How to Cut Spending

March 25, 1957

Nearly everyone, including the President, who proposed it, seems to agree that the $72 billion budget for the fiscal year 1958 should be drastically slashed. But when it comes to any specific spending program, some special interest is sure to cry out that it cannot be touched. The President himself gave an amusing illustration of this in his press conference of March 7. A friend out West had written to say he “was very much upset about the size of the budget,” but in his last paragraph expressed the hope that there would be no cut in drought relief. Yet in this very conference Mr. Eisenhower, while he told how he was asking every government agency and department to suggest cuts in its own spending, expressed grave concern about proposals to make any substantial cut in foreign aid.

The situation suggests that there is only one feasible political device to get substantial cuts in the 1958 budget. This is for Congress to tie every cut it makes in expenditures to a specific tax cut. Only in this way can Congress dramatize the connection between expenditures and taxes, and offset the special political interest in favor of an expenditure by the interest of taxpayers in favor of tax relief.

CUT FOREIGN AID

Let us take, as an example, the foreign-aid program. The public and Congress now express mounting doubts about the need or wisdom of that program. The recent Fairless report, certainly, does nothing to dispel these doubts. It merely reiterates all the question-begging generalities that have passed for argument in the last ten years. It mentions once in passing that about 2,000 separate foreign-aid projects are annually authorized in Washington, but makes no “detailed program examination” whatever. It does not even list the countries that are still receiving aid from us. (There are 54 of them, not including our dependencies.) Yet the program involves not merely appalling waste, but positive mischief.

Sen. Mike Mansfield has estimated that a $3 billion annual cut could be safely made in the sums that our government has been spending abroad. It would seem advantageous to cut at least $3 billion out of the $4.4 billion that the President proposes to spend in the fiscal year 1958 for foreign military and economic aid. Out of appropriations left over from past years, the government will have at least $3 billion to spend for foreign aid in 1958 even if Congress does not appropriate an extra penny. Congress, therefore, need make no appropriation at all for foreign aid for 1958. It can simply recommend that spending for this purpose be limited to $1.2 billion in 1958, and tie this recommendation up with a tax cut of $3.2 billion.

50 PERCENT TAX CEILING

There are any number of places, of course, where such a tax cut could advantageously be made. I suggest, by way of illustration, a cut in the normal personal income tax from 20 to 18 percent, and a cut of all personal income tax rates above 50 percent down to a 50 percent ceiling.

Roswell Magill, president of the Tax Foundation and a former Under Secretary of the Treasury, has declared: “If we could afford just one modest tax accomplishment in 1957, this 50 percent rate ceiling is the one which I should choose.” He estimates that the revenue loss would be about $734 million, even without taking into account the probable increases in reported income as a result of the rate reduction itself. (The confiscatory tax rates up to 91 percent produce little revenue. The basic rate of 20 percent accounts for 85 percent of the total yield of the income tax.) Cutting income-tax rates to a maximum of 50 percent would bring a sharp increase in American production, investment, and the availability of risk capital for new enterprises.

A cut in the normal tax from a 20-percent to an 18-percent would mean an additional loss in revenue of about $2.4 billion; but it would also mean income-tax relief and increased incentives for everyone.

Any attempt to oppose or veto such a tax cut in order to maintain foreign-aid expenditures at their present level would bring home to the American people what foreign aid is really costing them. Other tax cuts could be tied to other spending cuts, with similar educational results.