or $16 billion. This would bring the total deficits in the four fiscal years 1952 through 1955 to more than $37 billion.

Facing such conditions without the steps this administration and the Congress have taken and are taking, any administration which had a sincere concern about the stability of the economy could not recommend that the tax reductions now written into the law should take effect. If deficits approaching these magnitudes should become a reality, they would further contribute to the inflation which has steadily depreciated the purchasing power of the dollar.

It will help to appraise this unhappy deficit picture if we look at the buildup of appropriations since 1950 for defense.

Now, we have to make a distinction there between appropriations and expenditures-for aid to foreign nations, and for domestic purposes. There are the heavy c. o. d. commitments which the President has spoken about. We haven't yet paid for them but they are now and in the near future beginning to come in for payment in increasing volume. The level of governmental expenditures in any year is largely determined by the enactment of appropriations and and other authorizations to spend Government funds which have been made in past years on the c. o. d. basis. In the 5 fiscal years 1950 through 1954, appropriations authorized or requested before this administration took office provided for the expenditure of Government funds exceeding the the estimated revenues of the same 5 years by about $96 billion. The huge total of extra appropriations for these years was mainly due to the crash approach to defense after the beginning of the war in Korea. Unfortunately those expenditures, already authorized, programed, and largely committed, reach their peak during the fiscal years 1954 and 1955, producing the deficits which now have to be

overcome.

The budget submitted last January estimated that on June 30 this year as we enter the fiscal year 1954-there will be carried forward $81 billion of current authorizations to spend Government funds for which the cash must be obtained from revenues or borrowings in future years. This enormous sum, which is wholly in addition to the figures in the current year's budget is, in large part, already under contract or commitment, mostly for the delivery of defense materials and supplies. Some of these commmitments have already resulted in the provision of plants and machinery and the accumulation and working up of materials so that cancellation and unwinding of the operation, even where the Defense Department would otherwise find it desirable, would not be a feasible or practicable operation. Study of the individual situations and of the particular conditions and requirements of each one of the literally thousands of operations involved may well reveal a substantial number of possible reductions. That is part of the continuing job which the President mentions in his message above referred to, but it cannot be accomplished in a few days or weeks. With persistence and determination, and provided there continues to be national support for the effort, we feel as far as our work in the Bureau of the Budget is concerned that wise and substantial savings, even in these items, can be made within a reasonable time, but certainly not in the few weeks that there have been available to work on it so far.

In summary, we enter the fiscal year 1954 with a number of adverse factors in our budget picture scheduled to come to a focus in

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the fiscal years 1954 and 1955. They are: the peaking of expenditures; the revenue loss as a result of tax reductions already in the law-which would certainly have had to remain only paper promises unless and until such reductions as this administration has made and is continuing to make become effective-the overestimate of tax receipts for the fiscal years 1953 and 1954; and the difficulty of adjusting downward the expenditures for the huge buildup of contracts and commitments already on the books.

The determined and effective efforts taken by the present administration to curtail Government expenditures have already improved the budget outlook for the fiscal year 1954, and will result in further improvements. Requests for new appropriations for 1954 have already been reduced below the budget of last January by more than $8.5 billion. Further reductions will be made. Expenditures as estimated in January for 1954 will be down some $4.5 billion as presently reviewed, but here also additional reductions will be made as the year progresses. These are the accomplishments of a few months only and represent first steps in what can be done.

How much further reduction in expenditures can be made will depend upon the effectiveness of the combined efforts of the administration and the Congress and the continued support of the people. As the President has pointed out in his nationwide address of May 19, 1953:

Government cannot do this job-any more than any other job-utterly alone, You and your fellow-citizens who want your Government to spend less must yourselves practice self-restraint in the demands you make upon Government. You as citizens cannot help the common cause by merely favoring economy for every group except the one to which you belong.

During the fiscal year 1954, further reductions in expenditures will be made by all the devices possible: the concerted action of all agency heads in continually reexamining and revising existing programs with a view to reducing expenditures; action by the Bureau of the Budget through the budget apportionment system to establish budget reserves wherever possible; and the constant and continuous effort of the present administration from the top down to see that 1954 budget expenditures show a declining trend throughout the year. Consideration will be given also to proposing changes in legislation which require Government expenditures not now warranted either because of changing circumstances or the budgetary situation.

As pointed out above, the fiscal year 1955 is critical from the budget viewpoint. This is the year when the previously established tax and spending programs create the greatest differences between revenues and expenditures as planned by the former administration. Prompt counteraction is being taken by this administration on both sides of the budget. Vigorous and persistent action is necessary to bring order into our financial affairs in the 1955 budget.

The very size of the budget reduction program we have embarked on requires that it be completely, governmentwide, and not confined to any few spots. We have had graphic illustrations of the principle that when costs and economy are not made an issue, expenses multiply and increase. We believe the converse is true, that when cost and economy become a high-level policy issue and are spread throughout the whole governmental machinery, savings multiply and increase. We shall have to scrutinize the thousands and the millions,

which make up the billions, in every function and operation of the Government and apply the strictest standards of necessity and worthwhileness to each item.

Nevertheless, we also have to bear in mind the fact that to make the total of reductions needed we shall have to deal thoroughly with the defense categories, which account for such a large proportion of the total expenditures and for practically all the increase in expenditures in the last several years. Approximately 70 percent-or over $55 billion-of the proposed expenditures in the original 1954 budget go to finance our closely related military, foreign aid, and atomic energy programs. It is obvious that the future level of expenditures will depend to a large degree on what can be achieved in reducing these outlays. The fundamental purpose will be, as has been repeatedly stated, to provide real, effective, defense power "in being"; to eliminate and reduce dollars being spent wastefully or being used for less effective or duplicating programs.

The final level of budget expenditures inevitably will be greatly affected by international events and must be basically determined by what is found necessary for the national security of this country under prevailing international condtions, bearing in mind, as the President has stated, both military and economic requirements. This is the heart of our budget problem. It is fortunate that we have a President who is extraordinarily qualified to pass judgment on the staggering and sobering issues involved.

The CHAIRMAN. Would you like to insert these records in the back? Mr. HUGHES. In addition, I have these two tables, which will be added, and which can be used as part of the statement.

The CHAIRMAN. Yes. Without objection, they will be included in the record. It is so ordered.

(The material referred to follows:)

TABLE 2.-Reductions in new obligatory authority, fiscal year 1954
STATUS AS OF MAY 25, 1953
[In millions]

Mr. CURTIS of Nebraska. Mr. Hughes, on page 5 there is a sentence that I believe I understand, but I think it ought to be clarified for the record:

Requests for new appropriations for 1954 have already been reduced below the budget of last January by more than $8.5 billion.

That does not mean that expenditures for 1954 will be reduced by $8.5 billions, does it?

Mr. HUGHES. Unfortunately, that is not true.

Mr. CURTIS of Nebraska. Go ahead.

Mr. HUGHES. But the appropriations, of course, eventually turn into expenditures, and we have to at least start with those.

Mr. CURTIS of Nebraska. That is right. But there is quite an element of time lag, is there not?

Mr. HUGHES. Yes.

Mr. CURTIS of Nebraska. Well, now, what is the difference between an appropriation, the obligating of funds, and an expenditure? Mr. HUGHES. You mean in time?

Mr. CURTIS of Nebraska. No. How would you describe each process, so that the ordinary citizen knows what we are talking about?

Mr. HUGHES. The appropriation is the authorization for the Government through its departments to spend money for certain purposes. It may go out and order a new plane, or it may order a new building, or it may engage some people in its employment. It has to first be authorized by an appropriation, which makes the money available for that use.

Mr. CURTIS of Nebraska. Yes.

Mr. HUGHES. Now, the spending of the money depends upon when that particular object is delivered. For example, you might be on a waiting list, if you were buying a new radio, under certain conditions in the past, and you might order the radio, but you might not get it until next year. You would not put out the money until it was delivered to you next year. Now, that is the way with these expenditures. They come in in accordance with various circumstances, depending upon times of production, the nature of the particular item involved, which varies, of course, with the thousands of particular items that are included in the budget.

Mr. CURTIS of Nebraska. Yes. And then here in Congress, before we can appropriate, we have to have what they call an authorization

act.

Mr. HUGHES. Yes.

Mr. CURTIS of Nebraska. Because the rules provide that you cannot appropriate for something that has not been authorized by law. And that even goes back a year or two or maybe several years prior to the voting of the appropriation, does it not?

Mr. HUGHES. You have to begin way back there, because the authorization, while it does not fix an amount of money to be spent, does fix a program of activity which will result subsequently in the making of an appropriation, which means that somebody is determined that you shall be allowed to spend 1 million, 1 billion, whatever the amount is, on this particular project, and then later on we come face to face with it, with an expenditure, which is the thing that affects our taxes and our revenue.

Mr. CURTIS of Nebraska. The decisions we make now will have a very great effect upon the cash budget 2, 3, 4, and 5 years from now, will it not?

Mr. HUGHES. Yes, sir. That is right.

Mr. CURTIS of Nebraska. And the cash budget that we are facing now is the sum total of what happened last year, the year before, 3, 4, and 5, and in some instances further back than that. Is that not right?

Mr. HUGHES. It takes a considerable period of time. It is like a ship making port. After all, they call it the "ship of state." If you are making port and you are trying to get into a berth, if you do not decide to turn until you get right opposite, you will never make it. You have to make your plans so that you turn in due time to make your entrance in the right manner. That means that you have to plan in advance in order to do it.

Mr. CURTIS of Nebraska. Yes. And while the Federal Government is sovereign, and could refuse, perhaps, from a purely legislative standpoint, to carry through on a great many things, the fact remains that commitments to our citizens and to others oftentime do not cost when they are made, or right after that, but the cumulative effect upon the budget becomes terrific in a matter of years. Is that not correct? Mr. HUGHES. That is exactly what we have to deal with now. We have to deal with each one of these particular means of incurring expenditures. Some of them are embedded in laws. Some of them are embedded in long time practices and commitments. And some of them, of course, can be immediately cut out and dropped. Each one has to be studied and worked out.