Notes on the Budget

January 27, 1958

Forgotten Billions: Officially estimated expenditures of $73.9 billion in the 1959 Federal budget would by themselves constitute record peacetime spending. But in addition there will be expenditures out of government trust funds (mainly for social security and highways) of $16.4 billion. Even when interfund payments are deducted, this means that actual total expenditures will be more than $86.7 billion. Expenditures are not reduced, nor is the total burden of taxes, by hiding part of them in special segregated budgets.

Wishful Thinking: It seems highly probable that estimates of both receipts and expenditures for 1959 err on the optimistic side. Last year the President made both errors. Instead of the surplus of $1.8 billion he then promised for 1958, there is a prospective deficit of $400 million. He now promises a budget surplus of $500 million for 1959. But if he has made merely the same-size dollar error for 1959 as for 1958, this $500 million surplus would become a $1.7 billion deficit. It could even be much larger. In an acknowledged period of declining business, the President wishfully estimates budget receipts from the same taxes at $2 billion more in 1959 than in 1958. And Democratic leaders (and some Republicans) are demanding even higher spending.

Nondefense spending: It is when we come to nondefense spending that we get our greatest shock. Federal nondefense expenditures recommended for 1959 reach a new high record of $28.1 billion (not including the $2.5 billion for the highway program), compared with $28 billion in fiscal 1958, $25 billion in 1957, and $21.2 billion in 1954. If we compare these recommended 1959 nondefense expenditures with those of 1957, for example, we find that they are higher in every major category except “general government.” They are higher, in other words, in foreign economic aid, veterans’ benefits, “welfare,” farm subsidies, natural resources, and housing.

So here, where huge cuts were possible, we have instead mainly increases. In his Oklahoma talk of Nov. 13, the President declared that new expenditures for missiles would have to come out of nondefense programs: “Savings of the kind we need can come about only through cutting out or deferring entire categories of activities. This will be one of the hardest and most distasteful tasks that the coming session of Congress must face, and pressure groups will wail in anguish.” But when the moment came, Mr. Eisenhower himself had little stomach for the task. He has, it is true, asked for some peripheral “welfare” economies. But these, even if enacted, would not mean significant savings until 1960 or later. Yet the tax burden and strain on our resources are enormous, and economies which are always advisable have now become imperative.

Defense spending: There will be an increase of $3.3 billion in 1959 over 1957 just for missiles, nuclear weapons, etc. Total missile-program spending for 1959 is estimated at $5.3 billion. (In 1953 we spent only $1 million on long-range ballistic-missile development.) It may be, as so many congressmen and others are contending, that even these increases are not enough. But it is probable, as the Hoover commissions and Congressional investigations have repeatedly shown in the past, that there is huge extravagance and waste concealed in other parts of so-called defense spending. Total defense spending, in any case (including $3.8 billion for foreign military aid), is estimated at $45.8 billion for 1959, compared with $44.8 billion for 1958 and $44.4 billion for 1957.

How to Cut: There is no real problem in knowing where cuts in nondefense spending could be made. The whole $4.6 billion farm subsidy is an economic outrage. Most of the $5 billion foreign-aid program is demonstrably futile. The $5 billion of veterans’ benefits is shamelessly swollen. But all this has been pointed out many times before—to no avail.

One hope, at least, lies in getting some reforms in budget procedure. We should put government appropriation requests on an accrued expenditure basis and grant the President an item veto for appropriation bills. Mr. Eisenhower has asked for both.