Deficits Forever?

July 16, 1962

For the fiscal year just closed the Federal government reported a deficit of more than $7 billion. Nobody but Senator Byrd seemed to be particularly concerned. Only an insignificant minority in Congress or out was demanding a cut in expenditures. Almost everybody, including congressmen, governors, labor unions, chambers of commerce, was calling for a cut in taxes.

We are losing the very concept of a responsible budget. Consider the strange record of estimates for the fiscal year just closed. In January 1961, the Eisenhower Administration estimated that it would end with a surplus of $1.5 billion. On March 24, 1961, the Kennedy Administration declared that this was unrealistic, and forecast a deficit of $2.1 billion. On May 25, 1961, it raised this deficit estimate to $3.5 billion. On July 25, 1961, it raised its deficit estimate again to more than $5.3 billion; on Oct. 29 again to $6.9 billion; on Jan. 18 of this year to $7 billion.

26 IN 32 YEARS

Also last January, the President estimated that there would be a surplus in the fiscal year that has just begun of $463 million. No one today takes this estimate seriously. Responsible Congressional committees think there will be a deficit of $3 billion to $5 billion. The Administration blames the changed outlook on an unexpected change in business conditions. But the estimate never was realistic. Its revenue forecasts were based on the expectation of unparalleled prosperity. With no important net change in tax rates, revenues were counted on to jump from $82.1 billion in fiscal 1962 to $93 billion in fiscal 1963. If revenues do not increase, and expenditures are as estimated, the predicted surplus of half a billion will become a deficit of $10.4 billion.

But what of the expenditure side? In May, Senator Byrd pointed out that “some 200 actions and proposals involving increased obligation of public money and credit can be documented in Presidential communications to Congress during the current Administration.” Since then the President has hardly let a week go by without presenting some new major spending proposal. Nothing is said about the effect on total proposed expenditures for the year. These proposals are not accompanied by a revised budget, let alone by any compensating tax increase.

In sum, the outlook is already for a deficit for fiscal 1963 approaching the dimensions of that for the year just closed. We have now had 26 deficits in the past 32 years. We face a 27th.

RATIONALIZATIONS

Instead of showing any concern about this, the Administration has been developing rationalizations that would logically call for perpetual deficits. It began to talk of balancing the budget over “the business cycle” rather than annually. Now Budget Director Bell tells us that even this is “clearly inadequate to deal with a situation such as we have been experiencing for the last five years—a situation in which we have had years of recession clearly enough, but no years of full prosperity.” Whereas “deficits, not balances, are appropriate in years of recession,” and even bring “positive benefits,” there is always, even in a good year, “real danger that the attempt to achieve a budget balance too soon may itself contribute to bringing the recovery to a halt below full employment levels.” The natural conclusion to be drawn is that the only safe policy is one of perpetual deficits.

What must be the effect on foreign confidence in the dollar when, on top of all this, demands are coming from all sides for an immediate cut in taxes, many of them for tax cuts on lower and middle personal incomes in order to “pump more purchasing power” into the economy and insure a thumping inflationary deficit?

The situation raises a grave problem for believers in fiscal responsibility. Tax cuts on productive enterprise are needed, for the sound reason that present taxes are discouraging production and new investment. But those who ask for such cuts must insist on the condition that even greater cuts be made in our fantastically swollen expenditures. Must we wait, like Canada, until a currency crisis is upon us before we start to put our house in order?