CONTENTS ANNUAL CONTROL OF THE FEDERAL BUDGET FRIDAY, SEPTEMBER 14, 1951 CONGRESS OF THE UNITED STATES, JOINT COMMITTEE Washington, D. C. The joint committee met, pursuant to call, at 10:15 a. m., in room P-36, United States Capitol Building, Senator Harry Flood Byrd (chairman) presiding. Present: Senator Byrd (chairman); Representatives Doughton, Cannon, and Reed. Also present: Senator Homer Ferguson; John S. Graham, Assistant Secretary of the Treasury, representing John W. Snyder, Secretary of the Treasury; and Elmer Staats, Assistant Director, Bureau of the Budget, representing Federick J. Lawton, Director, Bureau of the Budget. The CHAIRMAN. The committee will come to order. Unfortunately, after this meeting had been scheduled, the Finance Committee called a meeting in order to complete the tax bill so that Senator George and Senator Butler are unable to be here for the beginning of the meeting, but they hope to come in later. Senator McKellar also hopes he may reach here before the meeting is too far along. Senator Bridges is out of town. Congressman Kerr is out of town. Mr. Taber is attending another meeting. The Secretary of the Treasury is represented by Mr. John S. Graham, and Mr. Elmer Staats represents the Director of the Bureau of the Budget. The purpose of this meeting is to consider means whereby Congress can reestablish its control over the budget. It appears to some of us that long-term commitments and authorizations, extending beyond the annual expenditure, have reached a point now where Congress has practically lost control over the current expenditures for any given year, and we have Mr. Magill here, who has had a great deal of experience in matters of that kind, to start the discussion. Later on we will have a representative from the Bureau of the Budget and the General Accounting Office and others, and make a report to Congress on our findings. Unless there is some preliminary discussion by the members of the committee I will ask Mr. Magill to make his statement. STATEMENT OF ROSWELL MAGILL, PRESIDENT, TAX FOUNDATION The CHAIRMAN. Mr. Magill, will you identify yourself and give us a background of your Government experience, please. 1 Mr. MAGILL. My name is Roswell Magill, and my home is in Westport, Conn. I am president of the Tax Foundation, and I am a practicing lawyer in New York City. The CHAIRMAN. Be seated, sir. Mr. MAGILL. Mr. Chairman and gentlemen, I appear here this morning The CHAIRMAN. Pardon me, Mr. Magill, but would you please state your experience with the Government? Mr. MAGILL. Yes. I was Under Secretary of the Treasury in 1937 and 1938. I appear here with a good deal of misgivings this morning, because I, of course, am well aware of the fact that you gentlemen know a great deal more about the budget than I do or ever shall, and, furthermore, as you all know, my experience has been primarily in the field of taxes, rather than in the field of expenditures. When the Tax Foundation and the Committee on Federal Tax Policy commenced to work on this subject at the time the President's budget message came out in which he said that we were about to spend something over $71 billion, and that additional taxes would be required in order to meet that total, we found ourselves in strong agreement with the proposition that the budget should be balanced, and that we should raise enough revenue to balance the expenditures total because, as we thought, the alternative to paying these expenses as we go is inflation, and we have already had enough inflation to see how damaging and ruinous it is so far as our economy is concerned. Then when we began to go into the question of additional taxes we found, as you gentlemen already, I am sure, have found, too, how difficult, or indeed impossible it is to raise an additional $5 billion, $10 billion, or $15 billion on top of an already very great tax burden, without serious damage and danger to the economy. Indeed, I think all of us worry more or less about paying as we go. We are going to lose the very fight that we are trying to win. Consequently, we were driven to a consideration of expenditures, and there we came to the proposition that Senator Byrd has already spoken, of, that it seemed that the possibilities of reducing expenditures in the present scheme of things was relatively restricted, to a great degree, and expenditures have gotten out of the control of Congress, so that the volume of expenditures which are really subject to annual review by the Appropriations Committee is, and the annual reductions are relatively small. Now, my associates have done a good deal more work on this than I, and if it comes to a question of detail I may want to call on them, but I would like, if I may, to present the general analysis that they have developed. I will then be glad to try to answer any questions which you might want to ask. I am encouraged, of course, by the President's recent statement to the effect that the budget should be read and studied by every citizen, and while I cannot claim that I have read everything in the budget, or rather, read every figure in the budget, I at least have gone over it enough so that I think that these classifications which I shall present to you this morning are an accurate statement of the condition in which we find ourselves. From then on, the problem is, first, of getting these expenditures back under a controlled machinery, I will call it, and getting them back to where Congress can actually deal with them, and then, assum ing that Congress is determined to cut down expenditures, it can be done. At present it is very difficult or impossible to do, because so many things have been authorized and are not subject to an annual review. If I may, then, I will go through with this statement which, I believe, is before you. Attached to this statement are a series of tables summarizing the results that we are giving you. Our Government's primary task in these uneasy years is to prevent extension of war and inflation. Either or both can ruin this Nation. The strongest bulwark against both is a sound economy. And a healthy economy in turn depends largely on how Government handles its paramount financial problem: To control fabulous expenditures so that they do not exceed not quite so fabulous revenues. Unless the Government can control its spending, the alternative is deficit financing or much higher taxes. The first-that is deficit financing-means defeat by inflation. The second-much higher taxes on top of today's unprecedented tax burden, will damage our economy, slow production, weaken us and thereby make general war more likely. Real expenditure control means improved operations and efficiency. More important, it means that Congress must have not only the power but the machinery to review annually each item in the budget, and to suspend or eliminate peacetime programs, no matter how desirable, that have no place in our defense economy. Congress does not have that kind of control today. The Committee on Federal Tax Policy has just completed a study of Federal expenditures, which is in this brown booklet which you have in front of you. To our surprise and amazement, we found that, out of the President's budget of $71.6 billion, only about $24 billion is clearly and definitely under annual congressional review and control. A breakdown of this total finds Congress controlling less than $5 billion of domestic nonmilitary expenditures and $19 billion of military international expenditures. It is obvious, then, why all the talk about economy in Government results in so little actual reduction in expenditures, because the amount which Congress can control, or the amounts, are relatively small. Control of the remaining $47.6 billion is split. Some of it is controllable annually by the Executive. Some is controlled by circumstances affecting programs, such as the number of needy aged or the number of veterans eligible for benefits. Some consists of more or less uncontrollable expenditures such as interest on the public debt, or payments to trust funds, claims, et cetera. This startling state of expenditure control inspired our committee to recommend what we call the "clean slate" approach to Government spending. We proposed that Congress regain annual control over expenditures by suspending all authorizations to spend Government funds, except for the military, interest on the public debt, and such others as examination discloses should not be disturbed. We further recommended that, after such suspension, the Bureau of the Budget should be directed to present alternate expenditure programs for the present fiscal year, which would reduce total spending by $7 to $10 billion. If I may here insert a portion out of this longer report, I would like to incorporate that in this statement: |