TABLE 7.-Federal budget expenditures under relatively controllable programs, domestic, other than military, fiscal year 1952 Federal Security Agency: 2,682 $4,837 1, 110 1,200 Defense housing, community facilities and services. 150 General aid to elementary and secondary schools. 300 35 20 Department of the Interior: Bureau of Reclamation, Hell's Canyon power project... 8 Post Office Department: Deduct increase in postal rates. Authorization to expend: Independent offices, Export-Import Bank of 1,000 Other: Appropriated funds. Legislative establishment. 68 Housing and Home Finance Agency: Slum clearance and urban rede 427 2659 2 870 20 140 1 Enacted or recommended, or proposed for later transmission under existing legislation. Represents implied commitments to veterans which can be legally controlled through the annual appro priation process. TABLE 8.-Federal budget expenditures for the military and international under relatively controllable programs, fiscal year 1952 25 Department of Defense, civil functions: Government and relief in occupied areas. Other.... The CHAIRMAN. And Mr. Magill will be glad to answer any questions. I would like to state that Mr. Charles E. Wilson, testifying before the Finance Committee, estimated that, for the year beginning July 1, 1952, the expenditures on a cash basis would be approaching $85 billion; and, with the new tax bill, the estimate of revenues, I think, will be about $67 billion or, maybe, $68 billion, depending upon whether you use the House or the Senate committee version. So, there is a prospect of having a deficit, the largest that we have had, except in World War II. And that is for the fiscal year beginning July 1, 1952, the next fiscal year. Representative DOUGHTON. Your estimate, Mr. Chairman, that we are faced either with a substantial increase in taxes or with deficit financing in the near future? The CHAIRMAN. Beginning July 1, 1952, in a very large way. I think the chairman of the Ways and Means Committee will agree with me that it is impossible to raise $15 billion or $20 billion more from taxes now and still preserve our private-enterprise system. Representative DOUGHTON. I don't believe that, speaking only for myself, as one member of the Committee on Ways and Means, I would not know where to find any great amount of additional revenue, other than would be produced by the present law and the tax bills that are now under consideration, which will amount to approximately $67 billion, or possibly a little more. And that is if the economy of the country remains on the same level. Even if we could report a bill or bills substantially increasing the amount, I doubt if we could possibly get it through the House of Representatives. If we bring out this bill, in the first place, I don't know where our committee could find it; and, if we did, I don't believe that we could get the approval of the House in support of the action. Do you, Mr. Reed? Representative REED. I feel the same way. I have just been home, and it is surprising to find the resistance you hear about taxes. This thing is occurring, and I think you have all had this experience, and it is almost daily that income-tax-paying persons come into my office and tell me they are taking a long vacation, and they say, "We are not going to work 3 months for the Government; we are going to take a rest." Young fellows declare, "I don't want to earn any more, because, if I do, the Government will take it." So, they would rather stay in the lower brackets. Now, that is a dangerous thing; that feeling. Of course, Congress very largely, on the floor, as we all know, reacts to that sentiment at home. The thing I feel most, as far as I am concerned about the whole situation, is this inflation that I have noticed right here in your fine statements here on page 7, and you have just one short sentence which says, "We must maintain the value in the dollar." But are we maintaining the value in the dollar? That is the question right now, from $37 currency billion up to $180 billion expansion since 1933, that is watering down the purchasing power of currency and, of course, that is one of the causes of inflation; and this other item I speak of is the resistance to production. When you put on controls, you eventually have less production. Production is a remedy against inflation that we are not encouraging by imposing controls. Now, I think we have got a very serious situation when you consider these facts. I do not have the figures, but I think there is $136 billion invested in United States bonds, and the people at home are talking about how much they are diminishing in purchasing power, and they are beginning to feel uneasy about the bonds that they have bought. Then you have all those people with money invested in life insurance, some $60 billion, and they say, "Well, my gracious; that is getting down to an almost 50-percent reduction in purchasing power." Now, I hear so much of that talk at home. People are somewhat informed and worried about it; therefore, they don't want heavier taxes as their incomes are reduced in purchasing power. The CHAIRMAN. And the reason they don't want it is because it has taken so much of their income that they really will not be able to preserve our system of free enterprise, and under the new tax bill reported by the Senate committee, which has been somewhat slightly modified from the House plan, corporations would pay, I imagine, more than two-thirds of their net income in taxes, and any individual making $1 over $80,000 would pay 90 cents out of every dollar over $80,000, and half or more of the $80,000. I think that, on the Finance Committee, we feel that we have scraped the bottom of the barrel with this tax bill, and not only that; I think a very great hardship will be done by this tax bill, if it is passed, on certain individual businesses and on a great many people. I know that our committee feels, as Mr. Doughton feels, that there is no way we can bring in another large tax bill under any orthodox method of taxation. You would have to go to some other method of taxation, which would perhaps be of the most serious consequences to our business economy. Representative DOUGHTON. The chairman is a member of the Committee on Finance and knows the difficulty that Finance has with try ing to raise additional revenue through increased taxation from new sources of revenue. With the limited knowledge that I have on the subject, it would seem to me that the Appropriations Committee in the Congress has well realized that, if we authorize an appropriation of more money for the fiscal year 1952, very much more money, and with the recent tax laws, the increase would be accounted for in a tax bill that we expect to pass soon, and even with this new tax bill it will amount to only $67 billion; it is certainly going to be deficit financing. The CHAIRMAN. Yes, by a large amount. Now, I would like to ask Mr. Staats, who represents the Bureau of the Budget, if he confirms the statement made by Mr. Wilson that, beginning July 1, 1952, our cash expenditures will approximate $85 billion. Mr. STAATS. Mr. Chairman, I believe it was the Budget Bureau's estimate that you refer to, the $85 billion. The CHAIRMAN. Yes; I think the Bureau of the Budget and Mr. Wilson gave it to us. Mr. STAATS. That being to the best of our ability, after discussing the military expenditures with Mr. Wilson and the Department of Defense. The CHAIRMAN. Military appropriations have been increased. Would that have any bearing on the cash expenditures? Mr. STAATS. It will have in the fiscal year 1953. The CHAIRMAN. And it might actually be more than $85 billion? Mr. STAATS. That is correct. The $5 billion added by the Senate, if approved by the Congress, will have a very, very considerable effect. A great share of that $5 billion, I think, is contemplated to have been spent in fiscal 1953. There will be very little of it contemplated for expenditure in fiscal 1952. Senator FERGUSON. About half of that in 1952? Mr. STAATS. A little less than that. The CHAIRMAN. That will last for at least several years; that was the testimony. Mr. STAATS. As I understand it. The CHAIRMAN. And then you expect a moderate decline after 2 or 3 or 4 years, but nobody can tell what the future holds. Mr. STAATS. I think it should be understood that the purpose of that $5 billion is to provide for procurement, contemplating an increase in the size of forces which is not embraced in the $5 billion, but which would have to be added to it in the budget year 1953. The CHAIRMAN. The $85 billion to $90 billion level will certainly be continued for several years, so far as you now know? Mr. STAATS. In the statement which we submitted to the Finance Committee, we indicated that the build-up in the total forces now contemplated would have been fairly well accomplished by the second quarter in the calendar year 1953; and, assuming that the international situation did not worsen at that time, it was contemplated that it would be possible to reduce the expenditures for the Department of Defense beginning at that time. Representative CANNON. Approximately how much? Mr. STAATS. Well, the statement which we presented, Mr. Cannon, to the Senate Finance Committee, indicated that it would scale down beginning in the second quarter of calendar 1953, down to a point where, assuming that the nonmilitary expenditures remained about what they are of $20 billion, roughly, that we would be down to about $65 billion level for the total budget on a continuing basis which we would achieve at the end of the fiscal 1954. Of course, you realize that these had to be very rough estimates; but, if you assume the continuing carrying charge of around $65 billion in fiscal 1955, we roughly approximated with the staff of the Senate Finance Committee to be about a $75 billion figure in fiscal 1954. The CHAIRMAN. That is right. Mr. STAATS. And that has to be a very rough figure. The CHAIRMAN. Of course, these expenditures go down very slowly after they have once been established, and if we should embark on a great enlargement of the Air Force it is possible there will not be any reduction of these figures? Mr. STAATS. They would certainly affect any estimate that we provided at that time. I want to underscore again the roughness of the figures; but, in order to be as helpful as we could to the Senate Finance Committee, we felt that we should forward them our best estimate for the fiscal years 1953 and 1954. I think you have to underscore very much that the estimate depended on a lot of different factors. Representative CANNON. How do our rates of taxation compare with those of France? The CHAIRMAN. Mr. Graham, could you answer that? Mr. Graham is representing the Treasury Department. Mr. GRAHAM. I think Mr. Magill has probably made more of a study of the world system than I have, Mr. Chairman. The CHAIRMAN. I hear that the French don't pay their taxes very carefully and regularly. Mr. GRAHAM. I will make this observation, Mr. Chairman: that, as you know, there have been representatives here this week of the International Bank and Monetary Fund, and I had occasion to talk with some of them about the tax systems, and it appears that those Governments are putting through increased tax programs to cover their portions, or at least some portion, of the defense program. The CHAIRMAN. Are they collecting the taxes, though? Mr. GRAHAM. That, sir, I would not attempt to pass on. I would not attempt to pass on their enforcement program, but I was thinking particularly The CHAIRMAN. I thought you might have some figures per capita, or percentage of national income. You have not got that? Mr. GRAHAM. I do not have anything with me, sir. Representative CANNON. You say you have no information? The CHAIRMAN. I think that would be very interesting, if we could have the Treasury present the figures from the other major countries of the world on the basis of national income, per capita, or whichever is the best comparison he can make. Representative CANNON. It is the general impression that the rate of taxation in England is materially higher than it is in the United States. Representative REED. Forty percent is what they are paying now. Mr. MAGILL. I think that Mr. Stam of the joint committee has some of those figures. |