still had almost 2,800 employees, although its authority was destroyed when the Supreme Court held the code section of the National Industrial Recovery Act to be unconstitutional. Budget Direction The expanded governmental organization, constituting the greatest bureaucracy ever existing in this or any other country, has been built up largely on a spoils basis. Under such a system inefficiency and waste of the public funds are inevitable. At the end of June, 1935, there were 106,627 civil officers and employees in the executive branch exempt from the classified civil service rules. The present administration has done more to destroy the Civil Service than all of its enemies through the half century since it was instituted by President Cleveland. The administration has made capital of the issuance of executive orders placing various "emergency" agencies under the Budget Bureau. While such action represents a step in the right direction, insofar as it implies a classification of positions and salaries and a check on expenditures, the Budget Bureau as at present constituted is not the independent agency exerting a powerful influence for economy which was intended under the law. The Budget Act, approved in 1921, represented a compromise between one group who wished the Budget Director to have an independent status under the President and another who would have made him an official subordinate to the Secretary of the Treasury. Under the law the Bureau was located in the Treasury Department but subject only to the President. In the early days of the law the Budget Director with the support of the President led an aggressive fight to reduce expenditures throughout the governmental establishment. This tradition was carried on by the first Budget Director in the present administration. When he found that he did not have the support of the administration, he resigned. The Acting Budget Director, in addition to his duties in the Budget Bureau, is also a Division Chief of the Treasury Department. His status makes it impossible for him to exercise the influence that was intended under the law. He is completely subservient to the Treasury Department. Independent action on his part is scarcely possible. 20 The Public Debt According to the revised budget statement the public debt will reach a gross total of $31,824,-619,347 on June 30, 1936. The total on June 30, 1935, was $28,700,892,625. It is proposed to borrow $3,123,726,722 during the current fiscal year. The present gross debt is considerably in excess of the peak of the War debt which reached $26,-596,701,648 on August 31, 1919. The debt had dropped to $16,185,308,299 on June 30, 1930. Our debt was only $1,282,044,346 on March 31. 1917, shortly before we entered the World War. The per capita debt on June 30, 1936, according to present estimates, will be $259.21 compared with $233.77 on June 30, 1935, $131.38 on June 30, 1930, and $13.94 on March 31, 1917. The gross debt on June 30, 1936, if the last estimates prove correct, will be about $2,415,-000,000 less than was predicted by the President at the time of his budget message in January, 1935. Regardless of that fact the total will represent a very great burden both upon the present generation and upon future generations. Even if the debt is retired at the rate prescribed in the wartime sinking fund law, which has been a nullity through the period of deficits, it cannot conceivably be wiped out during the lifetime of any citizen now of voting age. Because the British debt per capita is greater than that of the United States, some have assumed that our debt could safely be increased to a comparable total. The British national debt is largely a heritage from the World War and has not increased in recent years. It represents a fixed obligation which cannot affect the Government's credit as might constant changes. Further increases of the United States debt would have inflationary possibilities of the most dangerous sort which are lacking in the British debt situation. The obligations of the Government are considerably greater than the amount of the debt by reason of contingent liabilities. The bonds issued for the financing of home and farm mortgages and by other Government corporations have been guaranteed as to principal and interest. Bonds of this character actually issued exceed $4,000,-000,000. Defenders of administration fiscal policies emphasize proprietary interests, or supposedly recoverable asserts in corporations financed wholly or in part by the Government, with a 21 book value of several billions. A large part of these assets is of a decidedly frozen character and losses will be inevitable in any eventual liquidation. The assets also will be appreciably reduced if the policy is continued under which repayments from RFC loans are immediately used for other purposes. The RFC funds used for relief cannot possibly be recovered. Unquestionably it would be hazardous to allow the debt to increase by many more billions. In the interest of the credit of the Government it is essential that the budget be balanced at the earliest possible opportunity. In passing it should be observed that the debt of the Federal Government is only part of the debt of our people. States, counties, municipalities and other subdivisions throughout the country have piled up obligations mountain high which must be paid by taxation. The more recent additions in this latter field have been largely induced by the Federal Government in its offers of sums of money to be matched or supplemented by grants from other taxing subdivisions. Appropriations Much confusion prevails in the minds of the public by reason of the use of different totals of appropriations or expenditures by different persons. Both Representative Buchanan of Texas, Chairman of the House Appropriations Committee, and Representative Taber of New York, ranking Republican member of the Committee, agree that the Congress in its recent session appropriated around $10,000,000,000. The totals announced by them showed a difference of a few hundred millions, due chiefly to the exclusion by Mr. Buchanan of an appropriation for relief from unexpended balances previously appropriated for other purposes. The tabulations in the revised budget statement are on an expenditure rather than an appropriation basis. In these tabulations it is indicated that expenditures for the current fiscal year 1936 will be $7,752,332,000. The President's statement accompanying the tabulations says that appropriations made by the recent session which are available for expenditure during the fiscal year 1936 amounted to $8,671,427,171. Both the $7,752,332,000 and the $8,671,427,171 can be reconciled with the $10,000,000,000 of total appropriations as computed by congressional leaders. 22 The amounts voted by the Congress included postal expenditures which are financed, except for such deficits as may exist, from postal receipts. Furthermore, the appropriations made by the recent session included some hundreds of millions which were expended prior to July 1, 1935, when the present fiscal year commenced. Postal expenditures and deficiencies of the last fiscal year must be deducted from the $10,000,-000,000 total to get a figure comparable to the $8,671,427,171 total of appropriations available for use in the fiscal year 1936. The reconciliation of totals also requires an adjustment of figures in connection with net withdrawals of funds from the Treasury by the RFC. The natural inference to be drawn from the difference of $919,095,171 between the amount of appropriations available for expenditure during 1936 and estimated expenditures of $7,752,-332,000 is that the administration has reduced its spending program by that much. This is not the case. A check of the items making up the $7,752,332,000 of estimated expenditures shows that only a little more than $3,000,000,000 of the $4,000,000,000 work-relief fund will be used this year. Under the terms of the appropriation it is available for use during a two-year period up to June 30, 1937. Presumably this balance will be expended under that authority during the fiscal year 1937. The public announcements regarding the work-relief program have indicated no intention of spending less than the full amount of the $4,000,000,000 fund. In fact, it has been necessary to eliminate many projects because of a lack of sufficient funds. As stated in the President's comments, it will not be possible to complete the larger projects during the current year. The difference between appropriations available for use this year and estimated expenditures represents the amount which will not be paid out from these appropriations until next year. It is obvious from all of this that there is confusion and uncertainty as to what monies have been appropriated. Many of the appropriations are in violation of specific provisions of the Constitution, but the whole situation seems to show an utter disregard for that clause in the Constitution which provides that "no money shall be drawn from the Treasury but in consequence of appropriations made by law; and a regular statement and account of the receipts and expenditures of all public money shall be published from time to time." 23