Full text of Budget in Brief : Fiscal Year 1965

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T have pledged . . . that the government will get a dollar's
value for a dollar spent.

FISCAL YEAR

THE GOVERNMENT DOLLAR
Whert it comes from . . .

Fixed Interest Charges

Agriculture

International

2*
Fiscal Year 1965 Estimate

F o r sale bv the S u p e r i n t e n d e n t o f D o c u m e n t s . U.S. G o v e r n m e n t
W a s h i n g t o n , D . C . , 2 0 4 0 2 - Price 35 cents

Printing O f f i c e

From the President's Budget M e s s a g e
"A government that is strong, a government that is solvent, a government that is compassionate is the kind of government that endures.
There is no inconsistency in being prudent and frugal, in being
alert and strong, and in being sensitive and sympathetic to the unfilled
needs of the people.
This is the objective of this Administration.
will be met."

JANUARY

21,

1964.

It is an objective that

rT~

Portions of the President's budget message are reprinted beginning on page 65.

Contents
Page

From the President's budget message
Introduction
Part

BUDGET

i
5

HIGHLIGHTS

T h e budget program for 1965

Part

Efficiency and economy

Receipts of the Federal G o v e r n m e n t
T h e budget and the national economy

iz
14

M e e t i n g national needs
T h e Federal budget in perspective
Investments on behalf of the N a t i o n

16
18
2.1

T h e public debt

2.1.

FEDERAL

ACTIVITIES

FUNCTION

N a t i o n a l defense
International affairs and

finance

Space research and t e c h n o l o g y

32.

A g r i c u l t u r e and agricultural resources
N a t u r a l resources
Commerce and transportation
H o u s i n g and community development
H e a l t h , labor, and welfare
Education

34
35
37
40
43
47

Veterans benefits and services
General government

48
50

Interest
Part

z6
30

BUDGET

51
FACTS A N D

FIGURES

Measures of Federal

finances

T h e budget process
Portions of the President's budget message

59
65

Tables on the budget

Note.—All years referred t o are fiscal years, unless otherwise n o t e d . Detail in the
tables, i text, and charts of this booklet m a y n o t add to the totals because of r o u n d i n g .

THE BUDGET PROCESS

THE PRESIDENT
Review! the Nation's N e e d i

Formulate! Policies
Prepeiei the Budget

THE CONGRESS
Conilderi the Budget
Authorliei Programs
Appropriates Fundi
Enact! Tax Law!

FEDERAL AGENCIES
Make Contract!
Purehaie Goodi
Employ Worker!
Perform Service!
Pay Peniloni, Benefit!, Etc.

THE TREASURY
Collect! Taxei
Payi the Bills

Introduction
W H A T IS THE BUDGET?
The budget serves several purposes. It is both a financial report and
a plan for the future. It is also a request for legislation, since congressional approval is necessary if the proposals in the budget are to be
carried out. Further, it is an important aid in the management and
administration of the Government's activities. Finally, it is an economic document, for it must take into account the many ways in which
Government taxation and spending affect the operation of our economic system.
The budget is presented to the Congress each January, 6 months
before the start of the fiscal year, which extends from July i to the
following June 30 and is designated by the calendar year in which
it ends. Congress considers the budget and votes new obligational
authority and new revenue measures. Once granted authority, Federal agencies may obligate the Government to make the payments
necessary to carry out the authorized programs. However, there may
be a considerable interval between the time Congress votes the spending authority and the time the payments are actually made.
The totals discussed in the budget include both the amounts contained in the administrative budget (explained in part 3) and the
money paid into and spent out of Government trust funds (such as
social security and Federal aid to highways).
The budget is often discussed in terms of its effect on the economy
or the gross national product. The gross national product is the total
value of all goods and services that the Nation produces in a single year.
It includes purchases of goods and services by consumers, businesses,
foreigners, and Federal, State, and local governments.
Additional information on the budget process and the relation of
the budget to the economy is provided in this booklet.

Part

Budget Highlights

THE BUDGET P R O G R A M FOR 1965
The budget of the United States for 1965 presents the President's
proposals for using the financial resources of the Federal Government
to meet the Nation's responsibilities at home and overseas. These
proposals reflect a determined effort to continue building our military
strength; to bolster the foundations of freedom around the world; to
advance the Nation's knowledge of the vast and mysterious frontier of
space; and to satisfy high-priority domestic needs.
The budget provides resources for initiating a major new attack on
poverty in the United States. It proposes that the Federal Government join forces with State and local governments to strike at the
sources of chronic poverty—inadequate education, training, health,
housing, and job opportunities.
In advancing his proposals, the President has stressed economy and
improved management of Government programs. During 1965, Federal employment will be lower than in 1964. Total cash payments
will remain unchanged; but within that total, expenditures by the
social security and other trust funds will rise, while administrative
budget expenditures will decline.
This budget, and this year's legislative 'program, are designed
to help each and every American citizen fulfill his basic hopes—
his hopes for a fair chance to make good; his hopes for fair play
from the law; his hopes for a full-time job on full-time pay; his
hopes for a decent home for his family in a decent community;
his hopes for a good school for his children with good teachers;
and his hopes for security when faced with sickness or unemployment or old age.—From the President's State of the Union
Message, January 8,1964.

For 1965, particular emphasis is being placed on reductions in income taxes in order to promote a vigorous and noninflationary, full
employment economy. Special attention has also been given to measures which will widen opportunities for all people to keep pace with
our country's progress.
The Jobs To Be Done
The Federal Government's foremost responsibility is to safeguard
the peace and security of the United States and to join other nations
in safeguarding the free world. Correspondingly, the largest single
category of expenditures is for defense programs. International programs complement the defense effort and support the cause of freedom
around the world.
The Government has undertaken in recent years the major task of
exploring space and achieving a manned round trip to the moon during this decade. Budgetary outlays for this purpose have been increasing rapidly in recent years, and will continue to rise in 1965, but at a
slower rate.
On the domestic front, we face urgent and increasing needs in education, community development, transportation, and manpower conservation, development, and training. We must also meet continuing
responsibilities for. developing natural resources, encouraging commerce, promoting exports, providing improved health care for our
citizens, and maintaining a strong farm economy.
Enactment of the tax program now before the Congress is another
essential task that must be completed. The economy has not been
producing at its full potential in recent years, and unemployment has
been much too high. If the Nation is to provide jobs for its new
entrants to the labor force, if it is to reduce the number of people
currently unemployed and underemployed, and if it is to promote
an economic environment within which each family can achieve the
dignity that accompanies self-sufficiency, the slack in the economy
must be eliminated and economic growth must be accelerated. The
tax proposal is a major step to this end.
As the largest single user of national resources, the Government
must constantly strive to increase the efficiency with which it conducts
its business. Thrift and frugality are essential elements of a sound
budget program. Dollars wasted either add unnecessarily to the tax
burden or preclude more urgent Government expenditures.
8

How the Budget Meets

the Country's

Needs

The 1965 budget calls for total payments to the public of $122.7
billion. Total payments will remain unchanged from 1964 to 1965,
despite unavoidable increases for carrying out programs under existing legislation, mandatory pay raises, higher payments of interest on
the public debt, and for other past commitments which must be met.
In the administrative budget, total expenditures have been reduced
$500 million below 1964.
Total receipts from the public in 1965 are estimated at $119.7 billion,
$5.4 billion more than in 1964. The increase reflects anticipated higher
production and earnings, yielding additional tax receipts which will
be more than sufficient to offset the revenue lost temporarily, due to
the proposed tax cut. Both receipts and payments include the activities of the social security, highway, and other trust funds that finance
a large and important part of the activities of the Government. The
estimated totals include receipts and payments based on both existing
and proposed legislation.
FEDERAL RECEIPTS FROM AND PAYMENTS TO THE PUBLIC
[Fiscal years.

In billions]

Description

1963
actual

1964

estimate

1965

estimate

FEDERAL RECEIPTS
Administrative budget receipts
Trust fund receipts
Deduct: Intragovernmental transactions
Total receipts from the public

$86.4
27.7
4.3

$88.4
30.2
4.2

$93.0
30.9
4.1

109.7

114.4

119.7

92.6
26.5

98.4
29.3

97.9
29.4

5.4

5.0

4.6

113.8

122.7

-4.0

—8.3

—2.9

FEDERAL PAYMENTS
Administrative budget expenditures
Trust fund expenditures
Deduct: Intragovernmental transactions and other adjustments
Total payments to the public
Excess of receipts ( + ) or payments ( — )

9
717-043 0-64—2

The costs of programs recommended for 1965 are described in part 2
of this booklet. Briefly, the expenditures include: 1
• $54.0 billion in the administrative budget for national defense,
down $1.3 billion from 1964, and $16.1 billion for space and interest
payments, up $1.0 billion from 1964. Together, these costs of preserving the peace, exploring space, and paying interest—mostly on
borrowing to pay for the Second World War—account for 72% of
administrative budget expenditures.
• $27.8 billion in the administrative budget for the rest of the activities carried out by the Government, down $0.2 billion from 1964.
• $29.4 billion, outside the administrative budget, for the selffinanced social security, highway, and other trust funds, up $0.1
billion from 1964.
Apart from the space program and interest on the public debt,
increased administrative budget expenditures are proposed for education and manpower programs, the new program designed to help eradicate poverty, and for the conservation of natural resources. These programs are vital to the Nation's welfare and growth. In addition
to these and other increases in the administrative budget, cash
1 T h e sum of the following figures exceeds the net total of Federal payments to the public, largely because some
transactions, which take place wholly between one government agency and another, have not been eliminated.

payments to the public provide for expanded trust fund outlays,
mainly for social security and highway construction. Such increased
outlays are made possible, within an unchanged total, by decreases
estimated in payments for national defense, the postal service, housing
and other lending programs, farm programs, and veterans benefits.

EFFICIENCY A N D E C O N O M Y
The 1965 budget reflects the President's insistence on a most careful
scrutiny of all Government programs in order to hold them to the minimum amount consistent with national needs and responsibilities.
The Government will set an example of prudence and economy. This does not mean we will not meet our unfulfilled
needs or that we will not honor our commitments. We will
do both.—From the President's address to the Joint Session of
Congress, November 27, 1963.
Management

Improvement

and Cost

Reduction

Major savings for the taxpayer are arising from a Government-wide
program to improve organization, eliminate unnecessary procedures
and paperwork, adopt more efficient techniques, and advance the
productivity of employees. A few examples of the many achievements
are:
• A saving of more than $1 billion in the cost of the Defense Department's logistical operations in 1963 as a result of a continuing cost
reduction program. The goal of this cost reduction program is to
achieve annually recurring savings of $4 billion by 1967, without affecting combat strength. Civilian employment in the Department is estimated to decrease by 10,000 in 1964 and by an additional
17,000 in 1965.
• A saving in 1963 of about 9,000 new postal employees who
would have been required by the increased volume of mail and
other services, had there been no increase in productivity and management improvement. There were actually fewer postal employees
at the end of 1963 than at the beginning of the year.
• An annually recurring saving of $11 million by the Internal Revenue Service in 1963 due to management improvements, such as field

office realignments and a streamlined training program for revenue
agents.
• An estimated $30 million reduction in expenditures by the Atomic
Energy Commission in 1964, stemming from improved processes
and production techniques.
• An 18% decrease in the number of man-years required to process
a given number of checks and savings bonds in the Treasury Department's Division of Disbursement.
Government

Civilian

Pay

Reform

Pay legislation passed by Congress in 1962 for career employees was
based on two principles: (1) Federal employees should be paid at rates
comparable with those paid by private employers for similar work; and
(2) Federal employees should receive equal pay for equal work, with
differences in pay reflecting differences in work and performance. Together, these principles provide the yardstick needed to determine an
equitable pay scale and to attract and keep high caliber Federal employees. Present statutory rates fall short of this yardstick. The 1965
budget includes allowances to raise pay of career employees, and to
increase salaries for top positions in the executive branch, the Congress,
and the Judiciary.

RECEIPTS OF THE FEDERAL GOVERNMENT
The largest source of Federal receipts is the individual income tax;
the second largest is the income tax paid by corporations. The other
major sources of revenue include employment taxes largely for social
security, unemployment insurance deposits, gasoline and other excise
taxes, customs duties, and estate and gift taxes.
Tax Rates and the

Economy

Tax rates are established by law. Since the major taxes are levied
as a proportion of income, the receipts of the Government vary from
year to year as the Nation's income changes, even without any change
in tax laws. For example, in periods of high employment, receipts
will be high because more workers will be earning wages and will be
paying higher income and social security taxes. Thus, the level of
economic activity is a major factor in determining the amount of
Federal receipts in a given year.
12

Lower Taxes for Faster

Growth

The tax system itself has an important influence on the level and
rate of growth of economic activity. In recent years it has become
clear that spending by consumers and business firms has been excessively restrained by Federal, State, and local taxes.
In order to ease this burden, the President is urging final congressional action early this year on a major tax program, which was
approved by the House of Representatives last year. This tax measure
includes substantial reductions in every bracket of individual income
tax rates, a decreased corporation income tax rate, and reform of the
tax structure to lessen inequities, strengthen incentives, and spur eco
nomic growth.
The tax cut will result in smaller increases in revenues in 1964 and
1965, than would have occurred with unchanged tax rates. However,
over the long run, as the economy responds to the stimulus of a tax
cut, rising economic activity will produce a sharper increase in revenues.
FEDERAL RECEIPTS F R O M T H E PUBLIC
[Fiscal years.

In billions]

Source

1063

actual

1964

estimate

1966

estimate

A D M I N I S T R A T I V E B U D G E T RECEIPTS
Individual income taxes
Corporation income taxes
Excise taxes
Other
Total, administrative budget receipts

$47.6
21.6
9.9
7.3

$47.5
23.7
10.2
7.0

$48.5
25.8

86.4

88.4

93.0

14.9
3.0
3.3
6.5

16.8

17.0
2.8

27.7

30.2

30.9

4.3

4.2

4.1

109.7

114.4

119.7

11.0

7.7

T R U S T F U N D RECEIPTS
Social security receipts
Deposits by States, unemployment insurance
Gasoline and other highway excise taxes
Other
Total, trust fund receipts
Deduct: Intragovernmental transactions
Total, receipts from the public

2.9
3.5
7.0

3.5
7.5

Federal Receipts

Other

Revenue

Measures

The President is requesting the Congress to enact a series of user
charges designed to assure that groups or individuals who benefit
directly from Government programs pay a more equitable share of
the expenses of these programs. This recommendation relates principally to such services as use of the Federal airway system by commercial and general aviation, and use of Government-maintained inland
waterways.
Above all, we must release $11 billion of tax reduction into
the private spending stream to create new jobs and new markets
in every area of this land.
That tax bill has been thoroughly discussed for a year. Now
we need action. The new budget clearly allows it. Our taxpayers surely deserve it. Our economy strongly demand* if.—
From the President's State of the Union Message, January 8,
1964.

THE BUDGET A N D THE N A T I O N A L E C O N O M Y
Federal fiscal policies can contribute significantly to the health of
the economy. This was recognized by the Congress in the Employ-

ment Act of 1946, which gave the Government specific responsibility
to promote maximum employment, production, and purchasing power.
Government

Expenditures

and the

Economy

The discussion of the tax program, above, emphasized the important
relationship between Federal receipts and the economy. Federal
expenditures, as well as taxes, have an important impact on the national
economy.
For a better understanding of the impact of Federal activities, it is
helpful to use a special set of figures. These figures (which represent
the Federal sector of the national income accounts) measure receipts
and expenditures as they enter the income and output flows of the
economy.
The figures show, for example, that the outlays of the Federal Government (on a national income basis) will total $121.5 billion in fiscal
year 1965. Only $69.1 billion, however, will actually be used to buy
goods and services needed to carry out the Government's programs.
The remainder will be paid to meet other commitments. For example, when the Government pays social security benefits to individuals, it does not "buy" anything itself, and therefore it does not use up
resources. It simply transfers social security funds to eligible beneficiaries, who in turn purchase goods and services for themselves.
Similarly, the Federal Government grants large amounts to the States
to use for such purposes as highway construction and public assistance
payments. Thus, expenditures that represent actual use of the current output of the economy by the Federal Government itself are
much smaller than total Federal expenditures.
The Budget

Prices, and the Balance

Payments

In 1965, estimated Federal payments will exceed receipts by $2.9
billion. In the present state of our economy, this deficit does not raise
the threat of inflation. Government deficits could indeed contribute
to inflationary pressures if they were incurred during periods of full employment, when the economy was already producing at full capacity.
The Nation's current problem, however, is not that market demands
are straining productive capacity, but quite the opposite—capable
workers are idle, and efficient factories are not fully utilized for want
of adequate markets.

Budgetary policy must also take account of the Nation's balance of
payments problem. During recent years this country has paid more
abroad (for private imports and investments, and for military expenditures and other Government programs) than it has received from
abroad (for exports, earnings on its investments, and repayments of its
loans). This has occurred even though our exports of goods and
services to the rest of the world typically exceed our imports. Costs and
prices in the United States, however, have moved up less rapidly than
those of most other nations in the past few years. In addition, specific
measures—such as the encouragement of exports, a proposed tax on
foreign securities sold here, and controls over Government spending
abroad—have been taken to reduce the balance of payments gap. As
a consequence, there has been a distinct improvement in our balance
of payments.
In the long run, a healthy balance of payments depends upon a
growing and vigorously competitive economy. Current budgetary
policies are aimed at restoring full employment and increasing the
rate of economic growth. While more rapid economic expansion will
tend to increase the Nation's imports, the swifter gains in productive
efficiency and the greater productivity of domestic investment, which
accompany full employment and rapid economic growth, will help
our balance of payments position.

MEETING N A T I O N A L NEEDS
In 1940, this country had a population of 133 million. This year
the population will be about 192 million, or 44% more. In calendar
year 1940, the total output of goods and services of the Nation—
the gross national product—amounted to $242 billion in real dollars
of today's purchasing power. In calendar 1964, it is expected to reach
$623 billion, or more than two and one-half times as much.
Our society is undergoing many changes which affect the costs of
government. In 1940, about 32 million motor vehicles were registered
in the United States. In 1962, 79 million were registered. In 1940,
there were 32,000 miles of Federal airways. In 1962, there were 137,000.
In 1940, 56% of the population of the United States lived in urban
areas. Today, about 70% of the population lives in these areas. In

Pwccnt

Federal Payments

Estimate

1940, persons below 18 and over 64 years of age—the groups most
associated with many needs for public services—constituted over 37%
of the population.
groups.

In 1963, 46% of the population was in these age

The number of such persons has expanded by 74% since

1940 and will continue to grow at a rapid rate throughout the 1960's.
Growth

of the Federal

Government

Federal expenditures in recent years have risen because the Nation
has become the leader of the free world and also because it has become
more populous, mobile, urbanized, and complex.

The expansion in

outlays has been necessary not only for the Nation's defense and its
increasing mastery of space, but also to furnish the services and benefits
necessary to meet the requirements of a growing population in an
increasingly interdependent society.
The following examples serve to illustrate this point. In 1965 the
volume of mail is expected to increase 2.8% over the current fiscal year;
visits to our national parks will expand by 6 % ; the number of beneficiaries under the old-age and survivors insurance program will go up by
5 % ; the number of veterans or survivors receiving pensions is estimated

17
717-043 0-64—3

Selected Program Trends
National Pail System

Sedal Security

Millions
80 -

13 O A S D I Beneficiaries

10 -

i > i i i i i i L-J I I I I I I—I—I—I—L

Fiscal Yean

Estimate

to rise by 4%; aircraft landings and take-offs at airports with Federal
towers are going up by 3.7%; the number of patent applications is
rising by 2.3%; and the number of schoolchildren expected to participate in the school lunch program is estimated to rise by 5.3%. The
rising prices the Government pays, including pay increases for Government employees to keep pace with private wage rates, also require
additional outlays over the long run. In 1965, however, increased
productivity and other savings will offset the cost of rising workloads.

THE FEDERAL BUDGET IN PERSPECTIVE
Public Use of the Nation's

Output

In the decade ending in fiscal 1965, Federal purchases of goods and
services are estimated to rise by 54%. In the same period the gross
18

national product will rise by about 70%.

Thus, the Federal Govern-

ment has been able to supply expanded public services while its
purchases have been declining as a proportion of G N P — f r o m 12% in
1955 to less than 1 1 % in 1965.
A l l levels of government have experienced growing public needs,
requiring them to increase their purchases of goods and services.
This increase has been particularly rapid for State and local governments.
Compared to the rise in Federal purchases of goods and services of
54% since 1955, purchases by State and local governments will increase
by an estimated 123%.

T h e Federal Government's proportion of the

output bought by all levels of governments will fall from 6 1 % in 1955
to 52% in 1965, as State and local governments continue to use a
relatively increasing share of the resources used by governments.
Based on recent experience, the increase in State and local purchases
of goods and services in 1965 will be over $4 billion, in contrast to
$1.3 billion estimated for the Federal Government.

Federal Debt, Purchases, and Employment Down Relative to Total Economy

Government Civilian Employment
Mllioiw of P«opU
10^

State a n d Local
|

End of Fbeal Y«or

Public Use of the Nation's Labor

Force

The same relative trends are alio visible in Government employment, Although Federal civilian employment in the executive branch
is estimated to rise by 6% in the decade since 1955, the employment
of State and local governments will rise by about 65%, In 1955, the
Federal Government employed 33% of all civilian government employees. In 1962, it employed 27%. Federal civilian employment is
estimated to decrease by 1,200 employees from 1964 to 1965, State and
local governments, on the other hand, have added in each of the last
5 years about 300,000 employees,

INVESTMENTS O N B E H A L F O F THE N A T I O N
The United States Government does not follow the practice of
budgeting separately for capital investments and current outlays, but
combines both capital and current operating expenses in a single
budget. However, data are made available in the budget to show the
sizable expenditures for loans, public works, and similar assets of an
investment nature. Expenditures for other developmental purposes—
such as those for education, training, and research—are also grouped
and shown separately.
The 1965 budget includes payments of $8.9 billion for civilian
investment outlays and $7.9 billion for other developmental programs
including space activities. These programs will help the Nation
directly or indirectly to increase its output and accelerate long run
economic growth. They amount to about one-seventh of total Federal
payments, and about 25% of nondefense outlays. These payments
are for Federal civil public works, for highways and similar additions
to the Nation's physical assets, and for loans to help finance activities

Additions to Non-defense Assets
$ Billion.

($8.9g

Loans and
Financial
Other
Assets

Grants for'
Other State-Local
Public W o r k s

Investments

Direct Federal
Highway

Grants

Public Works

to States

FE : < * A L RECEIPTS

FEDERA

such as rural electrification, housing, farm operations, college dormitory construction, and small business operations. Also included are
payments which contribute to the economic growth of our country
through programs for the promotion of education, training, and health
and through scientific research and development,

THE PUBLIC DEBT
The public debt is estimated to increase by $5.2 billion during
1965, T o make possible the issuance of Government bonds for
financing the deficit, the Congress will be asked to enact an increase
in the debt limit.
The debt was incurred primarily in World War IL In 1939, the
debt was $40,4 billion. By 1947, it had risen sixfold to $258,3 billion.
Eighteen years later, at the end of 1965, it will have risen to $317 billion,
23% above 1947—a rise of over 1 % a year. Between 1947 and 1963,
the gross national product increased by 155%, Thus, in proportion
to G N P , the Federal debt fell from 116% in 1947 to 54%, and this ratio
is expected to continue its decline.
During the postwar period, business corporations have increased
their net debt by 240%, consumers by 500%, and State and local
governments by 470%,

Public Debt

of G T D M National Product

1948

1945

fitcal Y e a n

1965
Ettfmat*

Net Public and Private Debt

A t the end of calendar 1963 the Federal debt was $309 billion.
About 30% of this was held by the social security and other trust
funds, Federal agencies, and the Federal Reserve banks.
mainder was held by the general public.

T h e re-

Individuals directly owned

approximately $67 billion; and—in their role as depositors and stockholders in banks, shareholders in savings institutions, and owners of
insurance policies—shared in the interest earnings on the approximately $94 billion held by these institutions.

State and local govern-

ments owned $21 billion of Government securities, as did business
corporations, while another $16 billion was held by foreign owners.

Part 2

Federal A c t i v i t i e s b y Function
As an aid to understanding, the wide variety of activi-

ties carried on by the Federal Government are grouped
according to the functions shown on the chart below.
A l l programs which serve the same general purpose are
shown together, even if they are carried on by different
agencies.
T h e only activities not classified by purpose are those
covered under special allowances, which are estimated to
total $1.1 billion in 1965.

These allowances provide for

a major new program to attack poverty, adjustments to
Federal civilian pay, the promotion of economic development of the Appalachian region, and an allowance for
contingencies.
Expenditures for the 12 major functions of the Government are summarized in this section.
1965 Expenditures by Function

1
N a t i o n a l Defense
Health, Labor, and
Welfare
Interest
Commerce and
Tran sportation
Veterans
Agriculture
S p a c e Research a n d
Technology
N a t u r a l Resources
International
General Government
Education
Housing and Community
Development
*
* Excess of r e c e i p t s , e x p l a i n e d in t e x t

717-043 0-64—4

Administrative Budget

N A T I O N A L DEFENSE
1 9 6 5 Expenditures

bIu!^

The Nation has developed a formidable array of military forces,
capable of responding effectively to challenges ranging from nuclear
attack to guerrilla warfare. To accomplish this, there have been large
increases in defense expenditures in the past 3 years. Although continued improvements will be made in our defense capability, expenditures for national defense are estimated to fall to $55.2 billion in 1965,
about $1 billion below the estimate for 1964.
The reduction reflects the diminishing need for further large additions to our present and planned forces, substantial economies in
procurement and operations, and careful screening of existing and proposed programs. Expenditures estimated for 1965 include $52.4 billion
for the military activities carried on by the Department of Defense,
including military assistance, $2.7 billion for atomic energy programs,
and $44 million for other defense-related activities.
Department

Defense—Military

The Department of Defense carries out ten major programs which
provide the military diversity and flexibility required for the security of
the Nation:
(1) Strategic retaliatory forces, including manned bombers, intercontinental ballistic missiles, Polaris missile-launching submarines, and
the varied facilities, such as communications, needed to control these
forces.
(2) Continental defense forces, which combine warning systems
against missile or manned aircraft attack with the means to resist an
attack, such as interceptor aircraft and ground-to-air missiles.
(3) General purpose forces, which combine ground, air, and sea
forces equipped and trained to cope with conventional or brush-fire
wars.
(4) Airlift and sealift forces to move our combat forces quickly
wherever they are needed.
(5) Reserve forces to provide swift additional strength to the regular
forces when needed.
(6) Research and development activities on which the continued
effectiveness of all the defense forces depends.
26

(y) General support activities, which include training, intelligence
and security, Defense-wide supply, and housing and medical care for
military personnel.
(8) Retirement pay for military personnel.
(9) Civil defense activities, including the development of warning
and fallout shelter facilities, to increase the chances of survival in the
event of nuclear attack.
(10) Military assistance, under which military equipment, training,
and related services are provided to other nations to bolster the collective security of the free world.
T o carry these programs forward, the Department of Defense will
make expenditures to purchase equipment, pay military personnel,
operate and maintain equipment and facilities, conduct research and
development, and build necessary facilities.
National Defense

I Administrative

Budget

DEPARTMENT Q f DEFENSE—MILITARY

: Trust

Funds

MILUONS

14,785

14.460

o f equipmcirt <md W i l t s

MM
12,425
M i h t e y AIIAImqc
1150
Chn) Defease

IU53

Miliary Construction and Other
A T O M I C ENERGY
I 2,735
DEFENSE RELATED SERVICES
|44

Purchase of weapons and equipment.—We
now have more than
600 operational long-range ballistic missiles and about 1,000 strategic
bombers. These forces represent a strong deterrent to nuclear attack.
The 1965 budget provides for procurement of additional Minuteman
missiles, bringing the number approved through fiscal 1965 to 1,000.
Our potent limited war capability will also be improved through additional purchases of modern weapons, ammunition, and equipment.

For example, six new nuclear attack submarines, additional destroyer
escorts, and modern fighter aircraft will be purchased in 1965. Additional jet transports will also be acquired to increase further the
mobility of our forces.
Military personnel.—Active duty personnel of the Army, Navy,
Marine Corps, and Air Force will total 2.7 million by the end of 1965.
The reserve components of these services will increase to 987,500 at
that time. To keep military pay scales abreast of changes in compensation in private business, the Congress will be requested to approve a
pay increase to become effective on October 1, 1964. Expenditures for
this increase are estimated at $136 million in fiscal year 1965.
Operation and maintenance.—Equipment and facilities must be
maintained in a high state of readiness to meet combat or training
needs. Expenditures are estimated to increase by $408 million in 1965,
mainly because of the higher operating costs associated with sophisticated modern weapons and equipment, and pay increases required by
law for civilian employees of the Department of Defense.
Research and development.—Expenditures
in 1965 for research
and development are estimated to decline by $363 million from 1964,
reflecting the near completion of a number of major weapons systems
and the cancellation of others. However, work will continue on a
wide range of weapons, equipment, and techniques to enable our
forces to meet new threats. For example, current projects include
the large booster rocket for the space program (Titan III), a ballistic
missile defense system (Nike X), a new jet cargo aircraft, devices to
aid our missiles in penetrating enemy defenses, vertical takeoff fighter
and transport aircraft, antisubmarine warfare weapons, and a mediumrange ballistic missile.
Military assistance.—This program of assistance to more than 60
allied and friendly nations is a recognition of the mutual benefits which
flow from united resistance to aggression. Our European allies now
pay nearly the full cost of their own forces, and also provide military
aid to other nations. Approximately 70% of our military assistance
program now goes to nine key countries on the periphery of the Soviet

Union and Communist China: Greece, Turkey, Iran, India, Pakistan,
Thailand, Vietnam, Nationalist China, and the Republic of Korea.
In the developing nations of Latin America and Africa, our program
aims at strengthening internal security and promoting civic action
projects.
Civil defense.—An effective civil defense program is an important
part of our total defense effort. Federal assistance for fallout shelters
in public buildings and nonprofit institutions has been proposed.
The 1965 budget also provides for continued work- on warning systems, training programs, equipment for measuring radiation, emergency centers for Government operation, and continuation of the
nationwide shelter survey.
Military construction and other.—The budget for 1965 provides
for the construction of additional underground missile-launching sites,
maintenance facilities, troop housing, and research and development
facilities. Funds are being requested for construction of 12,500 new
family housing units for Armed Forces personnel.
Atomic

Energy

The Atomic Energy Commission is responsible for developing and
producing nuclear weapons and other military applications of nuclear
energy, adapting atomic energy to peaceful uses, and conducting basic
research. Expenditures in 1965 will decline bv $65 million, due mainly
to decreases in the procurement of uranium and in the production of
special nuclear materials. However, several research and development
programs will increase. Continued emphasis will be given to power
reactors which produce more fuel than they consume ("breeders"),
compact nuclear electric power units for use in space, and research
in the physical and biomedical sciences. Basic research capacity will
be expanded by construction of the world's finest research reactor at
Argonne National Laboratory near Chicago.
Defense-Related

Services

These programs include the Selective Service System, the stockpile
of strategic and critical materials, the expansion of defense production, and the emergency preparedness programs of agencies other
than the Department of Defense.

INTERNATIONAL AFFAIRS A N D FINANCE
i0/cc
j-t
/Administrative Budget. • $ 2 . 2 Billion
1 9 6 5 Expend,tures { T r u $ t F u n d s
» . . . % 0 1 Billion

The Nation's international programs promote our own security and
the security of the free world. They contribute to world peace,
mutual trust and understanding, and the maintenance of free societies.
Most of the expenditures in this category are devoted to strengthening
the economies of the developing nations. The remaining expenditures, which also stress mutual understanding and cooperation, are
for the conduct of foreign affairs and for overseas information and
exchange activities.
Economic and Financial

Programs

Many countries of the free world are beset by extreme poverty,
and the social unrest which such poverty breeds. Our economic
and financial programs are geared to assist the developing nations in
building viable economies and in strengthening their political independence.
Rigorous standards are applied to insure that our assistance is being
matched by increasing local initiative and self-help. A number of
nations which we have aided through low interest development loans
and technical assistance are now economically strong enough to obtain
loans from other sources and on more nearly commercial terms.
Development loans and grants.—The United States provides
long-term loans to developing nations at very low rates of interest to
supplement local resources. In addition, grants are used to finance
training in the United States, to pay for technical experts and other
advisers in such fields as health, education, and public administration,
and for other programs vital to development. Private U.S. investments in developing nations and privately financed U.S. exports are
encouraged through an expanding program of investment guarantees.
Alliance for Progress.—The Alliance for Progress is an historic
cooperative effort of the United States and the countries of Latin
America to bring social and economic progress to the Latin American
people. Loans and grants are extended according to the progress
made by these countries in achieving the economic and social reforms
30

necessary for development. It is expected that the accomplishments
of Latin America will warrant our continued financial support of the
Alliance at the same rate in 1965 as in 1964.
Supporting assistance.—This program provides funds for countries
facing serious and immediate problems of economic and political stability, and for countries needing help in maintaining defense forces.
International Affairs and Finance

H Administrative Budget %%%:Trust F

Other programs.—Several other programs give additional support
to U.S. development endeavors:
• In 1965, the Peace Corps will provide 14,000 volunteers to developing countries.
• Surplus agricultural commodities will be made available for the
support of development projects and for disaster relief as a part of
the Food for Peace program.
• The Export-Import Bank will continue to finance and insure U.S.
exports, while selling a participating interest in loans to private
investors. Receipts from these sales will exceed expenditures.
• International organizations to which the United States contributes,
such as the International Development Association and the InterAmerican Development Bank, will continue to provide financing
for development.

Conduct of Foreign

Affairs

The State Department is responsible for conducting this Nation's
foreign affairs, for maintaining high caliber representatives abroad,
and for participating in international organizations. Four years ago
the State Department maintained diplomatic and consular posts in 82
countries; today it maintains representatives in 111 countries.
Although this trend will continue as more new nations gain their
independence, the Department will meet its increasing responsibilities
in 1965 with no increase in employment or in expenditures.
Foreign Information

and Exchange

Activities

The Department of State and the United States Information Agency
conduct a wide variety of activities to promote better understanding
of our Nation and our foreign policy. These include the use of motion
pictures, radio and television broadcasts, cultural and educational
exchange activities, and book translation programs.

SPACE RESEARCH A N D TECHNOLOGY
1965 Administrative Budget Expenditures: $5.0 Billion

The space program of the United States is aimed at maintaining
world leadership in space, as symbolized by the goal of sending a man
on a round trip to the moon in this decade. The funds provided for
this program will continue to support research in space by means of
both manned and unmanned space flights, further development of
satellites for weather forecasting and communications purposes, and
other laboratory research and development. Expenditures for 1965
are estimated to increase by $590 million over the estimate for 1964—
mainly to pay for goods and services already ordered.
Manned space flight.—The manned lunar landing program, which
is the largest single expenditure item in the space budget in 1965, is
the top priority activity of the National Aeronautics and Space Administration. The manned flight to the moon will be made using the
Apollo spacecraft launched by the Saturn V rocket. The Saturn V
will be capable of orbiting about 10 times as much payload as the
Saturn I, the largest rocket known to be in existence today. Development of both the Apollo and the Saturn V will proceed at high levels
32

in 1965, and preliminary flight tests of the Apollo spacecraft will be
made with the Saturn I. Manned flights of the 2-man Gemini spacecraft will also be made during 1965.
Unmanned investigations in space.—In 1965, unmanned space
flights will be made by Ranger and Surveyor spacecraft to explore
conditions for lunar landing. Mariner flights—one of which was successful in reaching Venus—will be made to Mars.
Economies are being sought in unmanned flight programs by
improving contracting methods, and by trimming spacecraft launch
schedules to correspond more closely with the most economical
production schedules.

Meteorology and communications.—Recent
test flights of satellites for weather observation and for use as part of communications
systems spanning the globe have been conspicuously successful.
Further tests will be conducted during the coming year. A multipurpose satellite will be produced to develop the techniques for placing
large satellites over the equator with an orbiting period exactly equal
to the 24-hour earth day. These satellites will be able to maintain a
constant position over a given place on the earth, and, therefore, will
not move out of range of stations communicating with them.
Other research, technology, and supporting
operations.—These
activities provide for the maintenance and long-term improvement
of our ability to master space. They include the worldwide tracking
system and a broad program of supporting research in aeronautics and
space technology.

717-043 0-64—5

AGRICULTURE A N D AGRICULTURAL RESOURCES
iA/cC
...
[Administrative Budget..
$4.9 Billion
3
1965 Expenditures j T r u s t F u n d s
. . . . $ 0 . 4 Billion

High agricultural productivity is an outstanding achievement of our
private enterprise economy and one of the Nation's greatest assets.
However, the capacity to produce has expanded more rapidly than the
demand for farm commodities. As a result, substantial Federal expenditures have been necessary to keep commodity surpluses from
reducing the level of farm income, and to make the best use of our
excess production.
Farm income stabilization and Food for Peace>—This category
accounts for about three-fourths of the 1965 budget for agriculture
and agricultural resources. Proposals are being made to improve
our programs for dairy products and cotton. In addition, legislation
is being proposed to encourage the permanent shifting of additional
cropland to less intensive uses.
Part of the excess farm production is being used advantageously to
assist needy people in our own country and to provide food for hungry
people abroad. Surplus farm commodities sold abroad for foreign
currencies represent the largest portion of the Food for Peace program.
Although the volume of shipments is expected to be about the same as
in 1964, expenditures for this activity are estimated to decline by $528
million from the 1964 level, because of a decrease in the estimated
purchase cost of commodities sold under the program.
Farming and rural housing loans.—Assistance for rural housing
will be expanded in 1965. Under proposed legislation, however, direct
Federal loans for rural housing will largely be replaced by federally
insured private credit. The special program for rural area development (rural renewal) will be continued on a pilot basis in 1965, and
housing loans for the elderly will be increased.
Agricultural land and water resources.—Under the agricultural
conservation program, the Government shares with farmers the cost
of a number of conservation practices that are in the long-run public
interest. The budget includes funds to continue a pilot program
of loans and grants to rural communities to promote conservation and
development of land and water resources on an area-wide basis.

Funds are included in 1965 for the upstream watershed protection
program of the Soil Conservation Service to continue construction on
260 projects and to begin construction on 36 new projects.
Rural electrification and telephone loans.—The rural electrification and telephone loan program in 1965 will continue at about the
same level as in 1964. The expenditure estimates for 1964 and 1965
reflect proposed legislation to authorize the use of collections on outstanding loans to help finance new loans.
Agriculture and Agricultural Resources

H Administrative Budget gg| Trust Funds

MILLIONS

I farm tncomc Stabilisation end Food for Peace

WtMMMM,™*
• fitting and Rural Housing Loam

422
MIMRl
j A§ftctimaial Land and Water Resources

H
i2,6
I Rural Electrification and Rural Telephone Loan*
M
B
416
| Research and Other Agricultural Services

Research and other agricultural services.—The budget proposes
selected increases in 1965 expenditures for high priority research and
regulatory activities of the Department of Agriculture. Emphasis
will be placed on ways to avoid or minimize pesticide hazards and on
improvement of pesticide regulation. Construction will start in 1965
on the National Agricultural Library at Beltsville, Md.
Legislation is being proposed to finance the full cost of meat, poultry, and grain inspection activities through a system of fees.

NATURAL RESOURCES
1965

{ f f i i r B u d s e ! : : lot

The Nation's valuable natural resource endowment must be carefully conserved and developed to provide for the future growth of the
economy. Expenditures for this purpose are national investments
which will yield dividends for years to come.

Land, water, and power resources.—This category accounts for
approximately two-thirds of the expenditures for natural resources
in 1965. Major construction projects will be continued for flood control, navigation, irrigation, water supply, and hydroelectric power. In
addition, the Corps of Engineers will undertake 34 new projects, and
the Bureau of Reclamation will begin 10 projects. Basic research to
reduce the cost of converting saline water to fresh water will continue.
With proceeds from the sale of electric power and revenue bonds, the
Tennessee Valley Authority will continue the construction of steamelectric power units started in earlier years.

Natural Resources
I

•

Administrative

Budget

%%%Trust

MILLIONS

Funds

1 Land, Water and Power Resource!

HMHHHHHI3*2
1 Forests

|||l3«
1 Recreational Resources

•MB113
1 Minerals
I R A and Wildlife

§K1142
I Other

The Federal Power Commission will soon complete its national
power survey. This study will provide a broad perspective for planning future power supplies and for encouraging the best use of the
Nation's fuel, equipment, and technology.
Economic development programs for Indians have provided important and needed benefits: since 1961, 25 new industrial plants have
located on or near reservations, creating 4,000 new jobs. Programs to
raise the educational level of Indians will continue to be emphasized
in 1965. These include elementary, secondary, and adult education,
as well as vocational and on-the-job training.
Forest resources.—In 1965, further progress will be made in enhancing the use and value of Federal forest resources: additional trees

will be planted, access will be improved, and recreational areas will be
developed.
Recreational resources.—The Nation's outdoor recreation areas
and facilities take on added value as the population increases and the
country becomes more urbanized. To satisfy the growing need for
recreation, authority for additional Federal recreation areas is being
sought, and legislation has been proposed for Federal grants to encourage States to plan and develop recreational facilities.
Minerals, fish and wildlife, and other.—Further steps will be
taken to increase the uses and find new markets for coal.
The budget also provides for the operation and maintenance of
ioo fish hatcheries and 298 wildlife refuges, as well as the acquisition
of wetlands for the conservation of migratory birds.

COMMERCE A N D TRANSPORTATION
19

6 5 Expenditures

; £ 1

Bijlion

The common purpose of these programs is to strengthen our economy by aiding private businesses, encouraging innovation and competition, and improving transportation and communication facilities.
Transportation
National transportation policy will continue to stress fast, safe, and
economical transportation. Increased emphasis will be placed on improving the planning and coordination of transportation programs,
and on encouraging innovations in rates and services. To help achieve
lower Government costs and more efficient use of resources, legislation
is proposed to charge the users of Government-financed transportation
facilities, wherever feasible, for the benefits which they receive.
Highways.—The highway program, which is the largest component
of expenditures for commerce and transportation, is a striking example
of financing by user charges. Highway construction is financed

on a "pay-as-you-build" basis through the highway trust fund.
Trust funds receipts come from taxes on gasoline, and on other
items bought by highway users. The accompanying chart shows the
significant growth in trust fund expenditures since 1957. Highway
trust fund expenditures will total $3.6 billion in 1965. Most of the outlays are for the Interstate Highway System scheduled for completion in
1972. Over 15,400 miles of this 41,000-mile system have been completed, and another 16,600 miles are in various stages of development.
Federal aid for primary and secondary highways accounts for about
one-quarter of total expenditures.
Aviation.—The
Federal Aviation Agency is continuing to expand
and modernize the national system for controlling air traffic. The
joint industry-Government program leading to the development of a
civilian supersonic transport aircraft will move forward in 1965.
Water transportation.—Expenditures
by the Department of Commerce to maintain the quality of the U.S. merchant fleet will help start
construction of 17 new ships in 1965. The Coast Guard will also
accelerate its replacement of obsolete ships and its expansion of air
rescue facilities.
Commerce and Transportation
$ Billions

Total Expenditures

Trust Fund Expenditures,
M a i n l y Highways

Estimate

Commerce and Transportation
Net

Receipts

Administrative

Net

Expenditures

Budget

Trust

Funds

MILLIONS

Highways
912

HHHHH 730

Water Transportation

HHP 459

Advancement of Business

Federal Deposit Insurance Corporation

Postal

Services

Expenditures of the Post Office are estimated to exceed revenues by
$475 million in 1965. The largest part of the revenue deficiency represents the cost of providing public services not chargeable to users of
the postal service. The remaining $89 million, the postal deficit, is
the loss sustained by the Post Office in its regular operations. The 1965
postal deficit represents a reduction to one-half of the estimated 1964
level, primarily as a result of the continuing improvement of management techniques, and the parcel post rate increases becoming effective
for the full fiscal year.
Advancement

of Business

Programs to encourage exports are being expanded to take advantage of growing world markets and to improve the Nation's balance
of payments. Other programs of the Department of Commerce aid
American business by developing and disseminating a great variety
of technical and economic data.
The Small Business Administration will continue to provide loans
and other aids to credit-worthy small businesses which are unable to
obtain funds elsewhere on reasonable terms.

The Weather Bureau provides the weather observations and forecasts used by the farming, aviation, and construction industries, as well
as by the general public.
Area

Redevelopment

The Area Redevelopment Administration finances a variety of programs designed to attract new firms to communities in depressed
areas and to help these communities increase job opportunities for
their people. Loans, grants, and technical aids provided in 1965 and
prior years will help provide permanent employment for 150,000
workers in economically depressed areas.
Expenditures under the temporary accelerated public works program will permit further progress on the projects already approved,
which include over 2,400 waste treatment plants and water supply
facilities, more than 1,000 street construction and repair projects, 281
hospitals and health facilities, and other useful public works.

HOUSING A N D COMMUNITY DEVELOPMENT
A^r c
J..
[Administrative B u d g e t . . — $ 0 . 3 Billion
1 9 6 5 Expend,fu,es { T n J s t F u n d s
, „ 5 Bi||ion

The Federal Government extends financial support in numerous
ways to help realize the long-range goal of a decent home and a
suitable living environment for every American family. Tools being
used to achieve this goal include grants, loans, purchases of mortgages,
and Government insurance of private loans. The substitution of private for public financing will be continued through the sale of seasoned
housing and community facility loans to private investors. Administrative budget receipts from sales of loans and from other sources are
estimated to exceed expenditures for housing and community development in 1965 by $317 million.
Urban Renewal

and Community

Facilities

Federal expenditures for urban renewal and other community development programs aid in revitalizing areas and improve the neighborhoods of their residents. Approximately 65 urban renewal proj-

ects will he completed in 1965, and plans for 200 new projects are
expected to be approved. It is expected that an additional $1.4 billion
in authority for urban renewal grants will be enacted in 1964 to finance
the program through 1966.
The urgent need to revitalize urban mass transportation systems requires strengthened Federal assistance. A new program to attack this
problem with the help of grants, direct loans, and loan guarantees,
would involve expenditures of $10 million in 1965.
Housing and Community Development

•

Administrative

Budget

Trust

Funds

Net Receipts

A i d s to
Federal Savings a i

Private
Housing

Federal N a t i o n a l M o r t g a g e

Associa

Federal Housing A d m i n i s t r a t i o n a n d

Otter

Itoiema Capital raSfen

Public

Housing

Programs

The Public Housing Administration assists local housing authorities
in constructing housing for low-income families. Additional authority
will be proposed to contract for 200,000 more units over the next 4
years.
Aids

to Private

Housing

The Federal Government assists people to obtain suitable housing
mainly by assuring the availability of credit on favorable terms by a
variety of methods—which are largely or wholly self-supporting.

717-043 0-64—6

Federal Savings and Loan Insurance Corporation.—Federal
insurance of savings and loan accounts encourages small savers to pool
their funds for home mortgage lending, thus providing the largest
single source of funds for private housing. Premiums charged for
Federal insurance will exceed expenditures in 1965 and will permit the
Federal Savings and Loan Insurance Corporation further to strengthen
its reserves.
Federal Housing Administration.—In 1965 the Federal Housing
Administration will insure the loans used to finance construction or
purchase of an estimated 546,800 houses and apartments, and modernization and improvement of 800,000 houses. Receipts from insurance premiums, and from sales of acquired properties and mortgages,
will exceed expenditures by $173 million.
Federal National Mortgage Association.—The Federal National
Mortgage Association influences the supply of funds for private housing by buying and selling federally insured or guaranteed mortgages.
Marketing policies of the Association this year will provide enough
receipts to pay for all current operations as well as repay some previous
borrowings. A new program is being proposed to broaden further the
scope of private investment in federally insured or guaranteed mortgage loans. FHA-insured and VA-guaranteed loans, now owned by
Federal agencies, would be grouped in pools, and certificates of participation in these pools would be sold to the public.
Federal home loan hanks.—The 11 Federal home loan banks
supplement private home mortgage funds by lending money to member savings and loan associations which experience loan demands temporarily greater than they can meet. In 1965, it is estimated that repayments of old loans will exceed new loans made, giving rise to net
receipts for the year.
Other aids to private housing.—Direct loan commitments of $100
million for building apartments for the elderly will be made in 1965.
National

Capital

Region

The government of the District of Columbia provides both State
and local services for the businesses and residents of the National Capital City. As the predominant property owner and major industry of
42

the District, the Federal Government recognizes a special responsibility
to bear its proper share of the costs of these services, as well as to provide long-term loans needed to carry out an orderly program of capital
improvements. These expenditures are included in the administrative
budget. Expenditures made directly by the District government,
primarily from local revenues, are included in trust fund expenditures.

HEALTH, LABOR, A N D WELFARE
j..
[Administrative B u d g e t . .
$ 5 . 8 Billion
c
3....
1 9 6 5 Expenditures 1 T r u $ t F u n d s
$ 2 3 5 Billion

Federal expenditures help meet the special needs of many of our
people, particularly the retired, the unemployed, the sick, and the
needy. Trust funds account for more than four-fifths of the outlays
for this purpose.
Social insurance.—The social insurance and retirement programs
of the Federal Government provide financial support to help those
individuals and their families who suffer a loss of income because of
retirement, disability, death, or unemployment of the breadwinner.
They are financed through trust funds, which depend for their receipts
on payroll contributions made by employers and employees and on
interest earned on invested reserves. The benefit payments made by
the trust funds have been growing steadily, as shown on the accompanying chart.
In 1965, expenditures under the old-age, survivors, and disability
insurance trust funds are estimated at $17.5 billion. Benefits will
go to the retired, the disabled, and to survivors. The railroad retirement system will provide former railroad employees and their
families similar benefits totaling $1.1 billion in 1965.
Expansion of the social security system to assist the aged in paying
the heavy costs of hospital and nursing home care is again being proposed. Benefits to those now aged and ineligible for social security or
railroad retirement benefits would be financed from the administrative
budget. No expenditures would be made under the program in 1965,
because benefit payments would not begin until 1966.
Expenditures from the unemployment insurance trust fund are
estimated at $3.4 billion in 1965. Legislation will be proposed to
broaden the coverage of the unemployment insurance system and to

lengthen the period of benefits to help meet the needs of the long-term
unemployed.
Most Federal civilian employees are provided retirement, disability, and survivor benefits through the Federal employees retirement trust funds. These funds are financed by employee contributions
matched by the Federal Government. Retirement and other benefit
payments by the funds are estimated at $1.5 billion in 1965.
Public assistance.—Expenditures
for public assistance help meet
basic needs—food, shelter, and medical care. However, legislation
enacted recently provides a new emphasis on helping needy individuals
achieve economic independence through counseling, guidance, and
rehabilitation services financed by both Federal and State governments. Proposed legislation is geared to further encourage selfsufficiency, particularly through community work-training programs.
Health services and research.—Of the Nation's total outlay for
health research in the current year, nearly two-thirds, or more than $1
billion, is supported by the Federal Government. In turn, the National
Institutes of Health will account for about three-fifths of the total
Federal Government expenditures for health research in 1965.
Health, Labor, and Welfare
$ 6ilion<
— 30

1954

1955

1956

Fbeal Yean : . /

1957

1958

1959

a. ;

I960

1961

. 'X-

1962

1963

1964

!965

p.Estimate

Health, Labor, and Welfare

| Administrative

Budget

WW,

Trust

Funds

MILLIONS

I 23,097
Social Security, Unemployment, and Retirement Benefits
[ 2,849
Public Assistance
\ 1 ,733
Health Services and Research
1,103
L a b o r a n d M a n p o w e r Services
; 344
S c h o o l Lunch, S p e c i a l M i l k , a n d F o o d S t a m p Programs
| 236
Other Welfare

Services

Legislation was enacted in calendar year 1963 authorizing Federal
grants to assist in building new medical, dental, public health, and
related professional schools, and in providing financial aid to needy
and qualified students in medicine, dentistry, and osteopathy. These
measures will help to supply the increased number of physicians and
dentists which our growing population requires. Legislation is being
proposed for programs to increase the number of qualified professional
nurses.
The older general hospitals in the Nation, largely in urban centers,
require substantial renovation and modernization. Physical facilities
to meet the rapidly increasing needs for the long-term care of the
chronically ill and aged are also inadequate. The budget contains
funds for proposed legislation to broaden and change the emphasis
in the Hill-Burton Act to stimulate construction for this purpose.
The budget also provides for strengthening environmental health
and consumer protection activities. Special emphasis will be given to
research on the possible health hazards resulting from the expanded
use of pesticides, and to programs to prevent and control air pollution.
Mental health and mental retardation.—The
great majority of
the mentally ill in our society receive too little treatment and receive
it much too late. Many mental hospitals serve largely as custodial
institutions.

In recognition of the need for energetic action to combat mental
illness, pathbreaking legislation was adopted in calendar year
1963. In 1965, funds provided for the National Institute of Mental
Health are estimated to rise to $189 million, $13 million more than in
1964. These funds will stimulate intensive therapy programs and
training of personnel in State mental institutions. Increasing emphasis is being placed on modern psychiatric methods which can
better diagnose and treat the mentally disturbed in their own communities, rather than in distant mental hospitals. Funds totaling $35
million are provided to support construction of community mental
health centers.
Programs to combat mental retardation were also augmented by
several pieces of legislation enacted in calendar year 1963. These
programs—totaling $243 million of new obligational authority in
1965—will help prevent retardation, and improve the health, education,
and general well-being of those already mentally retarded.
Labor and manpower.—Increased emphasis is being given to providing training and employment opportunities for unemployed workers and youths. The budget provides additional funds under the
Manpower Development and Training Act to permit training services
for more than 275,000 workers in 1965. Basic literacy training has
been authorized when necessary as a first step before vocational
training. The proposed Youth Employment Act would provide work
experience and training for an estimated 60,000 unemployed youths
in 1965.
The Federal-State employment service system, with 1,900 offices,
will increase its activities in matching the abilities of workers with the
skills needed by employers.
Other welfare services.—The budget provides Federal matching
funds for the cooperative Federal-State vocational rehabilitation program which will rehabilitate an estimated 133,000 individuals in 1965.
Expenditures for the school lunch and special milk programs of the
Department of Agriculture are estimated at $293 million in fiscal
1965. an increase of $13 million over 1964. The pilot food stamp program provides food for needy families in 43 areas in 22 States.

EDUCATION
1965 Administrative Budget Expenditures: $1.7 Billion
Education enriches the individual and is essential to the freedom,
economic growth, and welfare of our society.

Great advances were

made last year toward strengthening our educational system, but
many inadequacies remain to be overcome.
T h e Higher Education Facilities Act of 1963 represents an important
milestone in financing construction of academic facilities for graduate and undergraduate schools, public junior colleges, and technical
institutes.

Other significant legislation enacted last year expands and

modernizes Federal-State vocational education programs, increases
student loan funds under the National Defense Education Act, and
provides a new program for training teachers of handicapped children.
Education

Administrative

Budget

H f : Trust

Funds

% M/a/ONS

Assistance
EH
t Ea rdH
yu caantdi o nSecondary
H
Hftfor
oH
r Science
H
il eg m
hI
eernB
H
NHHMMNMHMHMH
Assistance
lH
H
H
Basic Education
Research
N eH
w fProgram
a nH
d O t h e r A i d t oondEducation

479

Legislation proposed for fiscal year 1965 would help strengthen the
base of the educational process—the elementary and secondary school
system—through grants for teachers' salaries and urgently needed classroom construction.

A new program is being proposed to provide

project grants for educational services to schoolchildren with special
needs, such as slow learners and the handicapped, as well as the talented.

Project grants would also be used in connection with broad

community action programs to combat poverty.

In addition, Federal

support would be provided for able college students, teacher training,
libraries, and basic adult education and general university extension
programs. In all, the 1965 budget proposes $718 million in new legisla-

five authorizations for education. Expenditures in 1965 are estimated
at $118 million.
The remaining sections largely relate to existing educational activities of the Federal Government.
Assistance for elementary and secondary education.—The 1965
budget provides $395 million for continued assistance to schools in areas
where enrollments are increased by children of Federal employees,
and $76 million for laboratory equipment and for counseling and
testing programs under the National Defense Education Act.
Assistance for higher education.—To
meet the demands of
doubled college enrollment during the 1960's, there is an urgent need
for expansion of facilities and for aid to students. The 1965 budget
provides expenditures of $246 million for loans and grants to colleges to construct classrooms, libraries, laboratories and dormitories,
and $134 million for National Defense Education Act loans to students.
Assistance to science education and basic research.—The National Science Foundation continues to perform a vital role in stimulating science education and basic research. Expenditures of the Foundation are expected to increase $42 million in 1965 to increase scientific knowledge, and to help overcome the shortage of trained scientists and engineers. This increase in 1965 emphasizes support for
graduate students in the sciences, improvement of course materials,
training of science teachers, and related programs designed to
strengthen college and university science facilities.
Other aid to education.—The Office of Education will increase its
expenditures considerably in 1965, principally to augment vocational
education programs. The expansion of educational research, training for teachers of the handicapped, and construction of educational
television facilities also contribute to the rising outlays.

VETERANS BENEFITS A N D SERVICES
Administrative Budget.. $5.1 Billion
$0.5 Billion

Federal expenditures for veterans programs will decrease by
approximately $400 million in 1965 as a result of the sales of Veterans
48

Administration-held mortgages, and also because of the acceleration to
fiscal 1964 of some life insurance dividends originally scheduled for
1965. However, the major continuing programs for veterans—compensation, pensions, and medical and hospital care—will remain close
to their present levels.
Compensation.—Compensation
payments are made to veterans or
to their survivors for disability or death arising from military service.
The average compensation paid to recipients will increase because of
cost-of-living adjustments enacted in 1963. However, the number of
beneficiaries will decline by 7,000, and as a result, expenditures in 1965
are estimated to be $6 million less than in 1964.
Veterans Benefits and Services

•

Administratis Budget ^Trust Funds

MILLIONS

p 2,120
1.777

H o u s i n g Loan Program*

Pensions.—Payments
are made to veterans or their survivors for
disability or death from causes not related to military service. Expenditures for pensions are expected to rise by $34 million in 1965, as the
average number of recipients increases to an estimated 2.1 million.
World War I pensioners and their survivors account for 72% of the
pension payments. However, a rapidly increasing number of World
War II and Korean veterans or their survivors are becoming eligible
for pensions.
Hospitals and medical care.—Estimated expenditures of $1,160
million will provide hospital services and medical care for over 137,600
beneficiaries per day. Provision is made in the 1965 budget for continued improvement in the quality of medical care, for expansion of
medical research, and for the opening of a new hospital at Washington, D.C.

The 15-year hospital modernization program, begun in 1961, will
continue, with estimated expenditures of $85 million for hospital
construction proposed for 1965.
Loan guarantee and direct housing loan programs.—An estimated 175,000 loans will be guaranteed and 10,000 direct loans will be
made by the Veterans Administration in 1965. However, receipts
from increased sales of properties and mortgages held by the Veterans
Administration—including sales of certificates of participation in
housing mortgages—will result in net receipts of $334 million for this
category in 1965. Although the same services will be provided eligible veterans, Government expenditures will drop as private funds are
increasingly being substituted for public financing.
Education and training benefits.—Expenditures for veterans education and training benefits are estimated to decline by $23 million
from 1964 to 1965 because of the continuing decline in the number of
Korean conflict veterans receiving these benefits. About 15,000 war
orphans will receive educational benefits, and an estimated 7,000 exservicemen, disabled in peacetime service, will benefit from vocational
rehabilitation programs.
Other benefits and services.—Savings from lower workloads and
increased efficiency in the operating expenses of veterans programs
will result in decreased expenditures in 1965.

GENERAL GOVERNMENT
1 9 6 5 Administrative Budget Expenditures: $ 2 . 2 Billion

Expenditures for general government provide for service activities
of a Government-wide nature, for executive direction and financial
management, and for the costs of the Congress and the Federal court
system.
These general administrative, legislative, and law enforcement expenses of the Federal Government will require estimated expenditures
of $2.2 billion in 1965, the same as in 1964.
Tax collection and central fiscal operations.—The Treasury collects the Government's taxes and other revenues, and issues the checks

that pay the bills. The Internal Revenue Service will increase its
expenditures by an estimated $29 million in 1965, mainly to acquire and
operate automatic data processing equipment, as a further step in
improving compliance with the tax laws and regulations.
General property and records management.—As part of the continuing program to provide more efficient facilities for Government
operations, the 1965 budget includes funds for acquisition of 41 sites;
construction of 151 new buildings; and operation, maintenance, and
repair of existing facilities. The General Services Administration will
also provide increasing supply services for the Department of Defense
and civilian agencies, dispose of surplus property, and continue work
on the new Federal telecommunications system.

General Government

| Administrative

Budget

: Trust

Funds

MILLIONS

T a x C o l l e c t i o n a n d C e n t r a l Fiscal O p e r a t i o n s

Property a n d Records M a n a g e m e n t

j 351
Protective Services a n d A l i e n Control
|210
Legislative a n d Judicial Functions
1106
C e n t r a l Personnel M a n a g e m e n t
1172
Territories a n d Possessions, a n d O t h e r

Central personnel management.—The administrative costs of the
Civil Service Commission are included under this heading, together
with costs of accident compensation and health benefits for Federal
employees.
Territories and possessions.—The United States provides Government services and financial assistance to the Canal Zone, Virgin
Islands, Ryukyu Islands, American Samoa, the Trust Territory of the
Pacific, Guam, and other areas. The rehabilitation program for Guam
will provide loans and grants mainly to replace public facilities destroyed by a typhoon 2 years ago.

INTEREST
1 9 6 5 Administrative Budget Expenditures: $ 1 1 . 1 Billion

Administrative budget expenditures for interest on the public debt
are expected to be $400 million more than in 1964. This increase
reflects in part the higher average level of the outstanding public debt.
It also takes into account the effect, in 1965, of interest rate increases
which have taken place in the last several years as part of the effort to
stem the flow of short-term funds abroad. The impact on the budget is
occurring gradually as individual issues mature and are refunded with
securities paying higher interest.
About $1.9 billion of the total interest expenditures will be paid to
trust funds and Government agencies which have invested reserves in
Government interest-bearing securities.

Part

Budget Facts a n d Figures

The budget necessarily involves a great many numbers,
usually with dollar signs attached.

To have meaning,

they must be related to programs, policies, the process of
Government, the size of the economy, and so on.

In the

first two sections of this booklet, an effort was made to
present the budget in understandable and nontechnical
terms, and to limit the use of statistics.
In order to introduce the reader to some of the more
technical aspects of the budget, this section presents briefly
information on measures of Federal finances and on the
budget process.
Historical statistics are shown at the end of this booklet.

MEASURES OF FEDERAL FINANCES
Federal financial activities are examined from different points of
view and for many different purposes. No single set of figures can
serve all purposes equally well. In the budget (as well as this booklet)
Government activities are discussed in terms of the administrative
budget, the statement of total receipts from and payments to the public,
and the Federal sector of the national income accounts. Technical
and sometimes complicated distinctions have to be made to clarify
these various concepts and to explain the usefulness of each one.
For an understanding of the different budget concepts used to
measure Federal financial transactions, it is helpful to consider at the
outset two basic sets of accounts used by the Government. The first
covers (federally owned) administrative budget funds; the second
covers trust funds. Together they comprise the financial books of the
Government, which record in detail each agency's expenditures, as
well as the revenues of the Government. They are the indispensable
tools for managing the Government's finances properly and efficiently.
Administrative budget funds include most of the tax and other
receipts of the Government. These receipts go into a general fund;
small amounts are also deposited in other funds for special purposes.
The receipts of these funds are owned by the Federal Government—
just as land and equipment are owned. Administrative budget funds
also include the transactions of wholly owned Government enterprises of a business character, such as the postal service, the Small Business Administration, the Export-Import Bank, and the Federal Housing Administration.
The administrative budget—which covers only administrative
budget funds—is the oldest and most widely known measure of our
Federal finances. It is mainly within the framework of this budget
that Congress evaluates requests for funds and grants the authority
for Government agencies to carry out their programs. The expenditures of this budget emerge as a result of Presidential requests, congressional action, and the administration of programs by various
54

Government agencies.

Thus, the administrative budget is generally

used for the control, administration, and execution of Federal programs
that are financed with the Government's wholly owned funds.
Trust funds come into existence when the Congress designates certain taxes or contributions as funds to be held in trust by the Federal
Government for specified benefit payments or special programs.

They

may also arise when Congress provides for an activity, partly owned
by the Federal Government and partly owned by someone else.

The

receipts of these funds can be spent only to finance the activities for
which they are set aside. For example, premiums paid by World W a r I
and II veterans on their Government life insurance policies are held
in trust funds and used only to pay insurance claims or dividends to
policyholders.
Most of the major trust funds finance insurance-type activities such
as social security (retirement, disability, and unemployment insurance), Federal employees retirement, and veterans life insurance.
Trust funds also finance Federal grants for highway construction and
the secondary market activities of the Federal National Mortgage
Association

(FNMA).

Trust Fund Estimates for 1965
J

MILLIONS

j16,271
116,091
O l d A g e and Survivors Insurance
Social Security
Programs

]3,933
3,443
Unemployment Insurance

M i l ,228

M i l ..428
Disability Insurance
Federal-aid
Highways

3,510
3,650

Federal Employees
Retirement
Railroad
Retirement
Veterans
Lire Insurance
F N M A
All

Receipts

Expenditure;

and

Other

Receipts of the trust funds come from sources related to their activities. For example, the employers and the employees covered by oldage and survivors insurance pay the taxes that finance the OASI trust
fund. Similarly, Federal gasoline and other taxes related to highway
use provide the receipts for the highway trust fund; and veterans life
insurance policyholders pay premiums which account for the bulk of
veterans life insurance trust fund receipts. The chart on page 55 lists
the major trust funds and indicates their estimated receipts and expenditures for 1965.
Trust fund receipts are often greater than their expenditures. This
excess is accumulated in reserves to meet anticipated future benefit payments or other outlays. The reserves are usually invested in U.S.
securities and earn interest for the trust funds.
Federal receipts from and payments to the public— Basically, the
statement of receipts from the public and payments to the public (often
called the consolidated cash budget) represents a consolidation of
the administrative budget and trust fund receipts and expenditures.
In this consolidation, payments between the administrative budget and
trust funds are eliminated, since they do not involve a flow of money
between the Federal Government and the public. (An example is
the payment of interest from the administrative budget to the trust
funds on the latter's investment in U.S. securities.)
Thus, the statement of Federal payments to and receipts from the
public is much more inclusive than the administrative budget. It
portrays the financial dimensions of the Government's overall program. It is the best measure for analyzing the cash needs and borrowing requirements of the Federal Government.
The table on page 57 summarizes the relationship between the administrative budget, trust funds, Federal receipts from and payments
to the public, and the Federal sector of the national income accounts.
Federal sector, national income accounts.—Like the consolidated
cash statement, the Federal sector of the national income accounts includes the transactions of both the administrative budget and the trust
funds. However, it excludes those transactions which do not directly
affect the Nation's current income or production. Thus, it excludes
transactions of a purely financial nature (such as loans and mortgages),
as well as purchases and sales of previously existing assets (such as
land and secondhand items).
56

S U M M A R Y OF FEDERAL RECEIPTS A N D
[Fiscal years.

PAYMENTS

In billions]

Description

1963
actual

1964
estimate

1965
estimate

FEDERAL RECEIPTS
Administrative budget receipts
Trust fund receipts
Deduct: Intragovernmental transactions
Total, cash receipts from the public
Add: Adjustment from cash to accrual basis
Deduct: Receipts from loans, property sales, and other adjustments
National income account receipts—Federal
sector

$86.4
27.7
4.3

$88.4
30.2
4.2

$93.0
30.9
4.1

109.7

114.4

119.7

0.6

—0.1

-0.2

1.0

0.7

109.3

113.6

118.8

92.6
26.5

98.4
29.3

97.9
29.4

5.4

5.0

4.6

113.8

122.7

0.6

0.1

1.1

1.8

3-7

2.3

112.6

119.1

121.5

-6.3
-4.0

-10.0
-8.3
-5.5

-4.9
-2.9
-2.8

FEDERAL P A Y M E N T S
Administrative budget expenditures
Trust-fund expenditures
Deduct: Intragovernmental transactions and other adjustments (net)
Total, cash payments to the public
Add: Adjustment from cash to accrual basis
Deduct: Disbursements for loans, land purchases, and other
adjustments
National income
Federal sector

account

expenditures—

EXCESS OF RECEIPTS ( + ) O R
PAYMENTS(-)
Administrative budget
Receipts from and payments to the public
National income accounts—Federal sector

-3.3

The national income accounts also differ from the consolidated cash
statement with respect to the time when receipts and payments are
recorded. While the consolidated cash statement is on a checks-paid
basis, the national income accounts are largely on an accrual basis.
Thus, tax receipts are recorded in the income accounts as tax liabilities
build up, rather than on the actual date the Treasury receives the

money. For example, corporations accrue Federal taxes as they earn
profits—but they pay these taxes to the Government only after some
months have elapsed. Similarly, expenditures for most goods and
services are recorded at the time goods are delivered or services performed, rather than when the checks in payment for them are issued
or cashed.
This timing reflects better the economic impact of Federal taxes
and expenditures on spending decisions in the private sector of the
economy.
Total expenditures of the Federal sector of the national income
accounts are divided into four basic components that provide information on the economic nature of Federal expenditures. As the following table indicates, the largest is purchases of goods and services. This
category represents that part of the Nation's current production of
goods and services which the Government uses for public purposes—
such as Federal employees' services, military equipment, Government
buildings, other direct public works, and so on.
NATIONAL

INCOME

ACCOUNT

EXPENDITURES—FEDERAL

[Fiscal years.
Description

1963
actual

Purchases of goods and services
Transfer payments
Grants-in-aid to State and local governments
Net interest and other
Total national income
tures—Federal sector

account

SECTOR

In billions]

$64.4
29.2
7.9
11.1

1964
estimate

$67.8
30.5
9.4
11.5

1965
estimate

$69.1
31.8
9.7

11.0

expendi112.6

119.1

121.5

The second category, transfer payments, covers Federal expenditures for which there are no current services rendered—unemployment
benefits, veterans pensions, old-age and survivors insurance benefits, and other benefits (sometimes based on contributions made and
on eligibility obtained in previous years). When the Government
makes transfer payments, it does not use up resources itself, but rather
channels purchasing power to the retired, the unemployed, and others.
Grants-in-aid to State and local governments also represent the transfer of funds to other economic groups to use for a nationally desirable
purpose. The State and local governments may use the grants for
58

purchases of goods and services (such as highway construction), or
they may in turn make transfer payments to individuals (for example,
through public assistance payments).
The final category includes net interest (that is, interest paid by the
Federal Government less the interest it receives on loans it has made
to others) and such other transactions as subsidies to farm and nonfarm businesses.
The Federal sector account is closely related to the Nation's economic accounts which measure total national income and output. Because of the relationship, this measure is particularly valuable for fiscal
analyses, such as studies of the impact of Federal activities on the
Nation's income and output.

THE BUDGET PROCESS
Each January the President recommends to the Congress a budget
representing his judgment as to the Government programs required
to meet the Nation's needs during the coming fiscal year.
The presentation of any budget usually marks the culmination of
at least 10 months of administrative action and planning. For
example, the process of formulating the budget for fiscal year 1965
commenced in March of 1963. The budget was transmitted to the
Congress in January 1964, about 6 months before the fiscal year begins—July 1, 1964. When the fiscal year ends 12 months later, over
2 years will have elapsed since the start of the budget cycle.
These time intervals of approximately 10 months, 6 months, and 12
months correspond roughly to three basic steps of budgeting: executive
formulation, congressional deliberation and enactment, and administrative execution.
Inevitably over such a long period, many changes will take place in
the original proposals: international and domestic situations may vary
from the assumptions made earlier; the President may amend some of
his own proposals; and the Congress may modify the President's
requests or add new proposals of its own. Indeed, change is often
essential to keep the budget responsive to current needs.
During the 10 months of executive formulation of the budget, there
is a constant exchange of information between the President, his staff,
and the executive departments and administrative agencies. Budget
requests and programs, fiscal policies, and analyses of the domestic and

international issues are constantly evaluated and reevaluated during
this period. This process continues through December when very
difficult policy issues are finally resolved, and the President's budget
proposals take on a more definite form in terms of specific dollar
values.
When the budget is sent to the Congress, the second phase
of the cycle—congressional review and enactment—commences. Upon
receipt of the budget and the President's budget message, the House of
Representatives refers the proposals to its Appropriations Committee.
Twelve subcommittees of the Appropriations Committee give detailed
consideration to the parts of the budget referred to them. The subcommittees make their recommendations to the whole Appropriations
Committee, which, in turn, makes its recommendations to the House
of Representatives.
When finally passed by the House of Representatives, the measure
is forwarded to the Senate. The process in the Senate is similar to
that in the House.
If there is disagreement between the two Houses of Congress, a conference committee (consisting of members of both bodies) meets to
resolve the differences. The conference report is then referred back
to the House and Senate for approval, and forwarded to the President
for his approval or disapproval.
The basis for budget control: New obligational
authority.—No
Federal funds can be spent without specific authority from the Congress. Therefore, the budget presents the President's recommendations for action by the Congress in terms of the amounts of budget
authorizations (new obligational authority) necessary to carry out
the programs he is proposing. The Congress then considers and acts
on these requests for new obligational authority.
New obligational authority is composed of three kinds of authorizations which allow Federal agencies to incur obligations requiring the
payment of money.
Appropriations are the most common form of new obligational authority; they authorize the agencies to order goods and services and
to draw funds from the Treasury and make expenditures to pay for
these items.

Contract authorizations, which are occasionally given to agencies,
allow them to contract for the purchase of goods and services but not
to make expenditures to pay for them. An appropriation to liquidate
the contract authorization must later be enacted by the Congress before
money may actually be spent to pay the bills incurred under a contract
authorization.
Authorizations to expend from debt receipts permit agencies to borrow money (usually through the Treasury), to contract for its use,
and to pay the amounts authorized.
In most cases, new obligational authority becomes available each
year only as voted by the Congress. In some cases, however, the Congress has voted permanent authority under which additional sums
become available annually without further congressional action. The
chief example in the administrative budget is the permanent appropriation to pay interest on the public debt. Most trust fund appropriations are also permanent.
Obligations.—Obligations
are commitments made to pay out
money. Obligations are incurred when personnel are employed, loan
agreements are approved, and when contracts for equipment or construction are made. They are authorized by the obligational authority
granted by the Congress and precede expenditures.
Expenditures.—Expenditures generally consist of checks issued and
cash paid. Government agencies (such as the Post Office) which carry
on business-type operations with the public usually have their receipts
deducted from their disbursements to arrive at the amount included
in the expenditure totals; when receipts exceed disbursements, the
result is shown as a negative payment.
Relationship between new obligational authority and expenditures.—Only a part of the obligational authority enacted for a fiscal
year is spent in the same year. Appropriations to pay salaries or pensions are usually spent almost entirely in the year for which they are enacted. On the other hand, the bulk of appropriations to buy naval
warships or to construct missile sites is likely to be spent 2 or 3 or more

1965 Administrative Budget — Relation

of Authorizations to Expenditures
$ Btlli.

New Authority
Recommended
to Congress

103.8

Unspent A u t h o r i z a t i o n s
E n a c t e d in Prior Y e a r s

90.4

T o Be Used in 1 9 6 5

70.5

Expenditures
in 1 9 6 5

97.9

}

T o b e held for Expenditures

in L a t e r Y e a r s

61.8

Unspent A u t h o r i z a t i o n s
for Expenditures in
Future Y e a r s

95.0

years after enactment, because of the time required to prepare designs,
arrange contracts, complete production or consti uction. and finally pay
the bills.
Therefore, when the Congress reduces or increases the amount of
new obligational authority requested by the President for a given
year, it does not necessarily change the budget expenditures in that
year by the amount of the increase or decrease. Such a change may
affect expenditures over a period of several years. The relationship
between new obligational authority and expenditures estimated for
the coming fiscal year is illustrated in the accompanying chart.
Unexpended balances.—The amounts of enacted obligational
authority that have not been spent at the end of a fiscal year, and are
still available for expenditure in future periods, are called unexpended
balances. These balances do not represent cash on hand, but authority
to enter into contracts or to make payments under earlier contracts.
Most of the unexpended balances are obligated; that is, the amounts
are committed to pay bills which come due upon the completion of
contracts already signed, or when services or goods are received.
62

Often, any authority which is not obligated by the time the year
ends is no longer available; that is, the authority to obligate expires.
In some cases, such as programs for construction of public works, the
unobligated part of the unexpended balances continues available from
year to year, because the Congress has made the appropriation available until expended. In a few cases, such as the authorization for the
Federal Deposit Insurance Corporation to borrow from the Treasury,
the balances carried forward represent standby authority for possible
emergencies—authority which the Government does not anticipate
having to use in the foreseeable future.
Receipts.—Receipts are moneys received by the Treasury from taxes
and customs and miscellaneous sources such as collections on certain
loans, rents, fines, fees, and sales.
Surplus or deficit.—A surplus results when receipts exceed expenditures; a deficit results when expenditures exceed receipts. A surplus
is usually used to retire part of the Government's outstanding borrowing from the public. A deficit is normally financed by new borrowing.

Portions of the President's Budget M e s s a g e
To the Congress of the United States:
This is the budget of the United States Government for 1965.
The preparation of this budget was the first major task to confront
me as President, and it has been a heavy one. Many decisions of great
importance have had to be made in a brief span of weeks. I have done
my best, and I am satisfied that the budget which I am sending to the
Congress will advance our Nation toward greater national security, a stronger economy, and realization of the American dream of
individual security and equal opportunity for all of our people.
In formulating my budget, I have been guided by two principles:
• I have been guided by the principle that spending by the Federal
Government, in and of itself, is neither bad nor good. It can be
bad when it involves overstaffing of Government agencies, or needless duplication of functions, or poor management, or public services which cost more than they are worth, or the intrusion of government into areas where it does not belong. It can be good when it
is put to work efficiently in the interests of our national strength,
economic progress, and human compassion.
• I have been guided by the principle that an austere budget need
not be and should not be a standstill budget. When budgetary
restraint leads the Government to turn its back on new needs and
new problems, economy becomes but another word for stagnation.
But when vigorous pruning of old programs and procedures releases
the funds to meet new challenges and opportunities, economy becomes the companion of progress.
This is, I believe, a budget of economy and progress. On the one
hand, it calls for a reduction from the preceding year in total administrative budget expenditures—and it is only the second budget in 9
years to do so. It calls for a substantial reduction, in total civilian
employment in the executive branch—and it is the first budget to do
so since the practice of totaling the employment estimates in the
budget was initiated in January 1956. It cuts the deficit in half, and
carries us a giant step toward the achievement of a balanced budget
in a full-employment, full-prosperity economy.
On the other hand, this budget safeguards the peace by providing
for the further strengthening of the most formidable defense establishment the world has ever known; it recommends continued military
assistance to those nations menaced by Communist aggression, direct
and indirect; it includes economic assistance to those nations which
are willing to take the steps necessary to guard their freedom and

independence through economic self-help; it provides the funds necessary to advance our mastery of space toward the achievement of a
manned lunar landing in this decade; it provides for the sound
management and development of our natural and agricultural resources; and in its recommendations relating to education, housing,
manpower training, health, and employment opportunities for youth,
it provides more funds than ever before in our history for the fuller
development of our Nation's most important resource—its people.
Moreover, this budget makes provision for the initiation of a new
and major effort to break the vicious circle of chronic poverty, which
denies to millions of our fellow citizens a just participation in the
benefits of life in our country. We owe to every young person in
America a fair start in life—and this means that we must attack those
deficiencies in education, training, health, and job opportunities by
which the fetters of poverty are passed on from parents to children.
The attack on poverty must rely on local initiative and leadership ;
and the resources of the local, State, and Federal Governments must
be mobilized to support these efforts. I will shortly send to the Congress a special message conveying my recommendations for the attack
on poverty.
The urgent and necessary program increases recommended in this
budget will be financed out of the savings made possible by strict
economy measures and by an exhaustive screening of existing programs. As a result of the highly successful cost reduction program
launched in 1962 by the Secretary of Defense, the 1965 program
of the Department of Defense will require over $2 billion less in appropriations than would otherwise be the case—a sum greater than
the 1965 cost of the new programs I am recommending to the Congress.
Department of Defense expenditures will decline by more than $1
billion from 1964 to 1965, and additional savings are expected to be
realized in agriculture, atomic energy, postal services, veterans benefits, and in various lending programs through substitution of private
for public credit.
My proposals call for administrative budget expenditures in 1965
of $97.9 billion—$900 million less than was requested in the 1964 budget
and $500 million less than I now estimate will be spent in 1964. This
reduction in expenditures will be achieved despite a steady growth in
the workload of nearly every civilian agency of Government—ranging
all the way from the number of income tax returns to the number of
visitors to our national parks. The reduction in expenditures will be
achieved despite built-in and relatively uncontrollable expenditure
increases resulting from past commitments and legislative provisions,
including higher costs for interest on the debt and for military and
civilian pay increases required by law.
Administrative budget receipts are expected to increase in 1965 to
$93.0 billion, $4.6 billion over 1964. This increase, reflecting the
66

expectation of a strongly growing economy spurred by prompt enactment of the tax program, takes into account the estimated revenue
losses from the new tax rates.
The resulting administrative budget deficit of $4.9 billion for 1965
is $5.1 billion below the deficit now estimated for the current year
and marks an important first step toward a balanced budget.
*

On the cash basis, total payments to the public are estimated at
$122.7 billion for 1965. Total receipts from the public are estimated
at $119.7 billion, resulting in a $2.9 billion excess of payments over
receipts. The estimates of cash payments and receipts in 1965 reflect
the normal, built-in growth of trust fund benefit payments, and the
employment and excise tax revenues which finance them.
Another measure of Federal finances—one which emphasizes the
impact of the Government's fiscal activities on the economy—is based
on the national income accounts. Under this concept, Federal fiscal
data, including the trust funds, are generally estimated on an accrual
rather than a cash basis, and eliminate transactions, such as loans,
which do not directly result in production and income. These data
indicate an excess of payments over receipts of $2.8 billion in fiscal
year 1965.

THE ECONOMY A N D TAX REDUCTION
The Federal budget is a detailed plan for managing the business
of Government, but it is more than that: In setting the relationship
between Government expenditures and taxation, the budget is also a
powerful economic force which can help or hamper our efforts to
achieve stable prosperity and steady growth.
The expenditure proposals in this budget are ample to satisfy our
most pressing needs for governmental services, but the broad economic
stimulus needed to carry our economy to new high ground in production, income, and employment will not come principally from Government outlays. I believe—as did President Kennedy—that the primary impetus needed to move our economy ahead should come, in
present circumstances, from an expansion of the private sector rather
than the public sector. Therefore, the earliest possible enactment of
the tax reduction bill now before the Congress is an integral and vital
part of my budgetary proposals.
Our country is currently in its fourth postwar period of economic
expansion—a period which started in February 1961, and has now
lasted nearly 3 years.
Preliminary estimates indicate that the Nation's total output of
goods and services—our gross national product—rose to $585 billion
in calendar year 1963, an increase of 5.4% over 1962.

Over the same period, personal income rose 4.7%, industrial production 5.1%, and corporate profits 10.5%.
Price stability has been maintained for the sixth consecutive year.
This is a record of strong expansion—and yet the expansion has
not been strong enough to absorb the margin of idle workers and idle
plant capacity which continues to tarnish our economy's performance.
Almost 3 years after the trough of the last recession, and despite the
creation of
million new jobs in our economy, the unemployment
rate now stands at 5^2 %• Our factories continue to produce below
their optimum rate. A s a nation we are producing at a rate at least
$30 billion below our comfortable capacity. This is a gap for which
we are paying a high price in idle resources, both human and physical.
This gap must be closed. It must be closed—as President Kennedy
urged a year ago—by loosening "the checkrein of taxes on private
spending and productive incentives." It must be closed promptly,
for the unemployed have already waited too long for jobs which can
be created simply by allowing our people to spend and invest a greater
part of the money they earn.
The bill approved by the House of Representatives last September
meets the fundamental requirements for tax action in 1964. I propose
only two changes in that bill:
• The bill provides for a reduction in the rate of withholding on
wages and salaries from 18% to 15% for calendar 1964, starting
on January 1, 1964. Since that date has already been passed, the
institution of the 15% withholding rate at a later date in 1964
would require substantial additional refunds to taxpayers next
year. A corresponding part of the economic stimulus provided
by the tax program would be delayed until then. Hence, I propose that the withholding rate be reduced to 14% rather than 15%,
effective as soon as possible after enactment. This will assure that
the beneficial effects of the 1964 tax reductions are felt immediately,
instead of being postponed, in part, for a year. It will simplify
procedures for taxpayers and their employers by making unnecessary another change in the withholding rate in 1965, as provided in
the House bill. Moreover, the change will also maintain approximately the same division between the fiscal year 1964 and 1965
revenue impact of tax reduction as would have resulted from the
House bill. The revenue estimates in this budget assume approval
of this change.
• The House bill fails to close the loophole by which property transferred at death now escapes capital gains taxation, but it nevertheless would reduce the rate of taxation on capital gains. With68

out the former provision, the latter provision is unwarranted, and
it should be deleted from the bill.
With these two changes, I urge the enactment of the House bill
by the Senate.
With prompt enactment of the tax program, economic expansion in
1964 should proceed briskly. Reflecting the effects of the first stage of
the tax reduction, the gross national product in calendar year 1964
should rise to about $623 billion, plus or minus $5 billion. This is
substantially higher than the G N P which could be expected in the
absence of prompt enactment of the tax legislation. In fact, since
expectations of a tax reduction have been incorporated into the forward planning of many business firms, the effect on the economy of
failure to pass the legislation swiftly might be deeply disturbing.
A s the tax reduction takes full effect, its stimulus to private consumption and investment will shrink the $30 billion gap between
the Nation's actual and potential output, and provide approximately
2 million additional jobs for the unemployed and the new workers
entering the labor force. As economic activity expands, and personal
and business incomes increase, Federal revenues will also rise. The
higher revenues, combined with continuing pressure for economy and
efficiency in Federal expenditure programs, should hasten the achievement of a balanced budget in an economy of full prosperity.
Income tax revisions.—The bill currently before the Senate will
reduce income tax liabilities by $11.1 billion. Individual rate reductions and structural changes account for about 80% of the total tax
reduction. The remaining 20% reflects a reduction in corporate taxes,
providing enhanced incentives for new investment.
Once the tax bill becomes fully effective in calendar year 1965,
the entire schedule of individual income tax rates will fall from the
present range of 20% to 91% to a range of 14% to 70%, and the current first $2,000 bracket of taxable income will be divided into four
successive brackets of $500 each.
A l l corporations will pay lower tax rates, with incorporated small
businesses receiving the largest proportionate tax rate reduction because the tax rate on the first $25,000 of their taxable income is reduced
from 30% to 22%. Large corporations (with estimated tax liabilities
above $100,000) will have to speed up their tax payments in order to
reduce the lag between the time when taxable profits are earned and
the time when taxes are paid; however, this speedup plan is gradual,
shifting the timing of corporation tax collections a bit each year for
the next 7 years.
The combination of the investment tax credit and the revision of
depreciation guidelines achieved in 1962, plus the $2y2 billion tax rate
reductions and structural changes proposed for corporations in the

pending bill, will result in a total reduction of about $5 billion in
corporate tax liabilities.
The bill also contains many changes in the income tax laws that
are designed to reduce the weight of taxes where the burden is most
unfair, and to correct special tax advantages which will no longer be
equitable under the proposed structure.
Excise tax extension.—The Congress should extend several current excise tax rates which will otherwise decline or expire on July 1,
1964. These excise taxes have been continued at the present rates
through annual extensions for the past several years. Without extension, revenues would fall by $1.7 billion during fiscal year 1965.
User charges.—Many Federal Government programs furnish specific, identifiable benefits to the individuals and. businesses using
them. Equity to all taxpayers demands that those who enjoy the
benefits should bear a greater share of the costs. I am, therefore,
renewing recommendations for the enactment of user charges for commercial and general aviation and for transportation on inland waterways.
Appropriate fees should also be assessed in other areas where the
Government provides special services. New legislation is necessary
in several cases to carry out this policy—such as a revision of patent
fees to reflect today's costs more adequately—and appropriate proposals are either before the Congress or will be forwarded this year.

NEW O B L I G A T I O N A L AUTHORITY
Obligations incurred by Federal agencies under authority provided by the Congress are the forerunners of Federal expenditures.
Expenditure control, therefore, depends substantially upon careful
control of obligations.
In this budget, new obligational authority of $103.8 billion is proposed in the administrative budget for fiscal year 1965. This is $1.2
billion above the amount now estimated for fiscal year 1964, but is $4.1
billion less than was originally requested for the current year in the
1964 budget. The amount recommended for 1965 includes $50.9 billion for the Department of Defense (including military assistance),
$120 million less than the amount for the current year.
Significant changes in new obligational authority from 1964 to
1965 include increases of $1.5 billion for the Department of Health,
Education, and Welfare, mainly as a result of new health and education proposals; $361 million for the Department of Labor because of
the recently amended manpower training program and the proposed
youth employment legislation; and $500 million for special appropriations requested for new community programs to attack poverty. Major decreases include $1.5 billion for the Housing and Home Finance
70

NEW OBLIGATIONAL AUTHORITY
[Fiscal years.

In billions]

Description

Total authorizations requiring current action by Congress:
Administrative budget funds
..
Trust funds..
Total authorizations not requiring current action by Congress:
Administrative budget funds.
- .
Trust funds.
.Total new obligational authority:
Administrative budget funds
.. .
Trust funds
-- - - -

1963
actual

1964
estimate

1965
estimate

$90.6
3.9

$90.0
.4

$91.4
4.2

11.6
24.7

12.6
31.3

12.4
27.6

102.3
28.6

102.6
31.7

103.8
31.8

Agency, reflecting nonrecurring authority requested in 1964, and $1.3
billion for the Department of Agriculture.
Of the total amount proposed, $40 billion will become available
under permanent authorizations without further congressional action,
including $27.6 billion becoming automatically available as revenues
flow into the trust funds. In the administrative budget, the principal
permanent appropriation is to pay the interest on the public debt
which in 1965 is estimated at $11 billion, $0.4 billion more than in
1964.
For the current fiscal year, the Congress is requested to enact $4.2
billion of additional new obligational authority to provide needed
funds for housing and space programs and to finance legislation enacted last year for which no appropriations were provided—such as
increased military compensation, broadened manpower development
activities, aid to higher education, vocational education activities, and
mental retardation programs. Including supplemental authorizations, a total of $102.6 billion in new obligational authority is estimated for fiscal year 1964 in the administrative budget.

GOVERNMENT PROGRAMS A N D EXPENDITURES
The expenditures proposed in this budget are necessary to meet
the needs of our growing society, promote the basic strength of the
Nation, honor our worldwide commitments, and fulfill our financial
obligations.
Between 1955 and 1965, our population will grow by almost 30
million people, about 17% with the largest increases in the very young
and the very old age groups. To keep pace, the Federal Government
has had to continue existing public services and provide the additional
services needed for future growth. The expansion of the economy,
even though falling short of its potential in recent years, has helped
provide the resources for both increased public and private services.
We will continue to experience rapid population growth while we
seek to improve the rate of economic growth, and over the long run

V-

this will put upward pressure on Government expenditures for civilian
purposes. Nevertheless, wherever and whenever possible, we should
try to reduce costs, curtail less urgent activities, and find other savings
to permit essential new or growing services to be financed at the least
cost to the taxpayer. That has been the policy in this budget. Essential services have been provided while administrative budget expenditures decline by over one-half billion dollars between the fiscal years
1964 and 1965.
THE 1964 AND 1965 BUDGETS COMPARED
[In billiona]
Change f r o m prior year (administrative b u d g e t )
New obligational
authority

National defense
Space
Interest

Subtotal
Health, labor, welfare, and education (including
attack on poverty)
All other
Total

Expenditures

1964
budget
document

1965
budget
document

1964
budget
document

+$2.2
+2.0
+.3

-$0.2
+.1
+.4

+$2.4
+1.8
+.3

-$1.3
+.6
+.4

+4.6

+.3

+4.6

-.3

+2.1
-2.0

+2.6
-1.7

+.9
-.9

-1.1

+4.7

+1.2

+4.5

-.5

1965
budget
document

+.9

The attack on poverty.—In this budget I have provided over $1
billion of new obligational authority to begin an all-out attack on the
problem of poverty in the United States. In a nation as rich and productive as ours we cannot tolerate a situation in which millions of
Americans do not have the education, health, and job opportunities for
a decent and respected place as productive citizens. The vicious circle
of poverty—in which one generation's poverty, ignorance, and disease
breed the same problems for the next—must be broken. I propose to
break that circle by raising the educational, skill, and health levels
of the younger generation, increasing their job opportunities and helping their families to provide a better home life. I propose a program
which relies upon the traditional and time-tested American methods of
organized local community action to help individuals, families, and
communities to help themselves.
Poverty stems from no one source, but reflects a multitude of
causes. Correspondingly, a number of individual programs have been
developed over the years to attack these individual problems of job
opportunities, education, and training. Other specific programs deal
with the closely related areas of health, housing, welfare, and agri72

cultural services. I propose to establish a means of bringing together
these separate programs—Federal, State, and local—in an effort to
achieve a unified and intensified approach to this complex problem, in
which each separate element reinforces the others.
Under this proposal, locally initiated, comprehensive community
action programs would be developed, to focus the various available
resources on the roots of poverty in urban and rural areas. I shall
shortly transmit to the Congress legislation initiating this attack and
authorizing, in 1965, $500 million of new obligational authority specifically for this purpose. Additional funds for the local community action programs will be available from existing agency programs.
Moreover, other legislative proposals, recommended elsewhere in this
message, will contribute important new resources to the attack on
poverty. The Youth Employment Act, the National Service Corps,
and the community work and training program, are examples of such
proposals. Of particular significance will be the education proposal
for project grants to meet special educational needs. A l l told, in 1965
more than $1 billion of Federal resources under existing and proposed
legislation would be concentrated, through local community action
programs, in an intensive and coordinated attack on poverty.
Special emphasis is also being given to the economic needs of the
165,000-square-mile Appalachian region of the United States, which
has been largely bypassed in the growth of prosperity in recent years.
This emphasis by the Government, combined with the resources and
activities of State, local, and private institutions and enterprises in
the region, will be directed toward the development of the natural resources of the region, and the promotion of better employment opportunities for its people.

#
#
#
PUBLIC DEBT

Under present law the temporary debt limitation of $315 billion will
continue in effect through June 29, 1964. The temporary limit then
becomes $309 billion for one day, June 30, 1964, after which the permanent ceiling of $285 billion again becomes effective.
The present temporary debt limits were enacted in November 1963.
The House Committee on Ways and Means noted in its report of
November 4, 1963, that the ceilings were very restrictive, and cut
sharply into the normal allowances for contingencies and flexibility
during periods of peak requirements in March and June. The report
also noted the concern of the Secretary of the Treasury that the debt
could not be reduced to the $309 billion limit set by statute for June 30,
1964, without disrupting orderly management of Treasury finances.
Based on the latest estimates contained in this budget, the debt
subject to limit on June 30, 1964, is now estimated to be $312 billion.

Accordingly, a change in the limit is necessary before June 30, 1964,
if serious difficulties in the conduct of public debt management are to be
avoided. A further change will be needed to cover the anticipated
but reduced, deficit for 1965.
Debt limitations which are so restrictive or so temporary in application as to necessitate several legislative revisions in a single year—as
last year—conflict with economical operation of the Government and
effective financial management, and involve both the Congress and
the Executive in unnecessarily repetitive discussions of the same issues.
Instead, the debt ceiling should provide sufficient flexibility for sound
management of the Government's finances at the lowest cost, and
also permit the Treasury leeway for actively supporting the Nation's
balance-of-payments position through timely debt operations. With
or without a restrictive debt ceiling, expenditures in this administration will be held to the lowest possible level.

EFFICIENCY A N D ECONOMY IN GOVERNMENT
I call upon all Government employees to observe three paramount
principles of public service:
First, complete fairness in the administration of governmental
powers and services;
Second, scrupulous avoidance of conflicts of interest; and
Third, a passion for efficiency and economy in every aspect of Government operations.
For its part, the Federal Government must be a good employer. It
must offer challenging opportunities to its employees. I t must be
prompt to recognize and reward initiative. It must pay well to attract
and keep its share of dedicated and resourceful workers. It must welcome fresh ideas, new approaches, and responsible criticism.
For 33 years I have been in Government service. I have known its
challenge, its rewards, and its opportunities. But all these will multiply in the years to come. The time is at hand to develop the Federal
service into the finest instrument of public good that our will and
ingenuity can forge.
Controlling employment.—Although both our population and our
economy are growing and placing greater demands upon the Government for services of every kind, I believe the time has come to get our
work done by improving the efficiency and productivity of our Federal
work force, rather than by adding to its numbers.
This budget proposes a reduction in Federal employment in 1965—
from 2,512,400 to 2,511,200 civilian employees—and I have directed
the heads of all departments and agencies to work toward reducing
employment still further. This reversal in the trend of Federal employment results from a rigorous appraisal of personnel needs, de74

termined measures to increase employee productivity and efficiency,
and the curtailment of lower priority work. I t will be accomplished
despite large and unavoidable increases in workloads.
Of the 9y 2 million civilian employees of governments in the United
States today, 2y 2 million are employed by the Federal Government
and about 7 million by the State and local governments. In the decade
from fiscal year 1955, Federal civilian employment in the executive
branch will rise by 6%, while the population of the United States
will increase by 17%. State and local employment will increase about
65% during the same period.
In fiscal year 1955, we had 14 Federal civilian employees in the
executive branch for every 1,000 people; in fiscal year 1965, we will
have fewer than 13 Federal civilian employees to serve every 1,000
people.
Management improvement and cost reduction.—As substantial
as are savings due to tightening up on Federal employment, even
larger economies result from actions which eliminate waste and duplication, simplify unnecessarily complex systems and procedures, and
introduce new and better business methods.
The emphasis on management improvement in the executive branch
during the past 3 years has led to impressive economies on a very
wide front. Functions have been consolidated. Automatic data processing equipment has improved efficiency and reduced operating costs.
Excess property in the possession of one agency has been transferred
to others, saving substantial funds budgeted for new purchases. Productivity has been increased in agencies with the heaviest volume
of workloads, thus avoiding payroll increases.
In the Department of Defense, the cost reduction program has
achieved exceptional results. Without impairing combat strength or
effectiveness, savings of over $1 billion were achieved in fiscal year
1963, and annual savings by fiscal year 1967 are expected to reach the
impressive figure of $4 billion. A s part of this effort, defense bases
and installations no longer needed will be shut down. The number of
civilian employees in the Department of Defense will decrease by 10,000 in fiscal year 1964 and by another 17,000 in 1965—to the lowest
level since 1950.
I have directed all departments and agencies to continue and intensify these efforts. When the search for economy is compromised,
the taxpayer is the loser.
Government organization.—The organization of the Government
must be adjusted to cope with new and challenging problems resulting
from scientific and technological advances, the development of new
and the elimination of old programs, and changes in policies and program emphasis.

One of the most urgently needed improvements requiring congressional action is legislation to create a Department of Housing and
Community Development to provide leadership in coordinating various Federal programs which aid the development of our urban areas.
I recommend that the Congress approve establishment of this new
Department during its current session.
The authority of the President to transmit reorganization plans
to the Congress expired on May 31, 1963. Legislation now pending
in the Congress should be enacted to renew this authority.
Salary reform and adjustment.—Although this budget is deliberately restrictive, I have concluded that Government economy will be
best served by an upward adjustment in salaries. In the last year
and a half the Federal Government has taken far-reaching steps to
improve its pay practices. The Federal Salary Reform Act of 1962
and the Uniformed Services Pay Act of 1963 established the principle
of keeping military and civilian pay generally in line with pay in the
private economy. This is a sound principle, and it is reinforced by
the sound procedure of annual review. This principle is fair to the
taxpayer, to Government employees, and to the Government as an
employer.
This budget provides for the costs of such action in this session of
Congress. Any pay action by the Congress should bring salary rates
for top executive branch positions up to levels more nearly commensurate with their respective responsibilities, and increase rates for the
Congress and the judiciary. Economy and efficiency in Government
will come primarily from the hard and conscientious work of our top
managers, who are now plainly underpaid for what is expected of
them.

CONCLUSION
Approval of this budget will:
• L i f t a major barrier to more rapid growth in the private sector of

the economy by reducing tax burdens and providing investment
incentives.
• Meet the Nation's defense, international, and domestic requirements.
• Provide generously for human needs and, with local community
action, attack forcefully the pockets of human want and deprivation
in our land.
• Advance efficient and economical administration in the Government so that each tax dollar will be a dollar well spent.

The program proposed for 1965 should provide ample assurance of
our determination to keep costs under tight control and move the tax
reduction bill toward speedy approval. It should also provide ample
evidence that critical national problems need not go unsolved and
human wants unmet in a nation rich in moral as well as material
strength.
A government that is strong, a government that is solvent, a government that is compassionate is the kind of government that endures.
There is no inconsistency in being prudent and frugal, in being alert
and strong, and in being sensitive and sympathetic to the unfilled
needs of the people.
This is the objective of this administration. It is an objective
that will be met.
I firmly believe the proposals in this budget will serve the Nation
well and I ask the support of the Congress and the American people
in putting them into effect.
LYNDON B . JOHNSON.

January 21,1964.

TABLES O N THE BUDGET
Administrative Budget a n d Trust Fund Expenditures b y Function,
1958-65
T h e f o l l o w i n g t w o tables s h o w administrative budget and trust f u n d expenditures since 1958,
according

the

functions

they

serve.

The

functional

Full text of Budget in Brief : Fiscal Year 1965

FRASER