There are only five countries, ours and England, Italy, Belgium, and France, who make planes now. The Germans did, of course, but their industry has all been liquidated.

I see nothing the matter with the program.

Mr. RICHARDS. I think it is a good program, overall.

Chairman CHIPERFIELD. Thank you very much, Mr. Secretary, for your fine testimony.

(Whereupon, the committee adjourned at 1 p. m. to reconvene at 10:30 a. m., Tuesday, May 12, 1953.)

MUTUAL SECURITY ACT EXTENSION

TUESDAY, MAY 12, 1953

HOUSE OF REPRESENTATIVES,
COMMITTEE ON FOREIGN AFFAIRS,

Washington, D. C.

The committee met in executive session, pursuant to call, in room G-3, United States Capitol, at 10:35 a. m., Hon. Robert B. Chiperfield (chairman) presiding.

Chairman CHIPERFIELD. The committee will come to order.

It would be helpful to us, Mr. Secretary, if you would explain in simple terms some points that bother the committee; for example, the difference between an administrative deficit and a cost deficit. Another point that should be clarified is why appropriations made by the Congress several years ago for tanks and other military items have not yet been spent.

This bill contains a large request. We have to understand why it is so large and its relation to our income. Perhaps you could also explain the overhang of billions of dollars that you referred to the other day.

STATEMENT OF HON. GEORGE M. HUMPHREY, SECRETARY OF THE TREASURY

Secretary HUMPHREY. I did not bring the figures on that because I thought we were to talk about MSA, but I will try to explain it anyhow.

What the Congress does is this: The Congress makes an appropriation. My recollection is that the appropriations are about $73 billion for this year.

I think perhaps this paper will give it to us, right here. Here are the estimated expenditures for this year:

$78 billion. The estimated appropriation is a substantially lesser figure.

Now, this is the Truman budget: $78.6 billion of expenditures, $68.7 billion of income, which shows a proposed deficit of $9.9 billion. It then shows what is estimated as a cash deficit of $6.6 billion. I will explain the difference between the $6.6 billion and the $9.9 billion. That is a simple explanation and you will get it in just a minute.

There are certain governmental funds, pension funds, unemployment compensation funds and funds of that kind, for which money has to be collected from the people and paid into these funds each year. Those funds are about $3.3 billion a year now. As that $3.3 billion comes in, the Treasury reaches in and takes out the cash and puts an IOU back in.

Now, that sounds pretty bad when you say it that way. You can cause a lot of commotion about it if you put it just that way, but when you explain it a step further, it is not quite as bad as it first sounds. What you put back in are Government bonds.

I was talking to a businessman one day and he said:

I think you fellows are a lot of crooks down there. You reach into these funds-we the employees, the employers and all pay $3.3 billion in cash, and you reach in and take the cash out and spend it. It just goes into the common expenses for that year, and you put Government bonds back in.

Chairman CHIPERFIELD. We owe it to ourselves, though.

Secretary HUMPHREY. I said, "You have a pretty big pension fund yourself in your company."

He said, "Yes, we have, we have a big pension fund."

I said, "What is your money invested in mostly?"

He said, "We have it in Government bonds."

I said, "So have we."

It is not crooked. There is not anything wrong about it. The cash is taken out and the Government bonds are put back in, so that the cash not presently needed for use in those funds is made available for other purposes.

Now the danger with the thing is-and there is a substantial danger with respect to it-that Government funds, unemployment funds, pension funds, private unemployment pension funds, compensation funds and various other things-a great many funds are invested in Government bonds.

Now, if everybody should want to use their funds all the same day and needed cash instead of investments, they would all start selling bonds the same day and that would be a great strain on the investment market, you see, so you could get into quite a jam if it happened all

at once.

As long as things go along in an orderly way, there is no trouble about it, but there is that threat that hangs over both the private and the public.

But, when you see on your statement the difference between what they call the administrative deficit, and the cash deficit, it is just $3.3 billion. That is the fund which comes in and from which the Treasury takes the cash out.

They take it out of the fund box and put it into the general expense box with the rest of the public money. Then they pay Government bills out of that money and they put bonds in there."

Now, that has nothing to do, however, with this overhang which you are talking about and which is a very much bigger item and a very much more important item.

I can just illustrate what happens in this way: Let's say that about 4 years ago we used to have appropriations of $10 billion or $12 billion. They then went up to $20 billion to $30 billion. Then they went up to $40 billion or $50 billion, and then they got up to $80 billion to $90 billion.

Now, when the Navy wants to build a carrier, that carrier has to be built over 5 years or 4 years or some other period. When a new airplane is bought, it has a lead time of a year or two making designs and may have a total of over 3 years.

They come in with a request for appropriation for military items of that kind. The total request for appropriations-I'll say, it used to be 12, then 30 or 40, then 80 or 90-was just going right up like that. Let us take a high year. Let us say they would come in and request $80 billion of appropriations.

Now, you vote that. That would all be voted this year. Congress would vote it this year for the next fiscal year. But, in the next fiscal year there would be lead time, preparation and plans and so forth and perhaps only about $10 billion of that $80 billion would actually be spent. Then the second year you would spend $30 billion of the $80 billion and then the third year you would spend $40 billion of the $80 billion.

In arriving at the amount of taxes that you raise, in the first year you are only going to spend $10 billion in cash money, so you would only raise $10 billion in taxes, if you balanced the budget.

The second year you had jumped to spending $30 billion, but suppose you did not quite raise the taxes there, so you raised $25 billion of taxes and added a deficit of $5 billion. You had a deficit that you had to carry forward. The deficit would go to increase the debt.

Now the next year you are going to raise $40 billion. Then you might raise the taxes from $25 billion to $30 billion, but you were spending $40 billion, so you would have $10 billion more debt.

When you are in this rapidly ascending scale that is what you are doing.

Now, take this year, for instance. The expenses this year are estimated to be $78 billion. Well, $41 billion of that $78 billion is for money that you fellows appropriated back here 2 or 3 years ago. Mr. ROOSEVELT. What was the figure again?

Secretary HUMPHREY. It is $78 billion and $41 billion of the $78 billion is for money that has been appropriated in previous years. There is $81 billion of money that was appropriated back there that is now being spent out here.

Chairman CHIPERFIELD. Mr. Secretary, why do you not set aside that money that we appropriate for that specific purpose until it comes due and until you have to spend it?

Secretary HUMPHREY. Because you ladies and gentlemen did not run the taxes up. If you had taxed us $90 billion when you appropriated $90 billion, you would have the money in the bank. But what you did was, you not only did not tax enough to pay current bills, you ran a deficit in current bills.

It is just like going to the store-as some fellow illustrated it the other day. He said when he married his wife they arranged a housekeeping budget and they had it all figured out just what the budget was going to be. Everything was going to be fine and he was going to earn enough to meet his housekeeping bills as he went along.

They had only been married 2 or 3 weeks when goods began to arrive c. o. d. Every once in a while a bunch of stuff would come in c. o. d., and it threw the budget out of line. The man found out that his wife had bought a lot of stuff before she was married that came in after she was married and he had to pay for it.

That is what you ladies and gentlemen are doing with us. Before we married you, you bought a lot of c. o. d. stuff that is coming in.

33064-53-19

Chairman CHIPERFIELD. Congressman Short described it the other day as a woman who married a man and got all the money that he made and charged bills at a department store. Then he got the bills. Secretary HUMPHREY. That is exactly what happened.

What happened is that with the vast amount of money that you appropriated over what you raised, you authorized people to go and buy stuff and you were on a c. o. d. basis. You have to pay for it when and as it is delivered.

Now, 2 or 3 years ago, they began buying these things, and there are $41 billion of things they bought in past years which are being delivered now. Every time the boy comes to the door with a package, we have to dig up the money. That is the net of it.

Mr. ROOSEVELT. Mr. Chairman, I am in hearty agreement with this analysis. Mr. Secretary, in this Congress, I have been joined by a number of Members on both sides of the aisle in a bill I first introduced 3 years ago. That bill simply calls for an annual cash budget, a long-range capital-investment budget, and then the regular appropriation, the annual appropriation budget.

In this way, the Congress would know just exactly what you are talking about, what we are authorizing today and will have to pay for 3 and 4 and 5 years from now. Also, we will know what we are spending this year, and thereby will know whether we can afford to go ahead and authorize what we are spending ahead.

I have had a great deal of trouble in getting anybody to take much interest in that bill.

Incidentally, in addition, there is an important item in that bill which calls for a presidential item veto. For your information I intend to offer a clause which will give the President the right to veto special items, individual items, in every appropriation bill that comes up from now on.

Secretary HUMPHREY. I personally think that is one of the most important things that you can do. An individual item veto will do more to help to keep financial things straight in this country than anything else you can do.

Do you happen to have the expenditures and appropriations of 2 years ago, where you can put your finger on them?

If you had those two figures it would illustrate the situation. have forgotten what the appropriations were, but they were in the order of $90 billion last year and the taxes were of the order of $35 billion or something of that kind not very long ago.

Mr. MERROW. Mr. Chairman

Chairman CHIPERFIELD. Mr. Merrow

Mr. MERROW. To get the figure in mind, you say we have appropriated $41 billion in excess of what we have raised to date?

Secretary HUMPHREY. You have appropriated: 81 billion in excess of what you have raised to date.

Mr. MERROW. Eighty-one billion dollars in excess of what we have raised?

Secretary HUMPHREY. Well, it is even more than that. As of June 30 there will be appropriations of $81 billion for which you have provided no money whatever so far. In addition to that, you have spent a lot more in the past few years, including this year, than you have raised the money for, which has gone to increase the debt.