Three Budgets

April 19, 1954

On April 6, Finance Minister Abbott presented the new annual budget for Canada, for the fiscal year which began on April 1, and Chancellor Butler presented the new annual budget for Britain, for the fiscal year which began on the same date. To an American what is most noteworthy about each of these budgets is the simple fact that it is balanced.

In contrast, our own Federal budget is officially expected to show a deficit for the current fiscal year, which ends on June 30, of $3.3 billion. For the new fiscal year to begin on July 1 it carries an estimated deficit of $2.9 billion. Both deficits are expected in actuality to be even higher.

The explanation of our own budget deficits, compared with the budget balance of our two principal friends and allies, is threefold. The first part of the explanation is that Canada and Britain both have budget systems for which responsibility can be definitely fixed, whereas the United States does not. The British Parliament, for example, approves the government’s budget, including both proposed expenditures and proposed taxes, as a unified whole. And once the budget has been approved, Parliament abides by a wholesome rule under which it cannot make any appropriation for which the government has not asked.

No such rule prevails here. The budget presented annually by the President is nothing more than a compilation of estimates and recommendations which Congress is free to accept or reject or ignore, and which it never in fact adopts as an integrated whole. Congress can appropriate more money than the President asks for. It can make tax reductions that he has not asked for. The President has no power to veto individual items in appropriation bills. So one explanation of the Canadian and British budget balance as compared with our chronic deficits is that they have a more responsible budget system.

But this is only part of the explanation. It is one of the paradoxes of the present situation that America, which has a budget deficit, is contributing defense aid to Britain, which has a balanced budget. This becomes less of a paradox when one recalls that it is partly because we are granting defense aid to other countries that we have a budget deficit, and it is partly because Britain gets defense aid from us that its budget is balanced.

A third point is this. American military expenditures are not only much higher than Canadian or British military expenditures in absolute terms, as we might expect, but such expenditures also constitute a much higher percentage of our total budget. Canada’s defense expenditures will constitute about 43 percent of its total budget; Britain’s about 36 percent; and ours about 68 percent. What percentage is “right” is largely a matter of opinion, to which only iffy answers are possible. But it is a pretty safe assumption that most of our Federal expenditures today, and above all the grand total, are larger than they need to be, particularly in relation to what we get for them. This at least is the conclusion at which the Committee on Federal Tax Policy, a private group under the leadership of former Under Secretary of the Treasury Roswell Magill, has just arrived after a most careful study. Scrutinizing proposed expenditures by major items, the committee finds that a total of at least $8 billion could be cut from Federal budget obligations for the fiscal year 1955 without even touching defense items. And only a cut of these dimensions, it thinks, will solve our fiscal problem:

“If we accept the principle that a balanced budget is a desirable end and that tax reduction is essential to the continuation of a healthy economy, the only alternative is to reduce expenditures. . . .

“The fundamental trouble with the Federal tax system is that we are trying to raise too much money with it. Any tax system for collecting revenues of the order of $70 billion is bound to be burdensome, inequitable, and a deterrent to investment, production, and economic progress. Such high taxes tend to defeat their own end by destroying the base on which they rest.”