Full text of Continuation of Present Debt Ceiling : Hearing Before the Committee on Ways and Means, House of Representatives, Eighty-Eighth Congress, First Session, on the President's Request for Continuation of $308 Billion Public Debt Ceiling Through June 30, 1963, February 27, 1963

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CONTINUATION OF PRESENT
DEBT CEILING

HEARING
BEFORE THE

COMMITTEE ON WAYS AND MEANS
HOUSE OE REPRESENTATIVES
EIGHTY-EIGHTH CONGRESS
FIRST SESSION
ON

THE PRESIDENT'S REQUEST FOR CONTINUATION OF $308 BILLION
PUBLIC DEBT CEILING THROUGH JUNE 30, 1963

FEBRUARY 27, 1963

Printed for the use of the Committee on Ways and Means

U.S. GOVERNMENT P R I N T I N G O F F I C E
95743




W A S H I N G T O N : 1963

COMMITTEE ON W A Y S AND MEANS

WILBUR D. MILLS, Arkansas, Chairman
JOHN W. BYRNES, Wisconsin
CECIL R. KINO, California
HOWARD H. BAKER, Tennessee
THOMAS J. O'BRIEN, Illinois
THOMAS B. CURTIS, Missouri
HALE BOGGS, Louisiana
VICTOR A. KNOX, Michigan
EUGENE J. KEOGH, New York
JAMES B. UTT, California
FRANK M. KARSTEN, Missouri
JACKSON E. BETTS, Ohio
A. S. HERLONG, JR., Florida
BRUCE ALGER, Texas
WILLIAM J. GREEN, JR., Pennsylvania
STEVEN B. DEROUNIAN, New York
JOHN C. WATTS, Kentucky
HERMAN T. SCHNEEBELI, Pennsylvania
AL ULLMAN, Oregon
HAROLD R. COLLIER, Illinois
JAMES A. BURKE, Massachusetts
CLARK W. THOMPSON, Texas
MARTHA W. GRIFFITHS, Michigan
ROSS BASS, Tennessee
W. PAT JENNINGS, Virginia
LEO H . IRWIN, Chief Counsel
JOHN M . MARTIN, Jr., Assistant Chief Counsel
WILLIAM H . QUEALY, Minority Counsel
GBRARD M . BRANNON, Professional Staff

n




CONTENTS
Press release dated February 18, 1963, announcing public hearing on
President's request for continuation of $308 billion public debt ceiling
through June 30, 1963
STATEMENTS
Bureau of the Budget:
Hon. Kermit S. Gordon, Director
Hon. Elmer B. Staats, Deputy Director.
Treasury Department:
Hon. C. Douglas Dillon, Secretary

Page
1

2
2

.... _

2

M A T E R I A L SUPPLIED FOR T H E RECORD
Bureau of the Budget, Hon. Kermit S. Gordon, Director, statement on sales
and salability of financial assets of Federal Government
Chamber of Commerce of the United States, Theron J. Rice, legislative
action general manager, letter dated February 27, 1963, to Congressman
Mills
Curtis, Hon. Thomas B., a Representative in Congress from the State of
Missouri, table on administrative budget expenditures, 1961 and 1963..
Treasury, Department of, Hon. C. Douglas Dillon, Secretary:
Actual and estimated monthly budget receipts and expenditures and
resulting end-of-month debt levels, based on 1964 budget document.
Actual operating cash balance and public debt subject to limitation
June 30, 1962- February 15, 1963: Estimated public debt based on
constant operating cash balance of $4 billion (excluding free gold)
February 28-June 30, 1963—Based on 1964 budget document
Changes in administrative budget expenditures, fiscal years 1958 to
1961 and 1961 to 1964
Changes in administrative budget expenditures, fiscal years 1961
through 1964
Increases in administrative budget expenditures, fiscal years 1958 to
1961.




m

66
71
36
6

5
37
38
37

CONTINUATION OF PRESENT DEBT CEILING
W E D N E S D A Y , F E B R U A R Y 27,

Horsrc

1963

OF REPRESENTATIVES,

COMMITTEE ON W A Y S AND MEANS,

Wash ington, D/\
The committee met at 10 a.m., pursuant to notice, in the committee
room, Longworth Building, Hon. Wilbur I). Mills (chairman of the
committee) presiding.
The CHAIRMAN. The committee will please be in order.
The purpose of the hearing today is to receive testimony on tin,
President's request that the existing $308 billion temporary ceiling
on the public debt, which is due to revert to $305 billion on April 1
of this year, and to $300 billion on June 25 be continued through June
:5() next.
Without objection, at this point in the record I will insert a copy of
the press release that was issued on February 18, 1063, announcing
the public hearings.
Is there objection ?
None is heard.
(The press release referred to follows:)
C H A I R M A N W I L B U R D . M I L L S (DEMOCRAT. A R K A N S A S ) , COMMITTEE ON W A Y S ANO
M E A N S , H O U S E OF REPRESENTATIVES. ANNOUNCES PUBLIC HEARINGS ON PRESIDENT'S REQUEST FOR CONTINUATION OF .$308 BILLION PUBLIC DEBT CEILING
THROUGH J U N E 3 0 . 1 9 6 3

Chairman Wilbur D. Mills (Democrat, Arkansas). Committee on Ways and
Means. House of Representatives, today announced that the Committee cm W?iys
and Menus will conduct, a public hearing beginning Wednesday. February 27,
ItKtt. on the President's request that the existing $30* billion temporary ceiling
on the public debt which is due to revert to $305 billion on April 1, 1963, be con1 inued through June 30,1963.
It will be recalled that the present permanent debt ceiling is $285 billion, and
that, legislation in 1962 provided for a temporary increase to $308 billion from
July 1, 1962, through March 31, 1963, to revert to $305 billion from April 1, 1963
through June 24, 1963, and to revert to $300 billion from June 25, 1963 through
June 30, 1963.
The hearing will be confined to the President's request that the $308 billion
temporary ceiling be continued through June 30, 1963. The committee has set
aside February 27 and February 28 for the consideration of this subject.
The leadoff witness will be the Secretary of the Treasury and the Director
of the Bureau of the Budget, to be followed by public witnesses.
The limited time allotted for these hearings requires that all interested persons
and organizations must designate one spokesman to represent them where they
have the same general interest. Any interested person desiring to do so may file
a written statement for inclusion in the printed record of the hearings.
The cutoff date for requests to be heard is the close of business Monday,
February 25,1963.




I

CONTINUATION OF PRESENT DEBT CEILING 2'
It is requested that persons scheduled to appear by the committee in person
submit 50 copies of their prepared statements at least 24 hours in advance of
their appearance, if feasible. Persons submitting a written statement in Ueu of
an appearance should submit at least three copies of their statement by the
close of business February 27, 1963. If witnesses desire copies of their statements distributed to the press and the interested public, it is suggested that they
submit at least an additional 50 copies for this purpose.

The CHAIRMAN. Our witnesses today will be the Honorable C .
Douglas Dillon, Secretary of the Treasury, and the Honorable Kermit
Gordon, Director of the Budget.
Secretary Dillon, we are always pleased to welcome you to the committee. W e appreciate your being with us today again, and you are
recognized to make your statement.
STATEMENT OF HON. C. DOUGLAS DILLON, SECRETARY OF THE
TREASURY, AND HON. KERMIT S. GORDON, DIRECTOR, AND HON.
ELMER B. STAATS, DEPUTY DIRECTOR, BUREAU OF THE BUDGET
Secretary DILLON. Thank you, Mr. Chairman.
The President in his budget message last January requested legislation which would extend the present $308 billion temporary debt limit
through the remainder of the current fiscal year.
I am here today to urge approval of this legislation. I t is absolutely essential f o r the sound management of Government finances
during the final quarter of the fiscal year.
The existing law provides that the temporary debt limit will drop
from the present level of $308 to $305 billion beginning April 1,1963,
and from $305 to $300 billion beginning June 25, 1963. The debt
limit will revert to the permanent level of $285 billion on July 1,1963.
The graduated reductions scheduled f o r the debt limit in fiscal 1963
were designed to conform closely to the seasonal borrowing requirements of the Government under the assumption of a balanced budget.
This fact was specifically recognized and clearly set forth in last
year's report of this committee (dated June 7, 1962) on the bill to
temporarily increase the public debt limit, which reads as follows
(p. 2 ) :
Tour committee has concluded that the series of debt limitations provided
under this bill for the various periods of the year will be adequate to provide for
the expected seasonal variation in expenditures and receipts, but would not give
sufficient flexibility should a deficit be incurred in the fiscal year 1903.
In this latter eventuality, your committee believes that it will be appropriate
later in the fiscal year 1963 to again review the statutory debt limitation. Thus
this "step approach" to the debt limitation, with the two reductions in the
latter part of the fiscal year, is designed to provide for seasonal needs, without
providing so much leeway that it can subsequently be used to cover deficit
financing (Kept. 1789,87th Cong., 2d sess.).

A subsequent section of this same report reads as follows (p. 4 ) :
* * • Your committee concluded, however, that, in any case, it was desirable
to base the statutory debt limitation for 1963 upon the assumption that the
budget would be balanced in that year.
Should this eventuality not occur, it concluded it would be desirable for
Congress to have a further opportunity to review the statutory debt limitation
when it is apparent that conditions have changed.




CONTINUATION OF PRESENT DEBT CEILING

3'

Tli© position expressed in the report of this committee with respect
to the graduated reductions in the debt limit established for fiscal
1963 coincided precisely with my views as set forth in a statement
before the Senate Finance Committee on June 26, 1962, which reads
as follows:
This graduated debt limit is acceptable to the Treasury, provided that it is
understood that the debt ceilings in the House bill were carefully tailored to
meet the Treasury's seasonal financial requirements under the assumption of a
balanced budget
The graduated reductions established in the House bill would not be adequate
if we were to run a deficit of any substantial size in fiscal 1963 (hearing before
the Committee on Finance, U.S. Senate, 87th Cong., 2d sess., on H.R. 11990,
June 26,1962).

My purpose in relating this background history of the presently
scheduled reductions in the temporary debt limit is to emphasize the
single, most significant fact in this hearing: that when these graduated reductions from the $308 billion level were originally established, it was universally agreed that they would not oe feasible if
we were to run a deficit of any substantial size in fiscal 1963.
The balanced budget assumption upon which these debt limit "stepdowns" were based has, I regret to say, not been realized. A s you all
know, we are expecting a sizable deficit in fiscal 1963, an administrative budget deficit which was estimated in the President's budget
message last month at $8.8 billion.
This deficit was largely produced by the failure of the economy
to attain the levels o f economic activity which had been assumed
when the President's budget message was presented in January 1962.
Instead of the assumed gross national product of $570 billion in
1962, the actual figure came to only $554 billion. A s a consequence
of this slower-than-expected rate of economic expansion, we now
expect fiscal 1963 revenues to be $4.8 billion lower than we had
projected in January 1962.
Various, partially offsetting refinements in our estimates, resulting
from new and more up-to-date data, have reduced the revenue estimate by another $600 million.
Finally, administrative changes in the depreciation provisions of
the Revenue Code and the effects of the Revenue Act of 1962 have led
to a further reduction of $2.1 billion in our revenue estimate.
In sum, revenues are now estimated to be $7.5 billion lower than the
January 1962 budget projection upon which the present temporary
debt limit provisions were tailored.
Estimates for fiscal year 1963 expenditures have also increased over
last year's estimate. The increase is $1.8 billion over the figure in the
January 1962 budget message.
At the time of last year's debt ceiling hearings, additional proposals
had been made involving an amount approximately offsetting the
small surplus estimated in the January 1962 budget document.
The largest of these—for the accelerated public works program—
was subsequently enacted and is estimated to require expenditures of
$300 million in fiscal year 1963. The other expenditure increases,
however, were not foreseen at the time of last year's hearings.
The largest unexpected increases are: a rise of $895 million in expenditures on agriculture (over $400 million of which is attributable




CONTINUATION OF PRESENT DEBT CEILING 89'

to the fact that the President's agricultural proposals were not enacted), and a $541 million increase in the cost of the postal service
(stemming primarily from the fact that postal rate increases were
effective January 7, 1963, rather than July 1, 1962, as proposed).
These items, together with smaller increases and decreases in other
programs, produced the estimated rise of $1.8 billion in total expenditures over the January 1962 estimates.
In short, the combined effect of a substantial reduction in revenues
and a moderate increase in expenditures has led to the current estimate
of an $8.8 billion deficit rather than the event balance upon which the
present temporary debt limit legislation was based.
Last June, at the time of the debt limit hearings, with much evidence at hand that the rate of economic expansion was slowing down,
it was apparent that the gross national product projection upon which
we had based our revenue estimates was much less likely to be realized
than we had thought in January.
However, we did not have, at that time, an adequate basis for revising either the revenue or the expenditure estimates presented in
the budget message.
In the light of all of the uncertainties, both with respect to the
future course of the economy and with respect to the future actions of
the Congress, it was judged best to proceed with the request for a fiscal 1963 debt limit based on the assumption of a balanced budget, a
judgment with which this committee specifically concurred.
Since it is now abundantly clear that a substantial deficit will be
incurred in fiscal 1963, the scheduled reductions in the temporary debt
limit cannot be permitted to occur. The bills are coming in; they must
be paid.
An attached table clearly demonstrates that a $308 billion debt limit
is the absolute, rockbottom minimum needed to finance the operations
of the Federal Government from now through June 30, 1963.
This table was constructed on the basis of the same two assumptions
used in last years debt limit hearings: an operating cash balance of
billion and an allowance for flexibility and contingencies of $3 billion.
The table shows that a $308 billion debt limit will not, in fact,
provide us with anywhere near this margin for flexibility and contingencies during the remainder of fiscal 1963.
In mid-June, the margin under a $308 billion debt limit with no
provision for contingencies will shrink to an extremely narrow $800
million.
However, since we are nearingr the end of the fiscal year, both revenues and expenditures are unlikely to vary substantially from current estimates, so we can afford to run the risk of what would otherwise be an unacceptably narrow margin.
It is for this very simple and very compelling reason that. I earnestly
recommend the prompt approval by this committee of legislation
extending the present $308 billion temporary debt limit through the
remainder of this fiscal year.




CONTINUATION OF PRESENT DEBT CEILING

5'

(The tables referred to follow:)
Fiscal year 1963: Actual operating cash balance and public debt subject to
limitation, June SO, 1962, to Feb. 15, 196S—Estimated public debt based on
constant operating cash balance of
billion (excluding free gold), Feb. 28 to
June SO. 1!Hi3. based on 1964 budget document
Lin billions]
Operating i Public debt
cash balance ; subject to
(excluding j limitation
free gold) ;

Actual, 1962:
June 30...
July 15...
July 31.
Aug. 15Aug. 31..
Sept. 15..
Sept. 30..
Oct. 15...
Oct. 31. Nov. 15..
Nov. 30Dec. 15...
Dec. 31—
1963:
Jan.15.
Jan. 31...
Feb. 15...
Estimated:
Feb. 28. „
Mar. 15..
Mar. 31..
Apr. 15...
Apr. 30...
May 15..
May 31..
June 15...
June 30...

95743—68




2

59.4
6.4
5. 5
6.2
7.7
5.3
8.3
7.8
5. 7
5.0
6.3
3.5
6.7

$298.2
298.3
297.9
299.7
301.9
301.8
299.6
302.9
302.2
304.7
305.5
303.9
303.6

4.4
4.5
4.4

304.2
303.6
304.1

4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0

302.5
305.1
300.5
304.2
303.4
303.7
304.4
307.2
302.5

Allowance
to provide Total public
flexibility
debt limitain financing tion required
and for contingencies

$305.5
308.1
303.5
307.2
306.4
306.7
307.4
310.2
305.5

Fiscal year 1968: Actual and estimated monthly budget receipts and expenditures and resulting end-of-month debt levels, based on 1964
budget document
[In millions of dollars]
Net
receipts of
trust and
Surplus ( + ) clearing
accounts
Expendior
tures1
deficit ( - ) and other
transactions

Financing means

Budget receipts and expenditures

Net
receipts1
Balance on June 30,1962.
Actual, 1962:
July
August
September.
October
November
December
1963: January
Estimated:
February
March
April
May
June
Fiscal year 1963..

Decrease in Increase
operating
in debt
cash
subject to
3
balances
limit

Operating
cash
balances *

Debt
subject to
limitation

9.4

298.2

+.3
-1.6
+1.5
+.3

3.6
1.8
-2.9
5.2
2.7
-2.3
2.2

3.9
-2.2
-.6
2.6
-.6
-.4
2.2

-0.3
4.0
-2.3
2.6
3.3
-1.9

5.5
7.7
8.3
5.7
6.3
6.7
4.5

297.9
301.9
299.6
302.2
305.5
303.6

-1.1

+2.6

+.4
-.4
-.6
-.7

.5

-2.5
-.4

-.6
-2.0
2.9
1.0
-1.9

4.0
4.0
4.0
4.0
4.0

302.5
300.5
303.4
304.4
302.5

-8.8

-.9

9.7

5.4

3.6
7.1
10.0
3.0
7.0
8.4
5.5

7.3
8.5
7.3
8.5
8.1
7.6
8.0

-3.7
-1.4
+2.7
-5.5
-1.1
+.8
-2.5

7.5
9.3
5.0
7.4
11.7

6.9
7.7
7.5
7.8
9.1

+.6

85.5

94.3

+1.6

+0.1
-.4
+.2

i Totals based on 1964 budget document, Monthly spread for February through June
estimated by Treasury.
* Excluding free gold.




Total
to be
financed

-2.0
2.9
1.0
-1.9

Allowance
for flexi- Total debt
bility and limitation
required'
contingencies

305.5
303.5
306.4
307.4
305.5

4.3

3 At the midmonth points in March and June the requirements are $308,100,000,000
and $310,200,000,000, respectively.

CONTINUATION

OF PRESENT

DEBT

CEILING

7'

The CHAIRMAN. Does that conclude your statement, Mr. Secretary?
Secretary DILLON. That concludes the statement; yes, sir.
The CHAIRMAN. Mr. Gordon, I understand that you are here for
the purpose of assisting in the answering of questions and not to
supplement the Secretary's statement with an additional statement;
is that right?
Mr. GORDON. That is correct, Mr. Chairman.
The CHAIRMAN. Mr. Secretary, we thank you, sir, for this statement of the situation and your recommendation for action by the
committee.
W e appreciate, Mr. Gordon, your being with us to assist us with
our questions.
Are there questions ? Mr. Herlong.
Mr. HERLONG. Mr. Secretary, in the last political campaign that I
ran, the opponent that I had must have thought it significant because
the one issue that he ran on was that Herlong voted to increase the
debt limit. As I say, he repeated it in every advertisement, in every
radio and television show that he made.
I would like you to state for the record just what would happen if
Congress didn't increase the debt limit. This is an academic question,
but I want the statement to come from you for the record.
Secretary DILLON. Mr. Herlong, the only thing that could happen
there would be that the United States would have to repudiate its
obligations. It could not pay its bills. It could not even, if the debt
limit went back to the permanent debt limit which is substantially
below the temporary level, pay its bonds, its notes, and its bills as they
come due every week.
The first effect of not increasing the debt limit would have to be a
slow-up, as has happened before, in payments on the bills that the
Government owes to contractors.
Mr. HERLONG. That the Congress has appropriated ?
Secretary DILLON. That the Congress has appropriated money for.
There are, of course, certain devices that have been used in the past by
the Treasury when it got close to the debt limit, and there was a question of needing a small, additional amount of funds to be able to stay
under the debt limit, something in the nature of $1 billion. The
Treasury has used some financial devices, such as selling certain participations in Fannie Mae mortgages to the public, but. these were
temporary things that cost the Government half of 1 percent to threequarters of a percent more than it would have had to pay if it borrowed the money under the debt limit itself.
These devices have been very strongly criticized in a number of reports to the Congress by the Comptroller General, and when they
were adopted by my predecessors it was with great reluctance and
they so stated. "They would only be useful to take care of very minor
amounts compared to what we are facing here.
Mr. HERLONG. The problem today is much larger than it has been
in previous requests of the committee.
Secretary DILLON. That is right.
Mr. HERLONG. Thank you very much, sir.
Secretary DILLON. Thank you, Mr. Herlong.
Mr. K I N G (presiding). Mr. Byrnes ?




8

CONTINUATION OF PRESENT DEBT CEILING 8'

Mr. BYRNES. Mr. Secretary, we have interrupted the hearings on
the proposal to cut taxes in order to hear this matter, which points
up an increase in the debt. I wonder, first, if I could inquire about
the tax bill itself, in view of the fact that the President the day before
indicated that the important thing was that we get a tax reduction of
$10 billion.
When you were previously before the committee on the matter of the
tax bill, 1 inquired about the relationship of the structural changes to
tax reduction, and your point at that time was that, and I will quote
you—
that there are certain rather inextricable connections between the reductions
and the reforms.

If I interpret correctly the President's statement before the bankers' symposium on the 25th, he didn't see that there was such an important inextricable connection. What is the situation now ?
Secretary DILLON. I think the situation is very clear. I don't think
there has been any change in the situation as presented in the original
administration program, right from the beginning. We have a program, which is the program that the administration, including, of
course, the President first of all, supports and feels is the best program.
In that program, the central element has always been, as I said in
my own statement here, the most important single element is top-tobottom reduction in corporate and personal income taxes. Certainly,
we have always recognized the very special prerogatives of the Congress and? in particular, the House of Representatives, and in particular, this committee, in writ ing tax legislation.
We do make proposals and we do talk them out before this committee. The public has every opportunity to make their views felt,
and then a tax bill is presumably written. A bill, when it comes, is
never the same as the recommendations by any administration, which
are always couched in general terms. W e believe and we support the
recommendations that we have put. forward. I f some of those prove
to be unsatisfactory, as I have said, they are very closely tied into the
rate structure.
I believe the President made that clear, too, when he said to the
bankers that it would presumably be necessary to rewrite the whole
rate structure if a number of these large revenue-raising measures
were left out.
It certainly is our feeling, our desire, and we feel certain that when a
bill is reported it will not be a plain rate reduction bill and nothing else.
We are trying to promote long-range growth, and naturally, you
can't entirely eliminate equity and simplicity in the tax structure from
that. Although if you are forced to say which is the single most important element. I think the most important thing is the revision
of the rate structure. I always have.
But we do expect, and we are for, and the President is for a substantial structural change—we may use the word "revisions" because
apparently the word "reform" has a bad connotation to some—and we
expect that will be the result.
Mr. BYRNES. What I am trying to get at is whether you agree that
the major thing that the administration is concerned with now is a
$10 billion reduction in taxes.




CONTINUATION OF PRESENT DEBT CEILING

9'

Secretary D I L L W N . 1 have said that in my o p e n i n g statement here;
that the central focus of the bill was that, and it was the single most
important element in the bill. That was in my prepared statement.
I still think it is, and always has been.
That doesn't mean that because it is the most important that everything else that is recommended has no importance at all. I think
that has been the error in interpreting remarks that various people
have made, in particular these of the President,—that because he
stressed the importance of this, that he cast aside the importance of
all the other elements in the bill, which is not true at all.
Mr. BYRNES. I gather as far as the structural changes are concerned,
you are going to leave it to the judgment of the committee as to
whether or not they should be incorporated. However, as far as the
$10 billion reduct ion is concerned, that the administration really wants
t hat and wants to impress its desires on the committee in no uncertain
terms.
Secretary DILLON. We leave everything to the judgment of the committee, but we will try all the way through to give the committee all
the facts as we see them and we hope the committee will come to conclusions similar to those we come to.
There will be some differences. The question on some of the reforms is a far more complex question than the question of just a reduction of rate schedules. The impact of changes on various people
is a more complex matter.
Testimony that will come forth, the record will probably show, and
undoubtedly shows, that there will be necessity for changes in some of
the recommendations that we have made, particularly in the reform
area. To the extent they change revenue there will probably be need
for changes in the rate schedule. Certainly we leave the rate schedule
to the judgment of the committee.
We made a recommendation, but I notice that there are strongly held
views that, have been put forth publicly by certain business organizations that the rate reductions are in the wrong place; they don't concern themselves so much about the amount. They would rather have
different kinds of rate reductions.
There have been similar indications on the part of organized labor.
They want them different places. Both of them want them in opposite places. It may well be that the committee will decide that
the proper form of rate reduction is something different than we
have recommended. That is in the same category.
Mr. BYRNES. There is no point of our arguing, but I do want to
get a clear picture of this. As I read the President's statement before
the bankers, it didn't seem to leave any question of judgment as far
as he was concerned, and as far as his idea of what the needs of the
country were. The President said that we had to have a $10 billion
tax reduction.
In fact, I practically read into it if Congress didn't give it to him,
Congress would be responsible for a great recession.
I didn't get the impression from what he was saying that there
was much being left to the judgment of the Congress on the $10
billion. That was an absolute necessity. That was the foremost
objective of the administration.




CONTINUATION

OF PRESENT

DEBT CEILING 10'

I would like to know whether that is a proper interpretation of
the President's decision—that the reforms are the only matters that
are left to the discretion of the Congress.
Secretary DILLON. I don't think there should be any misunderstanding as to the administration's position, including the President's,
in favor of the reforms that he has recommended.
Mr. BYRNES. I understand that. You would like to have the reforms, but you are not really going to put a great deal of emphasis
on them. There you take the very splendid attitude, " W e will let
the committee judge the merits and demerits."
Secretary DILLON. I think we will put very considerable emphasis
on them because we think that they are necessary to justify the central
theme o f our tax bill, which is the rate reduction which has been
recommended. Without certain of these reforms, the type of rate
reduction, the amount of rate reduction will have to be very substantially changed, and that would be a very difficult assignment.
It is not easy to construct a rate schedule, as I think we will discover
as we get furtner along in our work.
Mr. BYRNES. Y o u still have me confused. I f these reforms are
essential to justify the $10 billion rate reduction, then it would almost
seem to say that you have to have a package.
Secretary DILLON. Obviously there are 3 0 , 3 1 , or 3 6 , or something
of that nature of specific suggestions, and they can't all be of equal
weight and importance to the single most important thing—the
central focus of the bill which we have talked about—taking the
shackles off the economy and freeing it to operate at full capacity
through a more equitable and lower rate structure. However, in
general a substantial amount of these reforms will be required. W e
think a lot of them are desirable. Some are more so. They can't
all be identical in a complex situation such as this.
But there should be no misunderstanding of the fact that the administration has sent forward a bill with a substantial number of structural changes in it, and that it believes that this is the best bill for
the economy and for the country or it would not have sent it forth.
As I said, in some of these more technical things, testimony may
develop which shows that there are better ways to reach the same end
in some of these areas of structural change. * W e will be glad to discuss those in detail when we reach the executive session, based on all
the evidence that has come before the committee, but that doesn't mean
we have lost any interest or the President has lost any interest in the
feneral concept of having a bill that does have a substantial rate reuction passed at this session of the Congress. It will have a staged
rate reduction which will also include a substantial number of structural changes.
Mr. BYRNES. W e have had 3 weeks, and the country has had 3 weeks,
to consider the structural changes that you proposed. W e have had
now a week and a half of listening to witnesses on some of them.
My mail and my impression from the witnesses that appeared here
is that the reforms have not produced any great public acclaim for
the structural changes that you have suggested. There is no great
public demand f o r most of them.
I f the No. 1 need of the economy is this $10 billion reduction, as the
President said, the important thing is to get the bill this year.




CONTINUATION OF PRESENT DEBT CEILING

11'

"Whatever is necessary to get that bill. I would support," the President said. From public reaction to date, and also considering the
details of what has been proposed, it seems to me the structural reforms are bound to encumber the potential of reaching the objective
t hat the President points to.
I would repeat at this time what I said when you first appeared
before us: that possibly most of these structural reforms might well
be put into the deep freeze and then we could proceed with the major
objective that the President is seeking.
Let me ask this, Mr. Secretary: When did this recession threat come
into the picture? In the President's state of the Union message, in
his economic report and in his tax message, he gave us a feeling of
relative well-being, stating only that we were not moving ahead quite
fast enough.
There certainly was not any indication that we were moving into a
recession. He talked about Iiow we enjoyed 22 months of economic
recovery, the recession is behind us. These are quotes. "Foreseeable
t rends point to still further advances."
When did the administration decide that we had to start worrying
about a recession next year unless we had this $10 billion decrease in
taxes and the increased deficit that will come from that?
Secretary DILLON. I am glad that you asked that, question, Mr.
Byrnes, because I think there has also been considerable misapprehension and misunderstanding on that subject. The administration,
based on the economic situation which it is able to see today, and the
best estimate looking ahead, does not foresee any recession in 1963.
I think the President made that perfectly clear.
Mr. BYRNES. HOW about 1 9 6 4 ?
Secretary DILLON. When he talked to the Bankers. IT is hard to
look forever into the future, but I will come to that in a moment.
The situation seems reasonably good. We are not moving ahead
quite as rapidly as we would like in all the various economic indicators, but nevertheless, the signs that generally precede a recession,
such as swollen inventories, tight credit, over-use of credit, and things
of that nature, are not present. So it does not seem that a recession
is in the cards in any immediately foreseeable future.
However, historically I think the other side of the coin is that we
all have to be aware of the fact that business and our economy has
moved in a cyclical fashion over the last 100 years or more. These
peacetime cycles have averaged over the last 100 years something
like 26 months of expansion before the economy turned down again.
If you go to the last 50 years, I think the average for peacetime cycles
is longer^ something like 28 months.
Just, since the war, because we had one particularly long upswell
during and after the Korean war, the average is considerably longer,
36 months. The last upswing lasted 25 months. We have now been
through or we are coming into the 25th month—March will be the
25th month—of this recovery.
So I think we have to realize that, history would indicate that at
some time we would not keep on going up forever without some cyclical change. W e do feel that since the war, and particularly in tlie
last 10 years, we have been able or our economy has operated on the
basis on which the downturns have been less deep. They have been




12

CONTINUATION OF PRESENT DEBT CEILING 12'

much shallower, and we hope that can continue to be improved, and
maybe we will be able to have a performance as good as that of the
European countries of the last 10 or 15 years, where their downturns
are only marked by slower growth than the periods of rapid growth
in their economic upturns.
As far as the tax bill is concerned, it is designed, as was made
clear, to promote long-term growth in the economy and to cure the
situation which we have been in the last 5 years, where we have been
unable to reach full capacity or full employment situations. Certainly if and when the cyclical situation turns against us and begins
to soften, if the tax reduction and reform has been enacted and is in
prospect, it will be a strong supporting factor to mitigate any downturn that might otherwise occur. It might even let us reach this
situation of the European countries where our downturns are not absolute at all, but just slowups. That is the connection.
I think we have to look ahead and look back at what history shows
us. Certainly the tax reform and the tax revision will be a strengthening thing against cyclical forces and it will also make us do better
when we are on the upswing so that we can reach this full capacity
that we would all like to see where our unemployment can get down
once more to reasonable levels.
I think that puts it in the proper framework. I don't think anyone
is afraid of a recession right around the corner. Certainly if one
comes as it has in the past, we will be infinitely better off if we have
this tax bill enacted with the reduction. That will be a strong weapon
in our arsenal.
Mr. BYRNES. I thought the recession might be right around the
corner. The President frightened me, whereas he gave me a feeling
of security a month ago. Two days ago he said if a tax cut is not
enacted, and I quote again—
that the country will in the not too distant future be struck with its fifth postwar recession, with a heavy loss in jobs and profits and a recordbreaking budget
deficit and increased burden on the national debt.

I thought that was rather imminent because he was tying that with
the absolute need of a tax cut of $10 billion this year.
Secretary DILLON. The President, very clearly in his speech before
the bankers, also said he didn't foresee any recession in 1963. He also
pointed out the same thing that I have just point out: the historic
fact of what the cycle has been in the past, the fact that we have had
a cyclical movement and what these months portend.
I think it is a fair assumption that if we continue without any tax
action that the prospects of what has happened in the past, the cyclical
prospects to reoccur, will be very substantially greater than if we have
the tax action that we have recommended.
Mr. BYRNES. YOU don't see a recession in 1 9 6 3 . What about 1 9 6 4 ?
That is certainly a period of time that is close enough to us that we
can have or not only should have some concern about, but is right
around the corner. W e are starting on the fiscal 1964 budget. We
are talking about fiscal year 1964. It is not so far away. Do yon see
a potential recession if we don't pass the tax bill in 1 9 6 4 ?
Secretary DILLON. I don't want to say that I see a potential recession then or any other far time in the future. All I can say is that




CONTINUATION OF PRESENT DEBT CEILING

13'

very clearly the prospects for a recession in 1964 would be greater if
we didn't pass the tax bill than if we do, first, and secondly, if we
should for cyclical reasons get this anyway, even if we do pass it, the
effects of the recession would be much more severe without the tax
bill. There would be far more people unemployed than would be the
case if we do enact the tax bill this year.
Mr. BYRNES. What do you consider a recordbreaking budget
deficit? The President used that term as one of the consequences of
failure to enact a tax cut. What is a recordbreaking budget deficit—
something more than $12 billion ? That is what is being anticipated
now for next year, and it is related somewhat, I assume, to the deficit
that Mr. Eisenhower experienced when he was President.
Secretary DILLON. I won't say it was just Mr. Eisenhower. I
think it was the economic conjuncture of a recession coming at a time
when our economy was not very strong, and I think his own economic adviser has said, looking back, he wishes they had been able
to take action to reduce the tax burden in 1957.
That might have saved the country a lot of problems. This is
one regret. Of course, that is hindsight. I don't think any of us
saw the problem clearly in that time, so I am not at all critical. But
history showed that. Certainly I think just looking at a record
deficit, that is the largest deficit that has occurred in peacetime.
I think the President has pointed out that if we should, in our
present situation, slide into another recession, we would have a still
larger deficit to face us and that is something that we want to do
everything we can to avoid and mitigate. I hat is one reason, for
feeling that this tax bill is so important.
Mr. BYRNES. W e are almost anticipating a recordbreaking deficit
for fiscal 1964. W e are missing it only by $600 million.
Secretary DILLON. I think it is $500 million, or something like that.
Mr. BYRNES. W e are coming pretty close as it is.
Secretary DILLON. A S far as estimates are concerned, no administration has been able to estimate within that degree of closeness,
but we do the best we can, and that is the best figure we come up with,
Mr. BYRNES. Using the estimates of receipts and expenditures on
which we base potential need for increases in the debt, is it not true,
that as far as the expenditure estimates you gave us last June are
concerned, up to now the actual experience has been pretty close to
those estimates ?
Secretary DILLON. A s I said in my statement, about $1.8 billion
is the increase in expenditures over the January estimate. I mentioned at the time of last June that some supplemental proposals had
been sent up which would use up the $500 million surplus, so we were
talking about a balanced budget. W e were already then sort of
assuming. I would say, in one way or another that expenditures
might run $500 million over the January estimate. Instead, our
present estimates are in this January budget, instead of $500 million
over, they are $1.8 billion over, so it is about $1.3 billion more than at
that time which is made up, as we pointed out, just by agriculture and
the Post Office alone.
But that is not the only change. There have been a lot of other
increases and quite a number of substantial decreases that offset each
other.
95743—63




3

CONTINUATION OF PRESENT DEBT CEILING 14'

Mr. BYRNES. It is fundamentally your miscalculation, misjudgment, and misestimate of receipts that causes you to be here today,
rather than a change in the expeaiture picture.
Secretary DILLON. I pointed out that $ 7 % billion of change in
receipts, and $1.8 billion in expenditures. So it is obvious that a
change in receipts is considerably larger than the change in
expenditure.
Mr. BYRNES. When did you realize that your estimates of receipts
were in excess of what actually would be received ?
Secretary DILLON. A t the time of our hearings last May, the end of
May and the first of June there was available to the committee some
estimates by the joint staff which indicated in their view a deficit, or
less revenues, of $3.8 billion without the tax bill, and $4.9 billion with
the tax bill. It turned out they were on the low side, too. It was
obvious by then that we were heading into a situation economically
less good than we had foreseen and than our hopes were based on.
However, at that time we just were coming to the end of 2 months of
very good economic growth.
As you recall, there was a slowdown in January and February and
March, and a sharp pickup in April and May. It was very hard to
make any forecast. What we said at the time was that although it
was far less likely that we would be able to achieve the results that we
had hoped for. we were, nevertheless, not in a position to say they were
totally impossible and, therefore, we didn't feel it appropriate to try
to make different estimates. That the committee specifically agreed
with.
There are a number of things that entered into this. It was not just
the rate of economic growth. W e have to base our revenue estimates
on the figures for personal income, gross national product, and things
of that nature, which the Government has.
One of the things which happened was an annual revision which
takes place in July by the Department of Commerce. The Department of Commerce found that the preceding December our economy
had been actually at a level some $3 billion lower than the figures
they had been publishing before, so we have been operating, because
of these figures, on a mistaken assumption. T o the extent that was.
taken into account, our January estimate would have only been $567
billion rather than $570 billion.
So there are a lot of things which entered into this. Certainly
there was no one date on which we became aware of what the results
were going to be. I think by the time of the midyear review after
Congress left, we had the benefit of 9 months of the calendar year
behind us and we could see much more clearly what was happening
to the economy and what the results were going to be, and we then
put out a revised estimate which has not changed very much since
then.
Mr. BYRNES. Let me see if I can pinpoint the time when you realized that your receipts were going to be less than you estimated, and
that you were going to be faced with this pressure on the debt ceiling.
In June you said you called attention to the fact that there were
some estimates made which were too optimistic. You were here still
predicating your request for the debt ceiling that the Congress passed
at that time on the tables that you presented—estimated receipts and




CONTINUATION OF PRESENT DEBT CEILING

15'

expenditures, which if we had lived within them, would not necessitate
this appearance here today, or our consideration of this legislation.
When did you find out that things weren't going according to the
estimates and that something would have to give ?
Secretary DILLON. Not that something would have to give, but
we knew it and made it clear during those hearings at the end of
May and the first of June. What we said, or what I said, was that
the economy had not performed up to expectations. It had done
for the last 2 months about as well as our expectations had been, but
that was for a 2-month period. Therefore, we had a gap to make
up that was possible to be made up, but only if the economy moved
faster in the last half of the year than our original projections had
been. But we couldn't discount that entirely.
Therefore, it was just decided, since it didn't seem very feasible to
make a completely new estimate, that we would set a particular
pattern here, which is the first time that the committee had chosen
to do this—to set a pattern that would be geared strictly to the seasonal needs of the Treasury and wait and see what the economy
brought forth in the future.
The record shows that last May and June we weren't saying that
everything was going just the way we prophesied in January. W e
are perfectly frank in admitting that it was not, but we were not in
a position to make any much more valid assumption as to what would
happen for the year, so it was easier to do it that way.
Mr. BYRNES. There did come a time, Mr. Secretary, when it must
have been recognized or known that you were going to be up against
this ceiling, and unless the expenditure picture changed you were
going to have to come in for an increase m the debt ceiling that we
established last year. About when was that? That is what I am
trying to get at.
You had suspicions in June, as I gather, or the end of May, when
we did consider the debt ceiling. There were suspicions then.
Secretary DILLON. Yes.
Mr. BYRNES. But they were not firm. That was your attitude, as
I understand it.
Secretary DILLON. Yes; the record will show that.
Mr. BYRNES. You decided that things might take a turn for the
better, and so forth, so you still relied on your then current estimates.
That is really what you told us, isn't it ?
Secretary DILLON. Yes. W e couldn't give you any better estimates
to rely on. That is the real thing.
Mr. BYRNES. Some time subsequent to that you were in a position
to have better estimates.
Secretary DILLON. That is correct.
Mr. BYRNES. About when was that?
Secretary DILLON. I would say at the time of the midyear review
was the first time we had a complete review of what the expenditures
were going to be and also at that time it was possible, the time the
Government regularly makes the second forecast, and we made it
in due course at that time.
Mr. BYRNES. Was that October?
Secretary DILLON. No, the midyear review, I think, came out about
a month after Congress adjourned, as usual. I think the date was
the 13th of November.




CONTINUATION

OF PRESENT

DEBT CEILING 16'

Mr. BYRNES. They were a little late that year, too.
Secretary DILLON. N O . Actually, I think they were a little quicker
than the average after the adjournment of Congress. Congress was
rather unusually late in adjourning and getting its business done.
Mr. BYRNES. I recall there was some question whether the revision
had been held back to be released after a particular date in November
that concerned a lot of people.
Secretary DILLON. N O , 1 think if you will look at the record in
the past you will find they came at the regular time after the adjournment of Congress. I t just so happened that Congress adjourned much
later than usual.
Mr. BYRNES. Anyway, in November vou knew you would have to
come here sometime before the 30th of March and get a change in
the debt ceiling if you were going to continue the spending program.
Secretary DILLON. That is right.
Mr. BYRNES. Y O U outlined to Mr. Herlong some of the dire consequences of spending in excess of your borrowing capacity. That
is another way of putting it ; isn't it ?
Secretary DILLON. That is correct.
Mr. BYRNES. Y O U either get more credit or you stop spending, and
the dire consequences can be avoided by doing one or two things. You
can either increase your credit capacity by an increase in the debt
veiling, or you can cut back on expenditures, can't you?
Seretary DILLON. That is right.
Mr. BYRNES. Y O U knew in October that you were going to be faced
With that problem.
Secretary DILLON. November.
Mr. BYRNES. What was done in November? I direct this to you
and to the Director of the Bureau of the Budget. What was done
in November and since to cut back on the expenditure side?
Secretary DILLON. I will ask confirmation from the Director of
the Budget, but I don't think there was any major effort there because
of the record that was clearlv established at the time of the debt
ceiling hearings, that if we failed to have the revenues which we
expected, there would be an opportunity, and Congress looked forward to an opportunity, of reviewing the debt ceiling problem again.
It was quite different from any previous debt ceilings which were
always in the past adopted for a full year.
You will recall that we had originally suggested that Congress
adopt the $308 billion debt ceiling for the full year. I f that had
been done, we would not need to have gone through the second exercise
we are going through now. The alternative of changing expenditures
would have meant that since a great bulk of our expenditures, as you
know, were in the defense field, that the very moment we were face
to face with the Soviet Union m the greatest confrontation that we
have had in postwar times, that we would have had to be canceling
defense contracts right and left and telling contractors we would
not pay them.
Mr. BYRNES. Would you have had to cancel them? I don't agree
that all of this burden would have had to be placed on defense and
I don't think any thinking American would agree with the practice
of cloaking everything with the idea that if you reduce expenditures
you will interfere with the defense and security of the country. I
think it is being overplayed.




CONTINUATION OF PRESENT DEBT CEILING

17'

1 caii show you expenditures in the State of Wisconsin that are
boondoggling expenditures that should not be made today.
Secretary DILLON. I would like to know about that. If you would
send those from Wisconsin, we can probably take care of them.
Mr. BYRNES. I have pointed out one to the Secretary of Commerce
which he authorized just recently—the building of a tissue plant in
Wisconsin—under the Area Redevelopment Act when the tissue industry is operating only at 85 percent of capacity. There is nothing
to show that this is a sound economic investment. I f that is not
boondoggling, I don't know what it is.
We also have post offices and other buildings being put into Wisconsin, some of them are in my district, and I am not afraid to suggest
that the Government can save some money by not doing it, or postponing it, or doing it in a more modest way. Some of these projects
just happen recently to have been withdraw for another look at because the Government officials involved knew they would look bad.
Don't tell me that everything is hi the defense area.
Secretary DILLON. That is a good indication that they are being
careful.
Mr. BYRNES. They are being careful because some of us started to
question the projects. That is why they even took a second look.
Mr. GORDON. On your last point, Mr. Byrnes, I agree that not everything is in the defense area.
Mr. BYRNES. Of course not.
Mr. GORDON. There are always other possibilities of retrenchment.
But it does seem to me relevant to point out that the last time we had
a debt ceiling squeeze beginning in July 1957, if you look at the record
you will find most of the retrenchment was in the defense area.
This was a period in which defense contracts were cut back and orders
stretched out.
Mr. BYRNES. They were stretched out more than canceled.
Mr. GORDON. There were some cancellations, Mr. Byrnes.
Mr. BYRNES. They apparently didn't injure the security of the
country.
Mr. GORDON. I wonder whether the security of the country in that
period could not have been bought at a lower price if they had not
had to operate on this start-and-stop basis? For one thing, progress
payments to contractors were reduced. This meant that contractors
had to go into the market to borrow money to finance their inventories.
The Government paid the bills for the cost of financing these inventories. I suspect in the long run the bills turned out to be somewhat higher.
Mr. BYRNES. But you are saying that there was not a penny that
you could save. You knew you were going to be up against this ceiling. Nothing was done in spite of the fact that the Congress might
not give you the increase in your line of credit. You were willing to
face up to these dire consequences that the Secretary of the Treasury
has suggested to our colleague from Florida.
Secretary DILLON. Most certainly because the Congress had appropriated all these funds. The Government's job is to carry out the
programs that have been authorized and appropriated for and the
Congress agreed were proper. There have been times in the past when
the Executive has impounded certain such funds because he thought




CONTINUATION OF PRESENT DEBT CEILING 18'

too much had been appropriated and there had been waste and unnecessary extravagance on the part of Congress, but that has not been
very frequent. This time there was no such feeling. W e felt that
the national security meant that we should move ahead in the defense
field and the various appropriations that had been made in other
areas were generally proper and there was no reason, because in
another action, Congress had set a debt limit which they specifically
said they were prepared to look at again if revenues didn't come up to
expectations; that we should then start disregarding our own recommendations and the recommendations and actions of the Congress in
appropriating the funds to carry these forth.
Mr. BYRNES. Did you get the impression last year that all you had
to do was come to us ana say, "Well, we need some more borrowing
authority," that we were saymg "Just come to us; don't worry about
whether you are faced with that ceiling, we will just give you anything you come around and ask f o r " ?
Secretary DILLON. No, I certainly never have had the impression
that the Congress just increases debt ceilings lightly or does anything
lightly. Everything that the Congress does it thinks about very carefully and makes up its own mind. But certainly I did have the very
definite impression that if revenues did not come up to expectations,
the Congress would like to have another look at the matter itself
before the Executive canceled a whole lot of programs that were also
approved by the Congress in its regular capacity.
That certainly was clearly the desire and the intent of the Congress
in stating that it expected if there should be a deficit that we should
come back and have another chance to look at the debt ceiling. They
would not have said they wanted to look at it again if they didn t
have in their mind willingness to continue changing it.
Mr. BYRNES. Let us get to the willingness.
Secretary DILLON. Willingness to consider.
Mr. BYRNES. Did you ever look at the vote by which last year's
bill passed the House of Representatives and recognize how close it
was even getting that amount ?
Secretary DILLON. Yes, I knew it was a close vote.
Mr. BYRNES. Y O U bet your life it was close. I am suggesting to you
that I don't think the climate and the environment is any more favorable this year. A s far as I am concerned, your failure to do anything
to readjust your expenditure picture when you knew in Octolber or
November what the situation was going to be, does not put the administration in a very comfortable position to now come in and say, "All
right, Congress, you just raise the debt ceiling."
Let me comment, Mr. Secretary, on your suggestion that after all,
Congress had made these expenditures. You didn't revise your estimates and Congress had no information from you as to the estimates
of receipts until after it had adjourned.
Secretary DILLON. That is correct.
Mr. BYRNES. SO it seems to me there is certain responsibility on
an administration which has these facts, sees an emergency is coming along, that has the potential of creating the dire consequences
that you told Mr. Herlong would result. The administration had
an obligation to make an effort to avoid this condition, and not just
come to Congress and ask for an increase in the debt ceiling every
time you hit the ceiling.




CONTINUATION

OF PRESENT

DEBT CEILING

19'

These ceilings are meaningless if that is the attitude. No matter
how I happen to finally vote on this particular piece of legislation,
I will not be suggesting that this is a temporary proposition which
we will review if we haven't given you quite enough, while the spending goes its merry way. You have in your table $7 billion of leeway ?
Secretary DILLON. N O .
Mr. BYRNES. Y O U have $ 4 billion of operating cash balances. I
realize you have to maintain some cash balances, but in addition
to that you have $3 billion of flexibility in here in arriving at what
you feel you need.
Secretary DILLON. Actually, the $ 4 billion figure is an arbitrary
figure which is used for the purpose of these hearings. But it is considerably smaller than what is required for the day-to-day operations
of the (jovernment. Actually, we probably, out of this total of cash
that we have to have in the bank and the flexibility provision which
add up, as you said, to $7 billion, we probably actually have about
$2 billion of flexibility there.
Maybe $2% billion or somewhere in
that neighborhood.
Mr. BYRNES. You suggest that the table you presented—is that
table in the record ?
Secretary DILLON. There are two tables in the record.
Mr. BYRNES. There is no use of our talking about March.
Secretary DILLON. N O .
Mr. BYRNES. W e go to April, May, and June.
Secretary DILLON. That is right.
Mr. BYRNES. Y O U show a debt subject to limitation of $303.4 billion.
Secretary DILLON. That is April 3 0 . On April 1 5 it would be higher than that. It would be $ 3 0 4 . 2 billion.
Mr. BYRNES. All I am trying to get at right now, Mr. Secretary,
is the relationship of the debt limitation plus the cash balances plus
the allowance for flexibility. You have $ 3 0 3 . 4 billion subject to
limitation on April 30.
Secretary DILLON. Yes.
Mr. BYRNES. Plus $3 billion of flexibility and contingencies.
Secretary DILLON. That is correct, on April 3 0 . As I pointed out,
the debt would be larger on April 15.
Mr. BYRNES. I f you want to talk about April 1 5 , it is all right with
me. What I am trying to do is to show how it works. I am not concerned with the exact figure at this time.
Secretary DILLON. I am perfectly willing to talk about any figures
you want, but I just want to make it clear that often the dates on which
we have the greatest need of debt happen to be in the middle of the
month and that happens to be the case, particularly in June.
Mr. BYRNES. Take your April 1 5 date. We will probably get along
faster. $ 3 0 4 . 2 billion; is that the figure ?
Secretary DILLON. That is right.
Mr. BYRNES. Then you add on to that a flexibility figure of $ 3 billion.
Secretary DILLON. That is right.
Mr. BYRNES. S O your table then shows a need as far as the debt limitation requirements are concerned of $ 3 0 7 . 2 billion.
Secretary DILLON. That is right




20

CONTINUATION

OF PRESENT DEBT CEILING 20'

Mr. BYRNES. But if you us© $2 billion of that $3 billion that is set
aside f o r contingencies, you can get by with a $305 billion debt ceiling
f o r the month of April, can't you ?
Secretary DILLON. On these figures, if your figures turn out to be
that accurate. A s I pointed out, the $4 billion figure in cash is on the
tight side. Being that close would hamper us in managing the public
debt. There are two problems that it might make more difficult. I t
would make it more difficult f o r us to extend the debt the way we
u
t
-i.i
' i d l i n g 0 f the balance
I f you are willing to
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q
^
t — —llion.
Mr. BYRNES. Maybe we better go back and inquire a little more on
this matter so we get a clear picture. From there on, April 30 it is
$ 3 0 3 . 4 billion.
Secretary DILLON. That is right.
Mr. BYRNES. That is your basic debt ceiling limitation or basic
debt subject to the limitation ?
Secretary DILLON. That is right.
Mr. BYRNES. So you can get by there on $ 3 0 5 billion ?
Secretary DILLON. On that same basis; yes.
Mr. BYRNES. May 1 5 , you show $ 3 0 3 . 7 billion subject to limitation.
So that is under tlie $ 3 0 5 billion which current law would have as a
ceiling?
Secretary DILLON. That is right.
^ Mr. BYRNES. May 3 1 , you come to $ 3 0 4 . 4 billion, still under the $ 3 0 5
billion current limitation. The first time you exceed it is June 15
when you would have $ 3 0 7 . 2 billion. Then you really would have
severe difficulties?
Secretary DILLON. Yes.
Mr. BYRNES. Y O U would exceed the limitation ?
Secretary DILLON. That is right.
Mr. BYRNES. W h y is it at the end of June you make such a rapid
reduction?
Secretary DILLON. W e always do that. You will see, looking back
in records of the past, that it happens every year, because we have at
that time a juxtaposition. I t is the only time we have this juxtaposition, in quite this same way, of very heavy corporate tax payments,
and a substantial personal income tax date on the same day.
The heavy corporate payments are on March 15 and on June 15.
On March 15, the personal payments are rather light. On June 15
they are heavy. In the fall, the corporate payments are lighter, except
f o r one time in September.
Mr. BYRNES. But the crucial date is really June 1 5 ?
Secretary DILLON. That is right.
Mr. BYRNES. Y O U had a $ 3 0 4 . 2 billion debt subject to limitation
which is comparable to the April 15 figure back on January 15, didn't
you, and you got by all right ?
Secretary DILLON. January 1 5 we were $ 3 0 4 . 2 billion and we got by
all right; that is correct.
Mr. BYRNES. S O if you got by on January 1 5 , you ought to be able
to get by April 15 ?
Secretary DILLON. January 1 5 we had a limitation of $ 3 0 8 billion.
Mr. BYRNES. That didn't nave anything to do with the limitation,
Mr. Secretary.




CONTINUATION OF PRESENT DEBT CEILING

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Secretary DILLON. I just say we had lots of flexibility. W e didn't
worry.
Mr. BYRNES. But you didn't have to use it ?
Secretary DILLON. No.
Mr. BYRNES. All you had to use was $304 billion ?
Secretary DILLON. I would like to point out one thing that is a
problem if you are going to try to skate very close. In estimating the
receipts of $90 billion a year, it is close. In the corporate field, estimating $25 billion, $23 billion, a few hundred million is close.
But we have a particular problem facing us this year. And on that
we have had no experience. W e can only judge by our own best estimates and certain rough questionnaires which certain corporations
have kindly been willing to give us.
W e have no solid basis for estimating just what the effect, revenuewise, would be of the change in administrative procedures on depreciation that were put into effect last July. W e don't know how many
corporations will avail themselves fully of the procedures which were
made available to them then. That is a matter of their choice.
Mr. BYRNES. Are you suggesting that there is something wrong
with your receipts and expenditure figures that appear in the lefthand column ?
Secretary DILLON. NO. All I am suggesting is that because of this,
until we get those figures in, there might be a possibility they could
vary $200 or $300, or $400 million, which would make this rather closer
than it is.
Mr. BYRNES. It would make the $300 million closer ?
Secretary DILLON. That is right.
Mr. BYRNES. But you still have leeway?
Secretary DILLON. Yes, if you are willing to sacrifice the ability to
freely manage the public debt which I happen to think, and all of my
predecessors, as Secretaries of the Treasury have also thought, was a
rather important consideration.
Mr. BYRNES. I know you like that. I think one of the things you
could have done to give you more freedom, was to ride herd on some of
the spending. That would give vou a great deal more flexibility and
freedom. W e are up against fiscal problems here which concern
some of us.
You had a debt subject to limitation back on November 30 of
$305.5 billion. That is why I wonder if we can't get through at
least April and May under the present ceiling authorizations.
Secretary DILLON. YOU will remember that on November 3 0 , we
had that debt of $ 3 0 5 . 5 billion as you point out. But we also had an
operating cash balance of $6.3 billion which was considerably larger
than the $4 billion that we are allowing here in our estimate. This
was part of the flexibility of being able to finance the public debt when
we wanted.
W e had done some public debt financing in November which seemed
a better time to do it than to do it in December. As a result, we had
more cash there and less cash on December 15. That is a perfect
example of the need for this flexibility as far as debt management
operations are concerned.
Mr. BYRNES. You balanced off at that point. You used up some
of your flexibility fund, the $3 billion, in order to increase some of
your cash holdings at that time?
95743—63




4

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Secretary DILLON. That is right.
Mr. BYRNES. IT doesn't make much difference which side you have
it on as far as I can see.
Secretary DILLON. N O .
Mr. BYRNES. It is still a flexibility ?
Secretary DILLON. That is right. All I was saying is that if you
have a $305 billion figure for your debt ceiling and a $304.2 billion
public debt subject to limitation, you haven't got any flexibility left
at all. In effect, that removes that possibility which was available in
November. W e wouldn't have it.
Mr. BYRNES. On April 1 5 , under present law, you will have a debt
ceiling authority of $ 3 0 5 billion ?
Secretary DILLON. That is right.
Mr. BYRNES. Y O U show here that you could have an anticipated
debt of $304.2 billion on that debt and still have $4 billion in cash.
Secretary DILLON. Which is not enough.
Mr. BYRNES. What?
Secretary DILLON. Which is not enough.
Mr. BYRNES. This is the schedule you are giving us ?
Secretary DILLON. N O . This $ 4 billion is not adequate. There is
no representation that is adequate. This is the figure that the committee felt it wanted to have just for this purpose. A s I pointed out
before, if you look at the record for the last 4 or 5 years, the Treasury
has always needed to operate with more cash than that.
A realistic figure would be much nearer $5 billion.
Mr. BYRNES. On September 1 5 , you operated with $ 3 , 5 0 0 million in
cash?
Secretary DILLON. That was for 1 day, December 15.
Mr. BYRNES. You have done it ?
Secretary DILLON. Yes; we will do it again. You can't continue
operating at that level. It will have to be allowed to go up and down
if you are going to have the flexibility to manage the public debt.
I f we look at the figures you are talking about on April 15, we have
the public debt of $304 billion and an inadequate cash balance.
For an adequate one we would be right up to $305 billion. That is
the debt limit. So therefore, there wouldn't be any allowance to
provide flexibility at all.
Mr. BYRNES. On April 1 5 , Mr. Secretary, under present law, you
have authority to borrow $ 3 0 5 billion ?
Secretary DILLON. That is right.
Mr. BYRNES. Y O U show here that what you will have to do on
April 15, is borrow $304.2 billion. This still leaves you $800 million
of borrowing authority.
Secretary DILLON. Yes.
Mr. BYRNES. Y O U are right. You would not have the full $3 billion
of flexibility. But you would have the $4 billion in cash around in the
banks and so forth ?
Secretary DILLON. Yes.
Mr. BYRNES. Why do your expenditures exceed your estimates of
expenditures; that is, the estimates of expenditures you made last
year for June of this year by over $700 million, whereas all through
the rest of the year they have come fairly close to what you estimated
the expenditures would be ? In fact, of the $1.3 billion of expenditures




CONTINUATION

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in excess of what yon had estimated last May and June when you were
here, $700 million comes in June of this year.
Does that mean you are going to throw these expenditures into fiscal
.1963 so that you can keep the deficit in fiscal 1964 from becoming an
unprecedented or record-breaking budget deficit?
Mr. GORDON. T O answer that, Mr. Byrnes, I think I would have to
look at a typical seasonal pattern of expenditures which I don't have
immediately available. 1 am sure the projection does not reflect
any intention to lump expenditures.
Mr. BYRNES. Your estimates were on a seasonal pattern, I assume,
Mr. Director. Last year you suggested to us in the table you presented to us that the expenditures would be $8.4 billion in June 1963.
As it is, they are going to be $9.1 billion, $700 million more than you
estimated.
The reason this stands out in my mind is that through the rest of
the table, comparing your estimates of last year with what actually
happened, the expenditure side came within a reasonable tolerance of
being accurate. That was certainly made on a seasonal basis.
Mr. GORDON. I would have to look into the detailed figures to give
you a full answer, Mr. Byrnes. I am sure part of the explanation
arises simply from the fact, as Secretary Dillon has already pointed
out, that total expenditures for the year will be about $1.7 billion
above the earlier estimate.
Mr. BYRNES. $ 1 . 3 billion.
Mr. GORDON. $1.8 billion, actually. Another thought which occurs
to me which may have some influence here, although I find it very
difficult to measure, is that the accelerated, public works program is a
program which is just beginning to gather speed as measured by the
rate of expenditures. The expectation is that the rate of expenditures under that program will tend to hit the peak in the summertime.
Mr. BYRNES. Accelerated public works. Is that the one we are
talking about?
Mr. GORDON. I cite this as one possible contribution.
Mr. BYRNES. That is the program that I was talking about before,
that I don't think you have to accelerate quite so fast. That is the
one with all this boondoggling that I found right in my own State.
I f you would take some action now, maybe our problem in June
won't be quite as severe as Secretary Dillon states it will be—unless
we give him the debt ceiling increase.
Mr. BOGGS. Would the gentleman yield ?
M r . BYRNES. Y e s .
Mr. BOGGS. The entire

appropriation for that program is $ 4 0 0
million.
Mr. CURTIS. That was accelerated to $300 billion right now.
Mr. BYRNES. All I am doing, Mr. Boggs, is commenting on the
Director's justification as to why there should be this $700 million.
Mr. BOGGS. I understand.
Mr. GORDON. I obviously can't break down the seasonal pattern offhand, but I could furnish an analysis of this for the record. I cited
the accelerated public works program only because it occurred to me
as one expenditure program whose seasonal pattern, to the extent I
understand it, would tend to move up toward the end of this fiscal
year. I doubt whether this could be the largest part of the explanation, but I suspect it is a part of it.




CONTINUATION OF PRESENT DEBT CEILING 24'

Mr. BYRNES. I would frankly think that when we are worrying
about a debt ceiling, when we are worried about the tragic consequences that would come by reason of hitting this debt ceiling, that
we would look at some of these expenditures; that we know why we
will be in the precarious position the Secretary of the Treasury's table
shows in June; that we look to see what the situation is as far as our
expenditures are in June.
As I look at this table, I find that all of the other estimates of
expenditures as compared to what they gave us last May and what
actually proved out were pretty accurate. You estimated all the rest
of them as coinciding as far as the expenditure side of the picture is
concerned, until we get to June.
In June you find a miscalculation by $700 million of expenditures.
Mr. GORDON. I don't see, Mr. Byrnes, how the figures for the other
months could have been unaffected by the increase in total expenditures. W e have an increase in total expenditures over the earlier
estimate of $1.8 billion.
Mr. BYRNES. They are not over the May estimates. It is $ 1 . 3 billion
over the estimate you gave us in May of 1962, and on which we acted
in considering the debt ceiling bill last year.
Mr. GORDON. I do have a series which tries to compare the old estimates you were citing with the new estimates given in the table Secretary Dillon has presented and I find there are a number of very wide
divergencies between the old table and the new.
Mr. BYRNES. Let us get the $ 1 . 3 billion adjusted first. First we got
into a conflict between $1.3 and $1.8 billion. I refer you to the table
on page 52 of the temporary increase in the debt ceiling hearings of
Mav 31 and June 1 of 1962. where the total expenditures are estimated
at $93 billion.
You now give us a table now showing expenditures of $94.3 billion—
or an increase of $1.3 billion; $700 million of it shows up in June.
Mr. GORDON. May I make a further comparison, Mr. Byrnes? I
think the whole table comparing the monthly figures on the old basis
and the new for the full fiscal year is very revealing. You will find,
for example, that the old estimate for August of 1962 was $7.6 billion.
The new figure is $8.5 billion. That is an increase of $900 million,
which is larger than the divergence in June 1963.
You will find, too, that in September 1962, the actual figure was
somewhat below the figure that was given to you last year. It was
actually $7.3 billion asopposed to the earlier estimate of $7.6 billion.
So, the variations are both up and down. The largest variation actually is not the June 1963, variation. It is the August 1962, variation.
Secretary DILLON. I have just been looking at these figuers, Mr.
Byrnes, and I think I can give you one that would satisfy your problem or your concern that there has been some padding here of the
June figure, and that is we simply take the figures that were submitted
last May for the final fourth quarter of the fiscal year, which we come
into on the 1st of April, and take April, May, and June and lump
them together. Last year we estimated we would spend $24 billion.
I f you take April, May, and June this year, we estimate we will
spend $24.4 billion, an increase of $400 million, which is not much
different from the proportional part of the 1.3 increase.
It happens that in the latest figures that the Bureau of the Budget
has prepared—and I don't know the reasons for that, the Bureau of




CONTINUATION OF PRESENT DEBT CEILING

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the Budget would have to give you that later—they have estimated
lower expenditures this year in both April and May than they estimated a year ago.
That deficiency is made up and slightly more so in June. What the
reason for that is I don't know. But certainly it is not going along
and then suddenly jumping up in this one month. I think you have
to look at it on a quarterly basis which evens out the times of paying
bills and the ups and downs.
Mr. BYRNES. I f you take February, March, and April, you practically hit the thing on the head.
Mr. GORDON. NO, in February, March, and April, my figures indicate it is down by $600 million. Those 3 months are not a calendar
quarter, of course.
Mr. BYRNES. No, I know it is 3 months. Your April figure as you
estimated last year was 7.6. It turns out you are now estimating it at
7.5. March was 7.7—you are now estimating 7.7. February was 7.4,
you estimated last year it is going to be down, to 6.9.
I think generally speaking, your estimates on your expenditure
side have been amazingly accurate.
Secretary DILLON. They jump month to month. January a year
ago estimated 7.4 and it turned out to be 8 billion, actually. That
was sort of compensated for in February.
I think they probably have great difficulty in the Bureau of the
Budget of citing exact figures.
Mr. BYRNES. What bothered me is that because your expenditures
did not run so high in some other months, you figure you are not
spending enough so you throw this into June.
Mr. GORDON. I don't think that is correct. As a matter of fact,
in partial answer to your earlier question, I think we can show a
continuing effort this year, fiscal year 1963, to do our job more economically whenever the opportunity presents itself.
You may have noted m the first consolidated supplemental which
was sent to the Congress earlier this month the President requested
$150 million less in appropriations than was provided in the January
budget for these purposes. W e were able to get this figure down by
$150 million for the remainder of 1963.
This certainly doesn't seem to me to reflect any effort to increase expenditures. Quite the contrary. In the case of the budgetary effects
of the pay increase, the postal and civil service pay increase which
was enacted last year, we nave made an effort—and I think quite successfully—to absorb a large part of this pay increase.
In fact, the supplemental which went to the Congress to cover the
pay increase shows a 42-percent absorption of the total cost of that pay
increase, so that the amount which Congress is requested to appropriate is 58 percent of what the full cost would have been. I think this
would indicate movement in just the other direction.
Mr. BYRNES. Isn't that just what the Congress told you to do?
Mr. GORDON. I am proud to say that we did it.
Mr. BYRNES. I am glad to see that you are doing it. I would hope
that you will be completely successful.
Mr. GORDON. In response to your earlier question about what the
administration did last November, I would point out to you that that
was the time the 1964 budget was in preparation. I think you will
find that what I regard and what I hope you regard as the quite re-




26

CONTINUATION OF PRESENT DEBT CEILING 26'

strictive expenditure policy which was imposed in the 1964 budget
is a reflection of the atmosphere which existed last November.
Mr. BYRNES. T O the extent that is is there, my full compliments.
I hate to have to withdraw part of it in the sense that if you were
successful for the 1964 operation, it seems to me you could have
done something about the last half of fiscal year 1963 so that you
would not face this ceiling problem to the same degree that you
apparently do face i t
Mr. GORDON. I would agree, Mr. Byrnes, there has been no crash
effort to cancel contracts or defer progress payments, but I think
there has been a continued and intensified effort to find more economical ways of doing the job.
I think this has been reflected in the first two 1963 supplemental
which the administration sent to the Congress.
Mr. BYRNES. The estimates on which you base your request here
don't seem to bear that out.
The CHAIRMAN. Are there any further questions ? Mr. Curtis.
Mr. CURTIS. Mr. Secretary, I want to contrast November 1 9 6 1 , with
what happened in November 1962, in regard to the administration's
action on expenditure policy.
We had this last year at the time of the debt-ceiling hearings. 1
called your attention to the fact that the President publicized having
called the Cabinet together and urged them to exercise economy. I
asked you what had been the result of that because I had seen no
subsequent publicity.
Your testimony was, and Mr. Bell, the Director of the Budget, was
with you, that expenditures would be cut back a billion dollars; is that
correct ?
Secretary DILLON. As I recall it, that is what he testified.
Mr. (Vims. And you likewise. I then asked where it was done.
Why didn't the administration do that in November 1962? I presume November 1961 was after this kind of looksee that they took.
I f , indeed, if it is the administration's policy, and I think it probably
is, that it wants expenditure reform, why wouldn't that be done if
there were the consequences you outlined to Congressman Herlong
and in the interrogation of Mr. Byrnes? Why didn't the administration do that?
Secretary DILLON. The administration did last fall. The President
did call together his Cabinet and he did promulgate very strict instructions regarding the hiring of personnel and management control
to control the hiring of personnel, and promulgated an Executive
order on this subject which the Budget Bureau is carrying out which
is an advance over anything, I think, we have had before as a Government in this field and shows a very strong desire to restrict in every
possible way to the barest minimum needs Government employment
and Government payrolls.
W e did not last fall, or the President did not, direct cancellation of
such things as construction programs, building programs, because we
thought that they were down to a minimum of what had been done
before.
The administration recommended and the Congress had only a
month before approved this program which Mr. Byrnes mentioned
with some disapproval.
Mr. CURTIS. Accelerated public works.




CONTINUATION OF PRESENT DEBT CEILING

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Secretary DILLON. Yes. Apparently Congress felt that was a good
thing and only a month before agreed with the administration. So it
didn't seem quite appropriate to start cancelling actual building contracts at that time.
Mr. CURTIS. But, Mr. Secretary, as Mr. Byrnes so well pointed out
and as you yourself pointed out, the Congress was not given the
information—nor did the executive have it—apparently of their error
or the fall-off in revenue. Under that light, Congress might have
done something different. Certainly the administration had the
responsibility.
Amateurs can learn now for the first time that there were construction contracts cutback after November 196.1. I left the record open,
if vou recall, for the itemization of the billion dollar cutback. I don't
think we ever had the detail supplied. We discussed a $50 million
item. I was anxious !o find out because here is the answer to Congressman Herlong. It is the answer to any Congressman on this debt
ceiling matter.
Granted Congress has appropriated these funds, there is nevertheless a considerable flexibility available to the Executive to cut back his
expenditure rate. Actually, we are only talking about a cutback here
probably of 1 or 2 percent. We are talking about an expenditure rate
of $94 billion and a projected rate for 1964 of almost $99 billion. So
when we talk about cutting back 1 billion or %2 billion or 3 billion, we
are talking about very low percentage points.
Incidentally, the public works acceleration bill, I thought, was
highly ill-advised. It was gotten through by great pressure on the
part of the Executive on the Congress. I think the record will clearly
reveal it, so will the press at the time and some of the comments of
individual Congressmen. This was hardly an idea that the Congress
dreamed up and with full information Congress probably would have
rejected. It certainly had to be reviewed in light of this new picture
on revenues.
The point I think we must get to is whether or not the President
and the administration believe that when revenues fall below anticipated levels, that it is not necessary to revise expenditures in light of
falling revenues.
Your testimony up to date reveals that apparently at this time, at
anj" rate, the administration did not feel that they should revise
expenditures, even though they had this fall-off in revenue of around
$7.5 billion.
Secretary DILLON. I think that is quite true. This is something
that would be a totally new policy if because of short falls in the
economy, revenues falling off, the administration Executive was supposed to cut back expenditures which would in turn mean that the
economy would fall off more and put us into a deflationary spiral and
bring on economic downturn.
That is not the philyosophy of this administration and very clearly
was not the philosophy of President Eisenhower's administration,
because when they were faced with the same thing in 1958-59, revenues
fell off $6% billion, the answer was to increase expenditures $6*4
billion. That helped to mitigate the recession and was probably very
good policy.
We would have had a much greater one, otherwise.




CONTINUATION OF PRESENT DEBT CEILING 28'

Mr. CURTIS. All I am trying to do is get out in the open for the first
time what the policy really is. I happen to disagree with that policy*
But I find when I want to debate it, those who really advocate this
theory of increased expenditures want to run away, and say, "No, we
do think a balanced budget has a value and there is a place for
expenditure reforms," when I am sure they don't believe it.
They actually think that this is the way to go. I regard it as a
respectable theory but let us debate it. All I am trying to pin on the
administration is that is what they believe.
Secretary DILLON. The difference now, and again just by experience,
we had the experience of 1958-59 to look at and 1960-61, that it is better to remove shackles of an oppressive tax structure rather than to
try to make the economy function better by extra expenditures.
That has not worked as well as it should.
One of the times it did work was in 1958-59. There was a very
good study by the Bureau of the Budget which was made by Mr.
Stans which showed that the expenditures which were authorized and
carried out came at the wrong time. They didn't come at the right
time. They came too late. So they thought it was not a good theory.
So we are not proposing that.
W e are proposing tax reduction instead.
Mr. CURTIS. Yet the President said in his speech the other day and
in his state of the Union message—or hinted at it—if this theory does
not work, then we go in heavily to increased Federal expenditures.
Secretary DILLON. He said there would be great pressure for it.
Mr. CURTIS. I think he went beyond and said that is what it would
be. I think we will let the record rest as to what he actually said.
Again this shows the difficulty that some of us have in just finding
out what the administration'seconomic philosophy is.
Apparently in November 1961, the administration policy was to
have expenditure reform.
Mr. GORDON. I would certainly answer, Mr. Curtis, that the climate
which prevailed at the time that the 1964 budget was put together was
a highly restrictive climate. I sought to document this and explain
it when I testified before this committee last week.
There were very substantial reductions in the requests of the agencies, as you know. Although you don't agree with this particular
categorization of the budget, as you know, expenditures for all programs other than defense, space, and interest will decline as a group
from 1963 to 1964. And the increase in Government employment is
held to a very low level.
Mr. CURTIS. Mr. Director, that just does not happen to be accurate.
As you know, H E W increased by 1.7 billion, and in your request for
new obligation authorities, Agriculture's increase is 1.3. Incidentally, I was going to ask this question: Today on the floor of the
House, we have this request for a $500 million increase for CCC. Is
that included in your testimony here, Mr. Secretary? Was the $500
million increased appropriation on agriculture included in your estimates as set forth in your statement? That is on the floor of the
House today.
Secretary DILLON. All of the expenditure estimates that are included in the statement are those prepared by the Bureau of the
Budget, and I am sure this was. I defer to the Director of the Budget
to answer.




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Mr. CURTIS. It is in your statement.
Mr. GORDON. That was a budget amendment which would shift
funds from fiscal 1964 to 1963.
Mr. CURTIS. That is correct.
Mr. GORDON. My under-standing is that the net effect on expenditures in 1963 would be very small, if any.
Mr. CURTIS. All I am trying to get at is this: Is that included in
your statement ?
Mr. GORDON. It would not significantly alter the statement. I
would say, yes, it is included, because the effect on expenditures would
be minimal.
Mr. CURTIS. H O W do the projection of your budget figures change
by this $500 million item ? The budget for 1964.
Mr. GORDON. A budget amendment was submitted.
Mr. CURTIS. Was that anticipated or not ?
Mr. GORDON. This was an amendment to the budget.
Mr. CURTIS. This would be an amendment to the budget?
Mr. GORDON. Yes, which would shift $ 5 0 8 million of new obligational authority from fiscal 1964 to fiscal 1963. It is not expenditures.
Mr. CURTIS. I am just trying to get that clear. Now, Mr. Secretary,
you commented on what had happened in 1958 when we had a tight
squeeze on the debt ceiling.
Secretary DILLON. I think that tight squeeze came, as I recall, in
1957, and January 1958. The recession reached its trough in April
1958.
Mr. CURTIS. Whatever it was, I just wanted to identify the date.
Secretary DILLON. I think there is some connection, because I think
in hindsight most people believe that unfortunately, occurring at that
time, it helped to contribute to the recession that came along right
then.
Mr. CURTIS. Y O U and I have discussed that and we have a difference
of opinion there. I only want to get this out because you used the
point that here, in order to avoid it, they were forced to cash in bonds
and so forth, and there were people who criticized that. I criticised
the fact that this was done as a method of getting under the debt
ceiling instead of reforming expenditures.
On the other hand, I certainly did not criticize the fact that the Federal Government was getting out of some of the investments that they
were in. I note that in this budget—and this is the question I am
really interested in—this is one of the techniques that is being used
to help our problem of Federal expenditures.
The CCC assets are being cashed in. You are going to cash in about
2.5 billion. Also, some o f the Fannie Mae bonds and others. Isn't
tins now part of the administration policy ? Incidentally, I am in
favor of this.
Secretary DILLON. Yes, I think we agree on that. It is slightly
different in regard to Fannie Mae because what is proposed now is a
greater effort to have Fannie Mae itself take advantage of the situation
by selling individual mortgages to banks or other private investors
whoever wanted to buy them.
What was done at the earlier date, and what the Comptroller General criticized, was that the Treasury, finding itself in this bind and
having nothing else to do, created a different type of security. They
95743—63




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CONTINUATION OF PRESENT DEBT CEILING 30'

took a lot of mortgages and pooled them and in effect sold Fannie
Mae certificates of interest in a pool of mortgages, which had a much
larger face value than the amount of securities that were sold.
Fannie Mae didn't actually get rid of these securities. They still
own them. All they did was put them up and borrow on them.
W e are trying to actually sell them, wnich I think is a better way
of doing it.
Mr. CURTIS. I think it is a better technique myself. But my observation is that the discipline that the debt ceiling brought about
then was excellent. I myself questioned the techniques.
The fact that it got the Federal Government out of some things
that they ought to have been out of a long time ago in my opinion is
good. The Congress is learning for the first time about this great
underestimation of revenue. The administration has not felt that
it was necessary to cut expenditures because of this.
If the Congress wishes to do so, we have only one weapon available,
which is this debt ceiling. I f we wanted the administration to exercise a billion dollar cutback in expenditure rate, one way we could do
it would be to give you a $307 billion ceiling.
Incidentally, the discipline we can exercise over 164 in conjunction
with our Appropriation Committees would gain cutback on whatever
the administration's idea of increasing the ceiling is, which I imagine
would be around 325.
I think you testified 320 billion, 5 billion give or take—it will always be on the upper side, I am afraid.
If the majority of Congress do not feel expenditure discipline is
needed, they can show this in their vote. Those of us who do feel so,
can do so without bringing about the dire consequences that you have
suggested. Those dire consequences would exist. I agree, if the administration did not go into the expenditure side and move in on
some of these programs and shut them down or slow them down.
It does not mean defaulting a contract. It does mean reviewing and
slowing. It does not have to be in defense. These other areas are
quite well indicated. I would suggest one that is most obvious, and
that would help our balance of payments, would be to review foreign
aid expenditures, and I am happy that the President has a Commission that is going into that. Because of the dire situation, I
think that Commission's activities should be accelerated. I suspect
that it will come in with suggestions that probably suggest a cut of 1
or 2 billion in our expenditures.
Whether they do or not, here is an area that would assist. There
is one thing on revenue estimates, Mr. Secretary: I was doing a little
arithmetic up here. I think you figured your fall back in revenue
because of the failure of the GNP to increase as about $5.4 billion.
You gave a $4.8 billion and then I think there is another $600 million.
Secretary DILLON. The other 600 million was based on a whole variety of minor things, including better information that becomes
available. That is the type of thing that happens every year, and it
could either be plus or minus.
One of the things that happened, for instance, was that our estimates of corporate profits were off, in addition to the question of the
gross national product, because we estimate these every year by taking
the corporate profits or the latest year as reported by the Department




CONTINUATION OF PRESENT DEBT CEILING

31'

of Commerce when they are finally revised, and the actual tax returns
that were paid against that, and get a proportion that way as to what
is likely to come in.
It turned out that both these figures that we had been relying on
were revised and turned out different. They turned out different in
opposite directions.
In other words, in the preceding year, the year used as a mark, we
actually received somewhat less taxes than we had been expecting, and
we received them on a revised figure of corporate profits that were
somewhat higher than the earlier published figures.
That led us to revise the figure that we had been using only to a
minor extent. But that makes up $200 million or $300 million. Then
the miscellaneous receipts figure of the Bureau of the Budget was
changed.
Mr. CURTIS. The reason I was asking the question is that last year
you testified that you used a sort of rough rule of thumb that for
every $4 billion increase in GNP you got about a billion dollars in
revenue. I was wondering if your rule of thumb has changed, because,
if that $600 million wrere tied to your estimate of GNP, the figure
would be more like $3.1 billion, and you still use the $4 billion figure.
Secretary DILLON. Actually, these figures vary. There is not any
one rule of thumb. If we are coming out of a recession and in a period
where you were moving rapidly upward, corporate profits in particular are apt to be higher than otherwise. Because 50 percent of them
come through into taxes, that percentage moves up, say, 25 percent.
It has at times moved higher than that. It moved as high as 30 percent.
Day in and day out, I think in an ordinary level, it is around 20 percent. It is not as much as 25 percent.
Mr. CURTIS. That is what I wanted to get at. About 20 percent
rather than 25 ?
Secretary DILLON. Yes; maybe even less. Nineteen or something
like that.
Mr. CURTIS. That is very good, because this is the only way we can
project into the future. Just to tie this in, on page 40 of the hearings
last year, May 31 and June 1, on the request for temporary increase
in the public debt ceiling before the Ways and Means Committee. I
will read this colloquy into the record.
Mr. CURTIS. In executive session I believe you gave us a figure, or maybe it
was Mr. Bell, that for every 4 billion of gross national product we have about 1
billion of revenue; is that a good formula?
Secretary DILLON. That is roughly the Treasury's experience.
Mr. CURTIS. In other words, if we lost 10 billion, if we did not reach 5T0 and
got 560, we would be shy about 2 % billion of anticipated revenue. I just wanted
to get that formula.
Secretary DILLON. That is the way it usually works. It is not exact, but
that is a rough way of measuring income.

Mr. CURTIS. In light of that from your further experience, you are
now saying you would probably make that a lower figure of around
20 percent. It would still be rough.
Secretary DILLON. In the way the estimate was made for last year,
I think the 25-percent figure would have been valid because our estimate was high based on very rapid economy with very big corporate
profits.
When that didn't occur, the dropoff would have been in that order.
Actually, it was a little higher. There was one thing that comes into




CONTINUATION OF PRESENT DEBT CEILING 32'

that that we didn't talk about last year, and probably didn't think
about.
One of the most difficult areas to estimate in Treasury experience
is the area of personal capital gains. Though we did talk about it a
little bit, I was not certain at that time what the effect of the stock
market decline would be, but my estimators now feel that the fact
that the stock market did go down will serve to reduce capital gains
from the normal figure they had originally estimated. So there is an
element of $300 or $400 billion for that.
Mr. CURTIS. I was just trying to lay the groundwork for this major
question. This is estimating mto the future. I f this idea is right
that we should have an expenditure reform, or rather expenditure revision when we have a downturn in our estimates of revenue, then
we have to look into the future.
In fiscal 1964 we are anticipating a deficit with the tax cut of $11.9
billion, I think. In 1965, the only thing we have to go on is really new
obligational authority requests which are around $108 billion and has
led me to say that we will continue the same expenditure rate.
Dr. Arthur Burns anticipates that this would mean a balanced budget in 1972 without expenditure reform but carrying at the same expenditure rate, with a Federal debt increase of $75 billion.
Your previous testimony was that you thought the balance would
occur in 1967 because you felt that Dr. Burns' projections as far as
expenditure increases were not sound. I was happy when yo»u were
talking about a possible change in expenditure reform. Here is what
bothers me:
This is not even Keynesian economics. As I understand Lord
Keynes, he was talking primarily about balancing over a cycle. This
is an entirely new concept of deficits upon deficits to meet a balance
I don't know at what period.
The problems that are involved in debt management, which is this
committee's concern as well as the impact of taxation call upon us to
examine very deeply this new theory.
I think it is even more important now in light of your testimony,
at which I was really surprised, that the administration, when they
found out that their revenue estimates were so overestimated by $7.5
billion, did not immediately move toward expenditure revisions.
We are in a very serious policy question where the Congress has
this debt ceiling bill as its only practical mechanism to express its
views if they disagree with this fundamental economic philosophy.
Otherwise, the administration would assume that they were receiving
a stamp of approval of this theory of deficits going on into 1967.
I have one final question of detail. This $10 billion tax cut the
President is talking about is spread over a 3-year period. I am trying
to relate this now to what impact this would have on the economy if
we had something happen in 1963 with regard to a recession.
In the President's 1963 tax message on page 63 of the hearings of
the Ways and Means Committee of February 6, 7, and 8, 1963, part I,
this is the table. As I see it, it is a $3 billion cut in revenue for 1963;
is that right? Then a net $6 billion in 1964 and $10 billion when it is
in full effect in 1965. Is that correct ?
Secretary DILLON. Yes, if you are reading from our table.
Mr. CURTIS. I am reading from this table. So the only thing we
are talking about as far as this so-called recession is concerned, would
be this $3 billion item ?




CONTINUATION OF PRESENT DEBT CEILING

33'

Secretary DILLON, I wouldn't agree with that at all.
Mr. CURTIS. That is all right. That is why I asked the question.
Secretary DILLON. I am surprised that you would feel that, because
I don't think that this tax reduction as it affects the economy is only
a question of the reduction in revenue.
I think also in very large measure a matter of increasing incentives
by having a lower tax rate.
Mr. CURTIS. Y o u and I share that.
Secretary DILLON. That is what I thought.
Mr. CURTIS. A s far as I am concerned, I think this theory of reducing revenues to shift over into the private sector $3 billion or $10 billion whereby you might take it all away by a consumer price index
increase is very unsound.
I have always felt tax reform—and I call it reform because I think
rate reduction for this reason is reform—is always in order if you
can do it, minimizing the impact we would have in creating additional
Federal deficits.
Secretary DILLON. That is exactly why I suggested it.
Mr. CURTIS. There are people in the President's Council who will
advise him that they actually think that it is the deficit that is the
stimulus. I f they do not get the deficit through reduction in revenues,
they are perfectly willing to do it through increase of expenditures.
£ am trying to get my fingers on this thing. The President has made
a very serious charge to the Congress, if we do not give a $10 billion
tax cut—this is f o r the public, we know it is $3 billion. He did not
talk in terms of stimulating the economy in the future, he was talking
about a recession that might be on our backs.
This is in context with the proposals last year of a quickie tax cut
on the theory of stimulating the purchasing power rather than longrange reform. This has created confusion m the minds of the public
and in the minds of the Congress as to what the economic theory is.
I f the theory is, as you ana I say it is—and not the theory that some
imputed to the President, and I think the President must have this
imputed to him because of his language from time to time—then
there is nothing magic about the $10 billion rate other than you said
we could not afford much more than a $10 billion deficit. There is
nothing magic about that stimulating the economy.
I f we could figure out a package that would come up $7 or $6 or
$5 billion, if it made sense on the reform angle, this would be all right.
But if the President holds to the other theory, that he needs a $10 billion shot into the private economy, No. 1 ; he is not talking about $10
billion f o r 1963 calendar year, he is talking about $3 billion. I only
expose this to hold a public debate on this so we know where we disagree and where we might agree.
Secretary DILLON. I t h i n k the program is clear that it is a program
that has $10 billion of net reduction in it. I t is our view.
Mr. CURTIS. In 1965?
Secretary DILLON. Yes, when it is in full effect and it is staged to
g o into effect gradually so it won't have too great an impact on the
budget at any one time. The stimulating effects of greater initiative
from the earlier reductions will be in effect at the time the full reductions are made, minimizing the impact on the budget.
W e do have the feeling, and I don't think this is unusual—I think
it is rather widely shared in many business circles, indeed, it was one
o f the underlying theories behind the bill that has been before the




CONTINUATION OF PRESENT DEBT CEILING 34'

Congress for some time, introduced by Mr. Baker and Mr. Herlong—
that if business people could have the knowledge through action that
the Congress had already taken that reductions were coming in the
future, this would have a very real effect on their actions in stimulating the economy.
We believe that, too. So we think the enactment of this bill will
have a greater effect in 1963 than just the $3 billion that we figure is
the tax deduction.
There is one other thing I would like to say: You earlier had some
comment on the business cycle and balanced budgets. I think I ought
to make clear our position on that. It has not varied. W e still believe and always have, that budgets should be balanced over a business cycle, and a full business cycle.
Where the difference of view has come—and we touched on this, I
think a year ago, and I think reached a complete identity of views as
to what the problem was—is the definition of what is a full business
cycle and what is prosperity. That is the key point.
Mr. CURTIS. I am glad you brought it up because there is no question now that the President has given us his Economic Report and
his state of Union message—and everything else—that he said we
have come out of this cycle. Those are his words.
I do not have to argue about that any more. This is what economists have said for years—and you used the term yourself—we go
through these cycles. What you are talking about in 1967 or 1972 on
this is something else. That is a long-term objective in the achievement of which we are going to have cycles.
But as far as balancing the budget is concerned, Lord Keynes was
talking about business cycles, not this kind of future goal of full
employment which we are now talking about.
Secretary DILLON. He was talking about a cycle where you have
prosperity in part of it and not prosperity in the rest. In the cycles
we have had in the last 5 years, we have had unusual cycles. I clefer
to the Director of the Budget who is an expert economist on this
historic situation.
The fact is that in these two upswings, neither of them have we
ever reached adequate prosperity.
Mr. GORDON. Economists, in studying the business cycle, have
tended in the past to assume that the peak of the cycle tends to be a
condition of full employment or even over-full employment, full
utilization of capacity, et cetera.
As Secretary Dillon said, what I think is novel about our present
situation is that we had a cyclical peak in early 1960 which did not
bring us even close to full employment or full capacity utilization,
and we are still, despite 24 months of recovery, substantially below
that level.
Mr. CURTIS. I fully understand that, but I know also that the economists, including yourself, have always talked about the cycles, measuring them in gross national product. Certainly we hoped when we
came to the peak that we would have full employment.
We should not use the word "peak" in coming out of a recovery.
The President uses that word. As I say, this is not an argument any
more as far as the administration is concerned, or the Council of Economic Advisers. They have used this language. They said, "we have
come out of the trough and we are here."




CONTINUATION

OF PRESENT DEBT CEILING

35'

Mr. GORDON. Wouldn't you agree that, one ought to look beyond
the business cycle if you have had a rather novel experience in which
t he peak of the cycle doesn't take you to full prosperity %
Mr. CURTIS. I have no objection to that.
Mr. GORDON. That is the essential point to be made,
Mr. CURTIS. We are relating business cycles and balancing of budgets. We were talking about a definite thing, a business cycle. All
1 am saying is that this has gone way beyond any concept of Lord
Keynes or anyone else. As a matter of fact, it; is an entirely newtheory.
There are many of us who came around to the belief as to the idea of
possible deficits—particularly with the Federal income tax which
does fluctuate—that in a downturn of a cycle you could have deficits
and you recouped when you came to the top of the cycle. And this
lias to do with GNP, because in the GNP increase we gain $1 in tax
revenue in four or one in five, or whatever it is.
I am simply trying to get this a little in the open. Now here comes
the key question: President Kennedy said, "Whatever is necessary
to get that bill, I would support." He said that in his speech. I think
the President should think in terms of expenditure adjustment and
expenditure reform. He has not done so.
Mr. GORDON. I would question that, Mr. Curtis. We discussed this
the last time I was here, and I think the President has done so in the
detail of the 1964 budget, which I would be happy to discuss with
you.
Mr. CURTIS. I have put on the record, and I think it is just as clear
us anything could be, $81 billion in 1960, $87 billion, and $94 billion,
and now projected to $99 billion, with the new obligational authority
of $108 billion, and you relate that to the previous 6 years of about a
$13 billion increase. *
It is very obvious he has not. He certainly has not, under the testimony right before us today. When you found out your revenue anticipations were not going to be realized, the President did nothing. He
did not call a meeting like he did in November 1961, and talk in terms
of cutting back or slowing up programs. We have the testimony now
in the record.
Mr. GORDON. The policy which guided the formulation of the 1964
budget involved the same kind of restrictive policy.
Mr. CURTIS. The record has been left open for you, as you well remember, when you were asked to specify where these cutbacks were.
You were just new in the job, and you were unprepared to give this
committee, at that time, where any of these so-called cutbacks have
been.
I might say I am still looking for the details of where that billion
was cut back in 1961. I would like to use the figure because I am trying
to make the point that the Executive does have that flexibility. * He
can do it. Therefore, I was glad to use the figure. But I am still
curious to know where it was cut back.
This is the issue in light of your knowledge of lower revenues. What
new look lias been taken at expenditures? Apparently none. What I
am suggesting is that it should be done and that this Congress, if it
believes that, has a practical way of bringing it about without facing
the dire consequences the Secretary talks about; $307 billion debt ceil-




CONTINUATION

OF P R E S E N T

DEBT

CEILING 36'

ing and we say we expect the other billion to come from expenditure
reform or a new look at it.
Secretary D I L L O N . Which would be a reduction in 2 or 3 months or
an annual rate of $4 or $5 billion which would mean it would have to
come out largely of Defense expenditures.
Mr. CURTIS. NO, I can give you a $ 3 0 0 billion item just now from
this public works business.
Mr. GORDON. By the way, on that point, Mr. Curtis, I believe you
said, earlier, that the reason the Congress passed the Public Works
Acceleration program was because of strong pressure from the administration.
I think I should make clear that the administration requested an
authorization of $600 million, and the Congress authorized $900
million.
Mr. CURTIS. I understand what the pressures were. I repeat my
statement. I know what it was. It was not an appeal to reason, I
might say. I f it were an appeal to reason, I could understand pressures. I do not regard tha t as pressure.
Secretary D I L L O N . This idea that there has not been an attempt to
control civilian domestic expenditures is just not true. I think the
record will show it. I f you look at the total of all expenditures, excepting only Defense, space and interest in the budget in 1961 and
look at what they are projected at in 1964, you find the increase is no
greater than from 1958 to 1961. In fact, it is less than the increase
in those same expenditures in the 3 years from 1958 to 1961.
So whatever has been done has not changed the basic policy.
Mr. CURTIS. I regret, Mr. Secretary, the record won't reveal that.
In fact, I have a chart here.
Secretary D I L L O N . We will put the figures in.
Mr. CURTIS. That is right. I am not questioning your veracity but.
I have had prepared a chart showing the percentage increases in the
3 years. I think I remember Defense was around an 8-percent increase, some of the nondefense have gone up—of course, space was 212
percent—HEW, and so forth, are around 30 percent, 40-percent increase.
Let us leave the record open for you to put your table in, and I
will put in my table.
Secretary D I L L O N . I have a beautiful table to put in.
Mr. CURTIS. I do not have my table right now.
(Mr. Curtis' table follows:)
Department or agency
Agriculture Department
Defense Department
Health, Education, and Welfare Department
Interior Department
Commerce Department
Housing and Home Finance Agency
National Aeronautical and Space Administration
Veterans' Administration.
Treasury Department (interest only)
Total, all Federal agencies
Source: The Budget of the United States for 1963 :ind 1964.




1961 actual

1963 estimate

Percentage
increase
1961-63

$5,929
45,640
3,685
801
498
502
744
5,401
9,100

$7,493
49,406
5,048
1,054
745
1,088
2,400
5,532
9,800

26.4
8.3
37.0
31.6
49.6
116.7
222.6
2.4
7.7

81,515

94,311

15.7

CONTINUATION OF PRESENT DEBT CEILING

37

(The material furnished by Secretary Dillon follows:)
Changes in administrative budget expenditures, fiscal years 1958 to 1961 and
1961 to 1964
[In millions of dollars]
Budget expenditures

1958
National defense
Space research and technology
Interest
Subtotal
All other functions:
International affairs and finance
Agriculture and agricultural resources..
Natural resources
Commerce and transportation
Housing and community development.
Health, labor, and welfare
Education
Veterans benefits and services
General government
Subtotal, all other functions
Allowances undistributed:
Comparability pay adjustment
Contingencies.
Interfund transactions (—)
Total, administrative budget expenditures ;

1961

Increases ( + ) or
decreases (—)
1964

1958-61

1961-64

44,234
89
7,689

47,494
744
9,050

55,433
4,200
10,103

3,260
655
1,361

7,939
3,456
1,053

52,012

57,288

69,736

5,276

12,448

2,231
4,419
1,544
1,631
30
3,059
541
5,184
1,284

2,500
5,173
2,006
2,573
320
4,244
943
5,414
1,709

2,679
5,696
2,503
3,388
276
5,613
1,537
5,484
2,195

269
754
462
942
290
1,185
402
230
425

179
523
497
815
-44
1,369
594
70
486

19,923

24,882

29,371

4.959

4,489

-567

-654

200
175
-679

-87

200
175
-25

71.369

81,515

98.802

10,146

17,287

NOTE.—Figures may not add to total, due to rounding.

Increases in administrative budget expenditures, fiscal years 1958 to 1961
[In millions of dollars]
Expenditures
1958
National defense...
Space research and technology.
Interest
Subtotal.
All ether functions:
International affairs and finance
Agriculture and agricultural resources...
Natural resources
Commerce and transportation
Housing and community development..
Health, labor, and welfare
Education
Veterans' benefits and services
General government
Subtotal, all other functions.
Interfund transactions (—)
Total, administrative budget expenditures...
NOTE.—Details may not add to totals due to rounding.




Increases

1961

44,234
89
7,689

47,494
744
9,050

3,260
655
1,361

52,012

57,288

5,276

2,231
4,419
1,544
1,631
30
3,059
541
5,184
1,284

2,500
5,173
2,006
2,573
320
4,244
943
5,414
1,709

754
462
942
290
1,185
402
230
425

19,923
-567

24,882
-654

4,9
-87

71,369

81,515

10,146

CONTINUATION

38
Changes

in administrative

OF PRESENT

budget

expenditures,

DEBT CEILING 38'
fiscal

pears 1961 through

196$

[In millions of dollars]
From 1961 to—

National defense..
Space research and technology
Interest

-

Subtotal
All other functions:
International affairs and finance
Agriculture and agricultural resources
Natural resources
Commerce and transportation
.
Housing and community development
Health, labor, and welfare
Education
_
Veterans' benefits and services..
Oeneral government
.
Subtotal, all other functions..
Allowances undistributed:
Comparability pay adjustment...
Contingencies
.
FnierAuui transactions (—)

.

1962

1963

3,609
513
148

5,510 i 7,939 : 1,901.
1.656 : 3,456j 1.143
732 : 1.053 ;
584

4.270

7,898

1

-11

374
1,558
374
752
205
671
418
131

:
179
,
| 523 •
I 497
;
815 ;
i -44
.i
S 1
i
594
!
70 ;
486 :

1,978

4,815

1

75

!

317
722
141
201
29
280
133

.

...

Total, administrative budget expenditures.

From 1962 to—

H-21
6,272

1964 . 1963

- i -

1964

From
1963
to
1964

4,330
2,943
905

2,429
1,800
321

8,178

4,550

57
-138
836
-199
233 j
356
551 j
614
-73
176
1,089
391
461
285
81
142
320
166

-195
-1,035
123
63
-249
698
176

12.448 ! 3.628

-61

154

4.489 ; 2.837 I 2,511
200
75 | 175
-46
-13

200
100
—33

12,796 » 17,287 | 6.524 ! 11,015

4,491

8

200 i

175 ''

-25:

Mr. GORDON. This defense-space-interest category, which I recognize you don't like
Mr. CURTIS. That is not fair.
Mr. GORDON. It increased $12% billion over the 3-year period. All
other programs increased $4% billion.
Mr. CURTIS. Let me tell you why I resented putting them together.
I am well aware that the people have in their minds that perhaps
space has something to do with defense. Right now it does not because we created a civilian space agency. The increase in space was
212 percent and an 8-percent increase in defense. Those are accurate figures.
You can create a very erroneous impression by lumping those two
together. I think to get the picture, and that is what I have done in
my chart, I have each itemized, defense, space, interest, H E W , and 1
am looking them over on an individual basis
Secretary D I L L O N . National defense went up $ 7 . 9 billion from a
$47% billion total in 1961. So it is one-sixth or over 16 percent.
Mr. CURTIS. I have it over a 3-year period.
Secretary D I L L O N . That is the 3-year period.
Mr. CURTIS. I undertand you are lumping them together.
Secretary D I L L O N . N O , that is not space.
Mr. CURTIS. Let us not argue this now because I do not have the
figures before me. Let us have the figures for the record.
Secretary D I L L O N . That is fine.
Mr. CURTIS. I think my statement is accurate. I have one final
matter I want to call to the Director's attention. This has to do with
what Mr. Bvrnes was talking about.
In today*s Record, Tuesday, February 2 6 , 1 9 6 3 , on page 2 8 3 7 , my
esteemed colleague, Mr. Jones of Missouri, I am happy to say, took
the floor to point out this situation on building of post offices in Mis-




CONTINUATION OF PRESENT DEBT CEILING

39'

souri. H e points out that three projects were estimated to cost respectively $187,000, $190,000, and $240,000 in very small towns, when
figures f o r these communities' buildings have cost in the very recent
past—the past 2 years—from $25,000 to $35,000, and in the 1 small
city of more than 5,000 which relates to the $240,000 figure, the cost
of construction was about $75,000.
H e says we must question the justification of these buildings on this
list. I was advised that I was correct in my conclusion to the extent
that 1 building was proposed to be built in a small town of less
than 750 population at an estimated cost of $187,000 and could not
be justified and was therefore being removed from the list of proposed projects.
However, in fairness, I must say that this was not the only project
removed, for in the revised prospectus under date of January 31,1963,.
only 84 projects of the original 145 proposed projects were retained, 2
new projects added.
The estimated cost was cut from $32 million down to $20 million.
1 commend this. But this is an example which I think runs through
our budget. When we have this kind of thing, Mr. Director, it is
hard f o r either the public or the Congress to believe that we have a
tight budget.
I do suggest if these are perilous times, and I think they are, the
administration needs to have a very hard look at expenditures and
move toward expenditure reform. I hope that Congress will provide
the incentive in this debt limitation bill.
Thank you.
The CHAIRMAN. Gentlemen, undoubtedly other members have questions of you. I f we recess until 2 o'clock, can both of you be back ?
Secretary DILLON. Yes.
The CHAIRMAN. Without objection, the committee will recess until
2 o'clock this afternoon.
(Whereupon, at 12:35 p.m., the committee recessed, to reconvene
at 2 p.m., o f the same day.)
AFTER RECESS

(The committee reconvened at 2 p.m., Representative Wilbur D.
Mills, chairman of the committee, presiding.)
The CHAIRMAN. The committee will please be in order.
FURTHER STATEMENTS OF HON. C. DOUGLAS DILLON, SECRETARY
OF THE TREASURY, AND HERMIT GORDON, DIRECTOR, BUREAU
OF THE BUDGET
The CHAIRMAN. Mr. Utt has some questions.
Mr. UTT. Thank you, Mr. Chairman.
Mr. Secretary, I have a couple of questions I wanted to ask. I
think, however, the general suoject was very well covered by Mr.
Byrnes and Mr. Curtis.
With reference to the public works acceleration bill, the $400 million appropriation, were there any projects in that appropriation bill
or any money spent for projects that were not authorized by Congress?




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Secretary DILLON. I think I would have to refer that to the Director of the Bureau of the Budget.
Mr. GORDON. I believe, Mr. Utt, that the answer to that is that
Congress considered a series of broad categories of projects. As I
remember the legislation, there is a long list of categories. I am
speaking now of grants to States and localities for construction, with
the funds provided in the public works acceleration bill.
I remember, for example, water supply projects, sewer projects,
streets, public building repairs, and a large number of such things. I
believe, however, that congressional consideration, at least with respect
to the grants to States and localities, went to broad types of projects
rather than to individual projects.
Mr. IJTT. D O you know of any project that was started under this
legislation that was specifically turned down by Congress at the time
of the general appropriation and authorization of the public works
bill?
M r . GORDON. N O ; I d o n o t .

Mr. UTT. I want to inquire of you or the Secretary with respect to
Domestic Peace Corps payments.' Who is paying the 26 members of
the Domestic Peace Corps and under what authority are they paying
them?
Mr. GORDON. T believe, Mr. Utt, that the funds are derived from
agency contributions, from agencies whose programs relate to the future work of the National Service Corps, but I am afraid my personal
knowledge doesn't-extend beyond that.
I believe, however, that the funds are being contributed by agencies
whose own programs embrace the kind of activities that the National
Service Corps would engage in.
Mr. UTT. Could it be that there are agencies that have money that,
they do not know what to do with so that they create a new project ?
Mr. GORDON. I would not think this would so indicate, Mr. Utt. I
would think that this provides an opportunity to attain particular
objectives, the kind of objectives that the National Service Corps
would realize, objectives which the agencies themselves regard as a
central part of their own responsibilities.
Mr. UTT. YOU would have to agree that there is 110 legislation yet
creating the Domestic Peace Corps.
Mr. GORDON. That is right.
Mr. UTT. We are agreed on that. Of course, I go back to that, oldfashioned document called the Constitution in which it says "no money
will be drawn on the Treasury of the United States without the approval of Congress."
These expenditures from the Treasury violate that part of the Constitution.
Mr. GORDON. Are you asking me IF they do ?
Mr. U T T . Yes.
> f r. GORDON. I would think that they do not, Mr. Utt.
Mr. UTT. The fact that the Congress has practically no control over
the expenditures once a broad welfare appropriation bill is passed ?
Mr. GORDON. N O ; I don't think that would be implied at all. I
would think that Congress has very close control. I would also expect
that the funds which are being used here are funds which were appropriated for purposes closelv similar to the kind of services that the
National Service Corps would render.




CONTINUATION OF PRESENT DEBT CEILING

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Mr. UTT. All I know is that if my bank withdrew money from my
account without my authorization, the bank would be in deep trouble.
I think the same would apply to the Government.
Now, with reference to questioning by Mr. Curtis about the projects
that have been cut out or cut down, what do we do about the four or
five new projects that have been recommended by the administration
in view of a tight budget ?
I refer specifically to a five-ring circus that went on yesterday before one of the Senate committees withfiveCabinet officers appearing
to dramatize the importance of the Youth Conservation Corps.
What are we going to do about these new programs? Is it just
opening up new doors? I was looking today at the national mental
health program. In the last 15 years, it has grown from $3 million
a year to $190 million a year. Are we going to open five new doors to
expenditures that we do not have the money for?
Mr. GORDON. I think the question really boils down, Mr. Utt, to
whether practicing expenditure restraint necessarily means that you
must not undertake anything new. I don't think we would interpret
it that way.
It seems to me that what is important is our ability to find economies and savings in older programs and other programs which relatively may be somewhat less urgent, in order to release the funds necessary to do things more urgent in light of today's priorities.
In the 1964 budget, as you know, when we say all programs other
than defense, space, and interest will decline from 1963 to 1964, we
don't mean that every one will. Some will increase and some decrease.
The net effect is a small minus.
I would regard this as the wise practice of expenditure restraint—
the ability to hold down total expenditures while recognizing needs,
in some cases quite urgent needs, which changing circumstances and
problems create.
Mr. UTT. So far as the Youth Conservation Corps is concerned,
1 do not know how much it is going to cost. But I do know we have
100,000 jobs available on farms in California if young people are not
too lazy or have too much pride to work on a farm. They could go out
there and work on a private payroll rather than a public payroll.
W e seem to do everything in the world to discourage people from
working and invite them to take what I would call a "free ride" at
Government or taxpayer expense. I think we are going to have to
deny ourselves some of these luxuries that we can't afford. This
whole program reminds me of my going into my bank, with my business losing money, being indebted to the bank, and simply saying,
" I want a thousand dollars on which to take a holiday." They are
going to tell me "No." They will tell me I am running in the red and
better get my house in order.
I think we have to apply that to the Government. I can't sell my
bank on the program of deficit financing being a virtue. To them it
is not a virtue. I do not think we can sell it to the American people.
Mr. GORDON. I would think, Mr. Utt, the situation in which expenditures for all the Federal Government programs in this domestic civilian area actually decline from one year to the next would meet the
test of our house being in order.
Mr. UTT. The only bright spot in the whole picture is that I do not
have to revise my minority report that I have been filing for the last




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T> years. I can just change the date and it makes it very simple to
file a minority report.
Thank you, Mr. Chairman.
Mr. K I N G (presiding). Mr. Alger.
Mr. ALGER. Trying to take up where the previous gentleman left
off, Mr. Secretary and Mr. Director. I do have several questions that
trouble me very deeply, and I hope I can get across to you my concern.
First of all, the matter brought up earlier by a member of this
committee when lie pointed out that he must answer to the public on
this matter of the debt ceiling—Would you agree that a Member who
consistently opposes the spending programs that he feels to be inflationary or of a deficit nature, or opposes the great majority of spending programs, is certainly not inconsistent if he then opposes the
increase in the debt ceiling. Would you concede that, Mr. Secretary?
Secretary DILLON. I think there is a certain measure of consistency
there. I don't think it is absolutely complete because under our
democratic system we are supposed to do what the majority decides.
Certainly once the Congress has decided that they wish to carry out
a certain project and appropriate the money for it, then another
element enters in when the debt ceiling comes along, that is, whether
we should be in a position to pay the bills which have been legally
entered into.
So it makes it really quite a different thing. It gets back to what
Mr. TTtt had reference to when he talked about his usual minority
report. It is a very difficult and somewhat frustrating position for
someone in this position, I can see. But it is also a difficult position
for the Treasury which has to handle the money and pay the bills.
We do not, as the Treasury, decide what appropriations will be.
Tt is just our job to raise the money to pay the appropriations. For
that we need a certain amount of limit on the debt ceiling.
Mr. ALGER. Mr. Secretary, I did not want you to think that under
any circumstances opposing as I may spending, that I would disagree
with you on paying your bills. Let me rephrase my question.
I put it this way: Is it not consistent that when a man opposes
running up the bills he can also agree to holding the debt limit where
it is?
The next question to which I would direct your attention would
be what is the course of responsibility? This is where we have been
troubled. So that we understand where we disagree, I am not asking
these thinsfs to have you agree but to bring them out so we can see
where we disagree as we all are interested in this.
We so-called conservatives are troubled because for years we have
been picking up the tabs of the big spenders, reckoning once the
majority of the Members decided to spend the money, we had to
come along and share that responsibility.
I am one of these. I voted against the increase in the debt ceiling
for the first time last year for the reason that I was tired of picking
up the tab. I had not run up the bills. I realized that this was about
the only way I could force the agonizing reappraisal by the administration to see that some of us did not believe in these big spenders.
Another thing has come to light that I must mention, so you will
know why I am asking these things—you have been challenged by




CONTINUATION OF PRESENT DEBT CEILING

43'

the gentleman preceding me by a new factor which I never heard developed before in the debt ceiling deliberations. When the revenues
fall off there is indeed a responsibility of the administration to start
to curtail expenditures before coming back to Congress.
My question of you is this: Do you, Secretary Dillon, assume from
the start' that any time you come to Congress that we will go ahead
and increase the debt ceiling, for the reason you said, once you have
run up the bills you have to pay them. You have presumed that ? ^
Secretary DILLON. NO, I pointed out to an identical question earlier
that we never presume anything as far as the Congress is concerned.
W e make our recommendations. W e know that they will be carefully considered and that Congress, after due consideration^ will make
its own decision. The same thing applies to the debt ceiling as well
as to any other bill.
I do think this year there was a somewhat different history. W e
may have different interpretations of what that was. But certainly
there was a clear statement that should there be a deficit the Congress
intended toagainlook at the debt ceiling which had been voted under
different assumptions. Presumably, if they intended to look at it
they intended to at least give consideration to changing it in the light
of the changed circumstances.
Mr. ALGER. The reason I ask this, you make some of us feel, Mr.
Secretary, that you do presume or assume that we will. I know as a
matter of fact that you are intimately aware of what the separate
views accompanying H.R. 11990 on last year stated. They could be
re-read in the record right here. Your hand was called then, if you
please, on this very thing, saying that this is what would happen.
I have the feeling that we are going through another exercise because it was already decided.
Let me ask you this: If you were in my shoes having opposed much
of the spending that you feel to be of the inflationary or deficit type,
having opposed many of the appropriations that have been before us,
would you try to hold down spending by limiting the increase in the
debt ceiling or wouldn't you?
Secretary DILLON. I don't think that limiting the increase in the
debt ceiling is an effective way to hold down expenditures.
Mr. ALGER. I know, but that was not my question.
Secretary DILLON. NO, I wouldn't, because I think the way to do it
is to hold down appropriations. I f Congress desires to hold down
spending, it is very easy. Just don't appropriate the money.
Mr. AI&ER. I understand where we differ there. You mentioned
earlier when asked not only with regard to cycle but what our fiscal
position is at this time that you did not see the earmarks at this time
of recession.
One thing I jotted down was the overuse of credit. This is in the
private sector, is it not?
Secretary DILLON. Yes.
Mr. ALGER. How about the overuse of the credit in the public sector?
Interestingly enough, if that is one of the earmarks, Mr. Secretary^ the
overuse o f credit in the private sector of recession, is it not coincidental and interesting that you, the administration, are adopting the
same procedure in the public sector and not calling it a prelude to
recession ?




CONTINUATION OF PRESENT DEBT CEILING 44'

Secretary DILLON. It might lead to inflationary consequences if at
a time of good business we had a large Federal deficit and we did
notfinanceit in the proper manner.
In other words, if we financed it through creating new credit by
selling Government securities to banks. Last year we were very
careful to avoid this. Indeed, in spite of an increase duririgthe last
calendar year in the Federal debt of about $7% billion, the Holdings
of commercial banks of Government securities actually decreased,
and we were able to place our Government debt largely with other
private holders. In that way it is not an artificial creation of new
credit and not a minus of credit of the type that could be characterized
as possibly leading up to a situation that would be unstable and could
lead to a recession.
Mr. ALGER. Then if I understand you, what you are saying is that
while our deficits are very large, that your financing is not overuse
of credits?
Secretary DILLON. The way we arefinancingto the extent that they
arefinancedout of savings, certainly couldn't be called an overuse of
credit; no.
Mr. ALGER. I was interested. I just want you to see the point
that concerns me. If the overuse of credit, using your term, accompanies or earmarks a recession, is it not interesting then that the only
overuse of credit right now is the Federal Government ?
We have been reminded by people in and out of this room that
our corporate income, individual income, gross national product and
a number of other factors, are at an alltime high. Yet we are told
that we are not at the peak of the cycle but are in trouble. Yet
we are told when we are at a peak that is the time we are supposed
to reduce the national debt through budget surpluses. This leaves
me absolutely at sea. I do not understand the cycle definition at
all as to just what this cycle is.
Where are we now? Are we just halfway up? Why do you not
see that we are right now, if our economic indicators are right as to
our total product, at a peak ? What is your reason for it ?
Secretary DILLON. It is very clear. Mr. Gordon pointed out earlier
we have reached a rather novel and new situation, which first developed during the rise that culminated in the spring of 1960, and
seems to have developed again in that we had a rise of business
activity from the trough or the bottom of the recession and in either
case, apparently—last time, certainly it did not do it. I t doesn't
look as if it is going to happen this time either.
Economic activity is not carrying through to a level of either full
employment of our human resources or full employment or full
capacity utilization of our material resources, of our factories and
so fortli.
The definition of the kind of business cycle we have always had
before, the economists when they talked of the business cycle always
said that at some point in the business cycle on the up side you reach
relatively full employment.
Your problem often was overemployment and inflation. W e have
not had any such problem. W e have not had near the full employment. That is the reason we are making these recommendations to
reduce the restricting effect of an oppressive tax system, which we




CONTINUATION OF PRESENT DEBT CEILING

45'

adopted to control inflation, which is no longer appropriate for our
present type of condition.
Mr. ALGER. I f I understand your answer, it comes under two headings : that we are not at peak despite the figures that say we are at an
alltime high, because plant capacity and employment are not at 100
percent.
What percentage would you call our peak ?
Secretary DILLON. NO ; I would say we have used as a standard f o r
unemployment, 4 percent unemployment. Most countries of the world
have been operating with far less than that. W e have operated ours
quite successfully at times with less than that. W e hope to do better
than that in the future through better training programs and
specific things of that nature.
That is a sort of general benchmark that is generally accepted, at
least as a first benchmark of full employment. On the capacity utilization side
Mr. ALGER. What percentage?
Secretary DILLON. Four.
Mr. ALGER. Four percent unemployment?
Secretary DILLON. Yes. The latest figures wrere 5.8, which is the
same as it was a year ago.
Mr. ALGER. Before you get to plant capacity, in this regard do you
realize that Secretary Wirtz, himself, sitting right there, admitted to
me—and this is all on the record—that we do not know who the
unemployed are.
I will ask you now: Do you know the constituency of the unemployed and what percentage are the principal breadwinners of the
family, for example? Do you know that anyone over 14 years old
who wants to work and does not hold a job is unemployed ?
I asked Secretary Wirtz what percentage of the total unemployed
is comprised of people between 14 and 21 years of age. We do not
know how many are the principal breadwinners. When we get into
Federal planning as to what maximum employment and plant capacity
is, and we do not know. I can't get this through. I have asked who
is unemployed. At one time Secretary Ribicon said, "You will have
to give us more people to make the surveys."
I say when we base our whole economic concept on unemployment
and we do not know who they are
Mr. GORDON. I think we know a great deal about who the unemployed are. We publish on a fairly regular basis any number of
breakdowns of the composition of the unemployed. We know the age
groups. W e know how many experienced male workers are unemployed. W e know how many females are unemployed. W e also have
the figures broken down by minority groups and regionally.
So, I think we do know a great deal about who the unemployed are.
Furthermore, I would like to point out that the 5.8-percent figure
somewhat understates the degree of slack in the labor force, because
it takes no account of the very substantial number of workers who
are involuntarily working short time, less than a full week, because
the demand for their services is not sufficient to keep them occupied a
full week. They are counted as employed even though they are not
fully employed.




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CONTINUATION OF PRESENT DEBT CEILING 46'

T think our knowledge of the composition of our labor force and of
the unemployed in our labor force is better than that of any other
country in the world. W e may not be able to answer every question,
but I think we can answer a great many.
Mr. ALGER. Mr. Director, just so we understand each other and
the record will bear one of us out as being right or wrong, Secretary
Wirtz admitted to me that we do not know how many of the total
unemployed are in that group between 14 and 21 that need work;
how many are migrant and are not working by choice: how many are
principal* breadwinners.
I think we would all concede that the principal breadwinners are
the ones we are primarily concerned about. Of course, we are concerned about anybody out of work.
Mr. GORDON. I agree with that.
Mr. ALGER. We do not know the percentage. In a breakdown of
5.8 percent, I am simply telling you that Secretary Wirtz has admitted
that we do not know what percentage of those are principal breadwinners. We even find out what little we know through a very
questionable sampling procedure.
I am simply throwing this out at yon. This is not your department.
But I want von to know that T am getting tired of hearing the figures
given me when the Secretary of Labor himself cannot justify all the
Federal planning we are doing in the name of unemployment.
If 1 am wrong, of course the record will bear this out. I am simply
respectfully contradicting you, Mr. Director.
Mr. GORDON. I am not saying, Mr. Alger, that we would have the
answer to every one of the questions you have asked.
Mr. ALGER. I do not expect a detailed answer. I expect to know
how many people are unemployed and need a job.
Mr. GORDON. I think we have an impressive amount of information
about the composition of the unemployed.
Mr. ALGER. The impressive amount does not tell us who the unemployed are. I simply restate that.
Mr. Secretary, in the second part you were mentioning plant
capacity.
Secretary DILLON. Yes. I think on that there have been various
estimates and measures but one that carries the most persuasion to
me—and I think maybe it would to you, too—is industry's own estimate of preferred capacity operations and industry's own estimate of
how near it is to that preferred status. IT is not 100 percent by any
means.
But the McGraw-Hill Co., through their broad coverage of industry,
makes such a survey from time to time, two or three times a year, and
I think the last one they made was made in last September.' It indicated that all industry, manufacturing industry as a whole, was operating at about 83 percent of capacity compared to something around
90 or 91 percent, which the same people said was the preferred capacity
that they would like to operate at. They did not want to operate
100 percent because there would be bottlenecks and there are these
obsolescent plants that we hear about. But it is not entirely a question
of obsolescent plants. I think industry itself could probably judge
better than anybody for itself what its position is as far as the utilization of its own plants is concerned. So that is the figure I used.




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Mr. ALGER. D O you have any idea what conflict, if there is any, as
was brought out this morning with respect to Wisconsin, as to the
number of plants that are being constructed in competition with existing plants whose full capacity is not in use?
Secretary DILLON. YOU mean the area redevelopment ?
M r . ALGER. Y e s .
Secretary DILLON.

I imagine that information could be obtained.
Of course," plants in industries move up and down. Because at the
moment some part of industry is operating at 85 percent of capacity
is not necessarily a reason why there should not be extra capacity built
in that industry. If it was operating at 60 percent, I think it is quite
different. But 85 is a pretty high level of capacity operation.
Mr. ALGER. At what plant capacity are we now operating, roughly,
Mr. Secretary?
Secretary DILLON. Eighty-three.
Mr. ALGER. YOU said 85* is pretty high. W e are getting pretty
close to top then.
Secretary DILI,ox. I would say the top is 90 or 92 percent. That is
the effective top. There is about 10 percent difference.
Mr. ALGER. Would you agree with the President—I think this is a
correct statement—that if Congress does not pass this tax bill that we
are vulnerable to criticism for the next recession. Do you think that
is a correct statement!
Secretary DILLON. I certainly think that the next time cyclical developments produce a recession, the recession will be far less severe
if a tax bill has been enacted. I think there is much less chance of a
recession occurring. So if I were interested in diminishing chances
of a recession occurring and interested in mitigating its impact if it
did occur nonetheless, I would certainly strongly favor, as I do, the
enactment of a tax program along the lines recommended by the
administration.
Mr. ALGER. The thing that bothers me is that you and our other
witness consistently never seem to relate this to spending. 1 am back
on the tax program now and I think we should pass that.
Secretary DILLON. I don't think that is quite correct. The President has very specifically, every time he has spoken on this subject,
related it to spending. He has made very specific pledges. The last
one was in this speech only the other day where he stated that if this
were enacted, he would utilize substantial portions of the increases in
revenue as our economy grew to reduce the deficit until balance was
reached. He made additional pledges in regard to personnel; that
he would not let Government personnel increase as rapidly percentagewise as the national population, and State and local government
employees increased.
This has been and is an essential part of the program. I don't think
he could honestly be suggesting a program of this nature with any
fiscal responsibility if we had not made those pledges and didn't intend to carry them out.
Mr. ALGER. Secretary Dillon, I had a peculiar feeling when I listened
to your cross-examination. My first contact with you was very pleasant when I asked you about rate structure and you quickly agreed
that the high rates were confiscatory and should be reduced. I think
you frankly stated that.




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I have had the uneasy feeling today that a lot of the things I am
hearing today do not match the philosophy I have seen you share in
the past.
So I have a couple of things I want to mention here. One, I happen
to have a running distaste for some of the things Mr. Schlesinger is
saying and he is on record stating that the individual does not really
know what to do with his money and in the best interest of everybody concerned, the Federal Government should assume control of
personal income and spend it supposedly to the best advantages o f
everybody.
Would you agree with that kind of philosophy ?
Secretary DILLON . 1 don't think I would agree with that.
Mr. ALGER. Whether he said it or not, you would not agree with
that kind of philosophy (
Secretary DILLON. Xo, I don't think SO.
Mr. ALGER. Then I think we know what you are up against. B y
the way, gentlemen, lest I seem vulnerable to you, and 1 am very critical at this point because I am upset about tliis spending, but to keep
good faith with both of you, I did want to say while you are both here,
for some years, even before I came here—since 1945—a Dallas Federal
Building has been planned. I had nothing to do with it.
In 1960, when President Eisenhower said, "We are going to balance
the budget," I said, " O K , Mr. President, good enough." This Federal Building for Dallas is not warranted m a time of deficit financing. But my overall point is that neither are public works.
I wanted to mention it to you because I heard some testimony in the
Appropriations Committee recently by another member of the administration that has to do with the Dallas Federal Building. It is
not my project and I won't be for it in a time of deficit financing.
They wrapped this around my neck so long, and even the papers are
on it now—that somehow the people of Dallas are being penalized because we have a Republican Representative.
I am not for these buildings m a time of deficit financing.
I want to read one thing just to be sure that you do know what,
the separate views were last year. I wish to read one paragraph to
you:
The fiscal pattern of the Kennedy administration is clear. A balanced budget
is submitted "on paper" to satisfy the advocates of fiscal responsibility, and to
forestall, if possible, any further drain on the gold required to meet our foreign
obligations. At the same time the administration is pursuing a policy of increasing Federal expenditures irrespective of the Federal revenues. That course
satisfies that group of economists, including White House "inner circle," who
advocate public spending and Federal deficits as a means of insuring national
prosperity.

I quoted verbatim from last year's separate views and now ask
you gentlemen if that is an accurate description of the administration ?
Secretary D I L L O N . N O .
Mr. ALGER. Thank you.
The CHAIRMAN. Mrs. Griffiths.
Mrs. GRIFFITHS. In response to a question that I asked you, Mr.
Gordon, in another committee, you pointed out that if you were to
cut the expenditures sufficiently to balance the budget, I believe it
would take about a $20 billion cut this year, would it not ?




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Mr. GORDON. That was my rough estimate for a balanced budget
in fiscal 1964; that is correct.
Mrs. GRIFFITHS. I have checked the employment figures in the city
of Detroit. The payroll for Metropolitan Detroit per week in the
last year in which they had those figures available was $103 million
Eer week. So that it could be assumed that if Detroit, for instance,
ore the full brunt of the $20 billion cut it would mean that they
would have to be unemployed for about 4 years; is that not right?
Mr. GORDON. I presume your arithmetic is correct.
Mrs. GRIFFITHS. Everybody would have to be unemployed for approximately 4 years. I do not think it takes very much ability then
to see that if such a thing occurs that you would reduce the revenues
coming out of the city of Detroit.
Mr. GORDON. That is correct. It was essentially that kind of logic
I was trying to work out quickly in rough figures when you asked me
the question several weeks ago.
Mrs. GRIFFITHS. And you pointed out that if you balanced the budget through this method that next year you would anticipate you
would have to make further cuts, is that not right ?
Mr. GORDON. In the sense that a drastic reduction of expenditures
of that magnitude to balance the budget would probably be sufficient
to trigger a downward spiral in activity so that you would lose further revenues in fiscal 1965 over and above what you lose in 1964.
I f you tried to catch up with that through further expenditure reductions, you would have to go further than you did in 1964.
Mrs. GRIFFITHS. I f you began this route, then may I ask you, can
you anticipate the time when you would either have a tax decrease
or a tax increase? It would be necessary to have a tax increase, and
when would that time occur?
Mr. GORDON. This is awfully difficult to estimate. This is such
drastic economic surgery that it is very difficult to contemplate what
the longer term consequences would be.
Mrs. GRIFFITHS. And yet, many people who are speaking are obviously wanting to choose this path. So I think you might as well
answer it.
Mr. GORDON. I haven't heard of anyone who has urged that it would
be wise economic policy today to reduce expenditures in 1964 sufficiently to balance the budget in 1964. I f this is the case, the estimate
I gave to the Joint Economic Committee was not a very bad one,
given the margin of error one has to have for this kind of rough
estimate.
I think perhaps a reduction in expenditures of $20 billion a year
would be necessary to accomplish it.
Mrs. GRIFFITHS. The first year?
M r . GORDON.

Yes.

Mrs. GRIFFITHS. After that it would be greater ?
Mr, GORDON. After that it would be greater.
Mrs. GRIFFITHS. SO as it became greater, the tax revenue that you
would collect would become less; is that correct?
Mr. GORDON. That is correct.
Mrs. GRIFFITHS. SO as fewer people were left who were on the tax
rolls, there would come a moment conceivably when you would have
to increase the rate on those people, is that right?




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Mr. G O R D O N . Perhaps there might come such a moment.
Mrs. GRIFFITHS. SO you are never through that route going to hit
that point where you are going to reduce taxes?
Mr. GORDON. Of course, after you did this for a couple of years
and reaped the consequences—we are all speaking purely liypothetically—you might decide that you were on the wrong track and the
way to get back was to seek to stimulate the level of economic activity
through a reduction in tax rates.
Mrs. GRIFFITHS. That is where we are now.
Mr. GORDON. That is right. However we would be starting, I think,
at a much lower level of economic activity.
Mrs. GRIFFITHS. Thank you very much.
The CHAIRMAN. Mr. Schneebeli' will inquire.
Mr. SCHNEEBELI. I guess this question goes to the Director.
In 1961,1 believe our G N P was $519 billion while the estimate for
1962 was 570, which is an increase of $51 billion. Actually, we achieved
554 which is an increase of $35 billion.
Mr. GORDON. That is correct.
Mr. SCHNEEBELI. Thirty-five over 51 is about a 70-percent increase
estimate. This 30-percent error, is this not a rather unreasonable
error in these days of electrical statistical machinery which is supposed to be quite accurate ?
Here we figured a $51 billion increase and we only achieved $35
billion. Is not this 30-percent error a little unjustified?
Mr. GORDON. I think I can answer that in several ways. In the
first place, the error was quite great. I would not try to minimize
the size of the error in predicting the GNP in 1962. But it was not
quite as great as it seems. After the forecast was made, the previous
year's figure was revised downward by $3 billion.
Mr. SCHNEEBELI. But the spending was not?
Mr. GORDON. W e were starting from a lower base than we thought
we were. I grant this explains only $3 billion of the error of approximately 15. So this reduces the error to approximately 12.
Without seeking to minimize the size of the error, I think it should
be pointed out that when this projection was made it was not outside
the range of other similar projections being made at the time. It was
being made at a time when the economy was moving up very sharply
and very satisfactorily toward the end of 1961. I f the expansion hacl
continued through 1962 at a pace which would not have broken any
records but would have looked like similar recoveries in the past, we
would in fact have made 567, which was the adjusted equivalent of
570.
It didn't. The rate of expansion slowed down very sharply early
in 1962. I t was most unfortunately timed. The slowdown occurrea
almost the day after the forecast was made.
Mr. SCHNEEBELI. What was the major reason for the slowdown ?
Mr. GORDON. I am not sure it is possible to put your finger on any
one reason f o r the slowdown. But the principal element of demand
which didn't behave as well in 1962 as we had hoped was business
spending f o r plant and equipment. The projection included an increase of about 14 percent over 1961. W e actually realized about an
8 percent increase. This made a large part of the difference.
Mr. SCHNEEBELI. I thought your capital expenditures were pretty
well in line. Weren't they pretty close to estimates?




CONTINUATION OF PRESENT DEBT CEILING

51'

Mr. GORDON. NO, the plant and equipment expenditures fell substantially below the estimate upon which the 570 was based. I think
it was in part, at least, the failure of plant and equipment expenditures to move up as we had hoped which started a good many people
looking for explanations, and many people have come to the view that
the retarding effect of the tax system both on incentives to invest and
on other types of demand for goods and services was one of the things
that was holding back the rate of expansion of the economy in 1962.
Mr. SCHNEEBELI. From the point of view of timing, weren't your
recommendations to take this depreciation credit made before the
slowdown in investment was evident?
Secretary DILLON. The recommendations for the investment credit,
yes.
Mr. SCHNEEBELI. I am talking about the timing. In other words,
6 or 8 months of the slowdown he lias reference to.
Secretary DILLON. Yes. It wasn't made to take care of that but
it was made because over a period of years our expenditures for plant
and equipment had not been keeping pace with those of our competitors
abroad, all of whom had special tax advantages for investment in plant
and equipment, of one sort or another.
Mr. SCHNEEBELI. I f for a couple of years it was evident then, this
error is all the more glaring.
Secretary DILLON. Even if it had carried through at the high level
they had been hoping, we still would have been investing relatively
smaller amounts in plant and equipment than they have been investing, year in and year out, proportionately in Europe.
Mr. SCHNEEBELI. T o get the record straight, was this overestimate
a mistake of the Bureau of the Budget and not the Treasury Department?
Secretary DILLON. I think it is based on our joint feeling of what
the best estimate of the gross national product will be, in which a
leading role is played by the Council or Economic Advisers, but in
which the Bureau of the Budget and Treasury Department partici-

pate.

You come out with some figures that is somewhat near the consensus
of the views of all those three agencies. That is what this 570 figure
was.
Mr. SCHNEEBELI. That is a combined estimate?
Secretary DILLON. Yes. I wouldn't say each agency was exactly
the same. The Department of Commerce also takes part in this.
Mr. SCHNEEBELI. Mr. Secretary, in the light of the extreme reaction
against this 5-percent floor on deductions, would you suggest at this
point any modification in your original recommendation?
Secretary DILLON. Not at this point.
Mr. SCHNEEBELI. The reaction I get is entirely negative. Would
you suggest any modification in this original proposal which contains
about two-thirds of your increased tax reform income ?
Secretary DILLON. Not at this point. I think maybe after all the
testimony, we may find some more effective and more acceptable way
of broadening the base so as to achieve a similar result. W e are
looking hard to see if we can because we are aware of the criticisms,
and to the extent that those criticisms appear to be valid we naturally
want to see if we can find some better way of achieving this result,
which I think has long been talked about and indeed desired by mem-




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bers of this committee—that, there could be some way to broaden the
tax base so as to lower the level of marginal rates of income taxation.
Mr. SCHNEEBELI. I have heard some rumors that in replacement of
your suggestion of a 5-percent floor, that possibly to replace this
recommendation there might be a lowering of the 10-percent deduction
exemption to accomplish the same recoupment of funds.
Is there any reliance on this rumor?
Secretary DILLON. No decisions have been reached at all. I think
that obviously could be one of the areas of change. It could be combined with a floor like this 5-percent floor. One of the points that
seems to me the most valid was that made in the committee by Mr.
Byrnes when he pointed out the fact that in the area where itemizers
and nonitemizers overlap, the income area of $5,000 to $10,000, that
the 5-percent floor would have a greater effect on families that itemize
than it would on families with similar income that do not. They
divide about 50 -50 in that area.
So if some means could be devised to affect all equally that would
eliminate that particular objection. I don't know that it would still
make it acceptable but it is certainly something that merits looking
into. Whether we would recommend it or not is another question.
Mr. SCHNEEBELI. My last question is quite a broad question directed
to the Secretary.
In the light of your very fine Federal experience, and I consider you
have been doing a very good job—I admire your executive action very
much and I know you are very much on the spot—I wonder if you
could in time send me some recommendations on how you feel there
can be better coordination between the tax-raising committees and the
tax-spending committees in order to eliminate some of this disparity
between income and expense which we come up with each time at the
end of a fiscal year.
You have probably given this a lot of thought. I do not want to
ask you for a snap opinion, but if you could send to me sometime your
recommendations how these committees could coordinate their
activities to the best effect it would be helpful.
You have vast Federal experience along this line and I think your
recommendations would be veiy worthwhile. Sometime I would appreciate a letter from you to this extent.
Secret ary DILLON. Fine. Thank you.
The CHAIRMAN. Are there any further questions ?
Mr. King?
Mr. K I N G . The chairman and I and other members have had some
thoughts along that line, Mr. Secretary. As you know up to, I think,
1865, the committees were joined. The Ways and Means and Appropriations. Some of the ideas that I have I might pass on to you, but I
would suggest that they be saved for whatever time you might decide
to leave the Government before you recommend them.
Secretary DILLON. That probably is very good advice.
The CHAIRMAN. Are there any further questions ?
Mr. Collier will inquire.
Mr. COLLIER. Mr. Secretary, you reminded the committee in your
testimony today and previously, that Congress authorized and appropriated the funds for various programs which have resulted in the need
for this request to extend the debt ceiling.




CONTINUATION OF PRESENT DEBT CEILING

53'

By the same token, however, I must point out that the President did
not veto a single one of these appropriation bills.
Further, there were certain programs, as you know, that were recommended by the administration which were defeated by Congress
which if they had passed, would have only compounded the fiscal
difficulty that we face today.
I would like to read, Mr. Secretary, a column which appeared after
Congress approved the last increase in the debt ceiling.
It is noted by this writer among the 192 Congressmen who voted on Wednesday
against increasing the statutory debt limit were many of the same House Members who have consistently supported increased spending programs and even new
obligations.
I charge each of them not only with fiscally irresponsible conduct but indulging
in outright political demagoguery. On the other hand, those who have voted
consistently to cut the liberal spending programs even though it was not always
politically expedient to do so, certainly cannot be criticized in the same light.

I would ask you, Mr. Secretary, if you share the views of this particular writer?
Secretary DILLON. I think we had an exchange on that a little
earlier. I think certainly someone who is consistently opposed to appropriations and voted against them is in a somewhat different moral
position from someone who has consistently voted for them and turns
around and casts a contrary vote not to carry out the appropriation
which he voted for because in effect he is voting on both sides of the
same question at the same time.
I wouldn't call that the acme of consistency.
Mr. COLLIER. I reiterated this only because as you will recall, there
were 403 Members of the House voting when the increase in the debt
limit last came up in the Congress and the vote was 192 to 211 which
means if 10 votes iiad gone the other way there would have been a very
serious problem, as you pointed out.
I do this only because I would hope that the view you expressed
here today will be funneled down to some of our colleagues when this
proposal comes on the floor of the House.
I realize that we have to take one problem at a time. But in the light
of the budgetary request and the respective revenue situation that we
face now, does it not seem certain that a sharp increase in the debt
ceiling will have to be requested early in 1964 ?
Secretary DILLON. There will have to be a request for a fiscal debt
ceiling increase made sooner than that because the permanent ceiling
would automatically go into effect after the 30th of June, or on the
1st of July, so we have to have new legislation on the books by that
time.
In the last 2 years, it has generally been considered during the very
end of May and June, and I would assume the same thing would
happen this year.
As we pointed out at some length, and I think it is in the report o f
the committee last year very clearly there is a seasonal factor in our
income as it comes into the Government.
W e get less in our first 6 months than we do in the second 6 months.
So we would have to ask for a substantial increase in the debt ceiling
even if there was going to be a fully balanced budget in 1964 just totake care of this seasonal increase in the debt.




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In effect, there has to be an increase in the debt ceiling under our
present fiscal procedures the way our money comes in in the first 6
months of a fiscal year to take care of any deficit that might have
occurred in the preceding year, if one occurred.
Since this year, we are apparently going to run a deficit of about
$8.8 billion, next year's ceiling would have to reflect the fact that had.
occurred by moving up proportionately. That is why we got into this
colloquy earlier when we first appeared, at the time of the tax hearings,
that probably the new ceiling would have to be requested in the area of
$320 billion," give or take $5 billion. That would be the debt ceiling
for 1964 that would have to be requested because of the situation that
we are now in.
Mr. COLLIER. Then we would be faced with an increase in the debt
ceiling of approximately $17 billion ?
Secretary DILLON. NO, $12 billion.
Mr. (JOLLIER. Mr. Director, so that I can get squared away in my
own mind here, in your colloquy with the gent-lelady from Michigan,
did I understand you to say that if we attempted to balance the budget
in 1964 that this would result in an economic catastrophe?
Mr. GORDON. NO, I did not say that, Mr. Collier. This is a repeat
of an exchange we had some weeks ago when I was asked the question:
Approximately how much do you think you would have to reduce
expenditures in fiscal 1964 to achieve a balanced budget in 1964?
I made a rough guess at the time—which turns out to be not too
far off—of a reduction in expenditures of about $20 billion. This
would take account of the fact that the reduction in expenditures
would tend to reduce tax revenues, so you would have to reduce expenditures sufficiently to offset the decline in tax revenues which
would be induced by the reduction in expenditures.
That was an answer to this hypothetical question.
Mr. COLLIER. I direct this question to either or both of you gentlemen.
At what point does the deficit become unhealthy or at what point
does the deficit become healthy ?
Secretary DILLON. I don't think a deficit as a deficit is something
that is ever healthy. The problem is that there is a need to create
and to have an adequate amount of demand to purchase the products
of our economy. When our economy moves into a recession and
income moves down, if you reduce that demand still further by reducing Government expenditures, you go into a cyclical downspin which
is exactly what happened in the early thirties and you put yourself
not into a recession, but into something much worse.
I think that has been generally recognized, and no administration
since the war has operated in that way. They all tried to take into
account the fact that when a recession started, it was necessary either
to maintain or even to increase expenditures.
We do have these automatic stabilizers in our laws which work that
way through unemployment insurance, as an example, which does
in<
Mr. K N O X . Mr. Secretary, should a deficit be planned by an Executive or by the Congress or should it be something that just happens?




CONTINUATION OF PRESENT DEBT CEILING

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Secretary DILLON. I think it is something that would happen. It
would not be planned that one wanted a deficit, unless one is in the
position that we are in now, where our revenues are inadequate because
our economy is not functioning properly. In this case you are faced
with the alternative of reducing expenditures so drastically, as Mr.
Gordon pointed out, that it will further reduce revenues, and you
have to keep on going, so you have a multiplier effect which would
very rapidly cut into the other responsibilities of the Executive
and of the Nation.
One of the most important ones which is just not escapable from
is just the question of what we think is a valid level for the biggest
expenditure we make, one-half of all our expenditures, and that
is defense expenditures.
You cannot cut $10 billion or $20 billion, or even $5 billion or $6
billion out of our present expenditures without cutting a substantial
part of it out of tlie Defense Establishment. Maybe that would be
the judgment at some time of Congress that that is what should
be done.
Under the present circumstances, it is not the administration's.
Judging by preliminary things I hear, the indications are that the
Congress may just as likely vote more money for defense than the
administration has requested, which would make our problem more
difficult.
Mr. K N O X . Then your analysis of this problem that is facing this
committee and the Congress is that you would say this would be a
planned deficit; is that true ?
Secretary DILLON. N O ; I would say it is one that is reluctantly accepted because we are in a situation where our revenues are inadequate.
We are trying to do something about it. W e put our recommendations
before you. You are now considering them. There is the tax bill
which we propose for 1963, which we think will move the economy
ahead and allow us to generate the revenues that will make it possible
at the same time to have a fully employed economy and a balanced
budget at a reasonable time in the future, coupling that with close
control of expenditures as we move ahead toward that time.
Mr. KNOX. It certainly puts the Congress, I believe, in a rather untenable position, because of the fact that the Constitution does provide
that Congress shall levy the necessary taxes for the defense and for
the domestic problems as far as the Nation is concerned.
So we receive a budget of close to $100 billion, with approximately
$90 billion revenue attached to it, but we do not receive any message
from the executive department that would indicate any preference as
far as meeting the problem through increased taxation. I fully realize
that the taxes that have been levied are at a saturation point and something should be done in order to relieve the taxpayer.
My theory is that about the only way you can justly justify your
position in relieving the taxpaver of some of his burdens is that you
cut back on spending. But tfiere has not been any attempt to my
knowledge made to show any indication that the administration is
going to recommend any cutbacks on spending.
Do you know of any ?
Secretary DILLON. We think that has already taken place. I think
the Director of the Budget has so testified at some length, regarding




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CONTINUATION OF PRESENT DEBT CEILING 56'

how the 1964 budget was prepared and the fact that civilian expend!
tures on the whole were very substantially held down. There has been
a pledge to continue to do that.
Further than that, there has been a statement I made and which has
been repeated by the Director of the Budget that the buildup in defense
expenditures which has been adding substantially to our budget every
year should begin to level out and that we don't foresee continued increases in the level of defense expenditures of the same size we have
had in the past. This will make it easier to carry out the President's
pledge to devote a substantial amount of funds to reducing the deficit.
Similarly, the Director of the Budget pointed out that maybe 2 years
hence space expenditures will level out if we continue our present
program. The whole field is clear as to what the administration intends to do and how it intends to achieve it, which is to hold down the
increase in expenditures to a substantially lower level than has been
the case in the past few years, and thereby allow the increase in revenues that will come from better business as a result of the enactment
of the tax recommendations, a large portion of that to go to reducing
the deficit year by year until we reach a stage of balance.
Mr. K N O X . Mr. Secretary, as I recall from some testimony that
came from the administration—I don't know whether it is your
testimony or the Director of the Budget—in which was set forth, I
believe, five new programs that were being recommended to the
Congress. I f those new programs are going to be authorized and
appropriations made, how do you cut back on spending? You may
do it in some other categories to a slight degree, but the overall will
be increased spending.
Secretary DILLON. I think the Director of the Budget has testified
to that. '[The basic point was certainly that with a growing economy,
a growing population, we do expect expenditures to continue to
increase, but increase more slowly than revenues increase, so that
we will reach a balanced budget at a higher level of both receipts
and expenditures than we presently have.
Mr. GORDON. I don't think, Mr. Knox, that anyone would urge a
budget policy that would at all times refuse to contemplate new
Government programs and would keep in the budget all old Government programs.
It seems to me that would be the very negation of a budget policy.
Times change, circumstances change. I think we would always want
to be reassessing the need for Government activities in new directions
and reassessing the need in old directions. I tried in my testimony
last week to outline some of the principles we firmly intend to follow
over the years ahead to provide the room in the budget for some o f
the new programs, such as education and health and other things to
which the President attaches great importance, by finding economies
elsewhere.
I tried to be quite explicit on the kinds of things we were proposing
to do. W e propose to push ahead very vigorously on efforts to find
savings in Government lending programs where the job could be done
just as well by private lenders. This is the effort to substitute private
for public credit.
W e intend to look harder at the necessity for user charges under
which persons or groups which gain advantages from particular Gov-




CONTINUATION OF PRESENT DEBT CEILING

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ernment programs would pay their fair share of the cost of the
programs.
We intend to carry on even more vigorously the reexamination of
•continuing programs to make certain mat they deserve the place in
the budget they now have, and the level of expenditures they now
•entail.
W e intend to continue to push ahead hard on the whole front of
Government economy and efficiency, where we think the administration is really building up a remarkably good record, if I may say so.
The record in the Defense Department has attracted the most public
attention, although there are similar stories that can be told in other
departments.
There is a program for improving supply management and logistics
in the Defense Department which will realize identifiable savings by
1965 of $3 y 2 billion a year. People who have looked at this program
and studied it carefully regard it as one of the most important steps
forward in advancing Government efficiency that we have seen in a
long time.
As I say, there are similar efforts going on elsewhere. We intend
to maintain the pressure to make these programs pay off in terms of
genuine economies.
Mr. K N O X . It is quite obvious from the news reports that there is
some program being initiated in the Defense Department which I
commend liighly for bringing about some efficiency. As I recall, one
of the things that was stressed is that you are possibly going to do
away with civilian jobs.
Are these jobs going to be abolished or are they now going to be
filled by military people?
Mr. GORDON. The Department of Defense employment figures show
a decline of 10,000 in civilian employment from 1963 to 1964, This
estimate is based on the assumption of a 1-percent increase in productivity across the board in the Defense Department. This suggests
that the jobs will not be filled by military people, but that the Department will be applying improved productivity to reduce the number of
persons they have to do the job.
Mr. KNOX. Would it be automation ?
Mr. GORDON. Automation is proceeding rapidly in the Federal
Government. The Federal Government has an excellent record in the
institution and adaptation of automatic data processing. It is one of
the leaders in the use of automatic data processing for reducing the
cost of business-type programs.
Mr. KNOX. Has the administration given any consideration to delay
the moon shot so that possibly we would come a little closer to having
a balanced budget ana are you continuing to explore the possibility
of landing a man on the moon ?
Mr. GORDON. When this goal was announced by the President in
1961, it received the support of the Congress and the American people.
The goal is a manned lunar landing in this decade.
The budget which the Congress has before it with respect to this
program is designed to keep it on a schedule to achieve this result
within this decade.
I might say there are some other space programs not directly related
to the manned lunar landing in which we have reduced very substan-




CONTINUATION OF PRESENT DEBT CEILING 58'

tially the estimates of expenditures in 1964. The manned lunar landing program, however, it at the minimum level, which is consistent
with realizing the objective in this decade.
Mr. KNOX. What is the Budget Bureau's estimate on the cost before we will actually land the man on the moon, the overall cost?
Mr. GORDON. I don't know that we have a figure that will give you
the total cost as of the time we land on the moon. We do expect a
further increase, as I indicated in my earlier testimony, in space
expenditures in 1965 over 1964, but a lesser increase than we will have
had from 1963 to 1964. I have heard of no such estimates.
Mr. KNOX. YOU have no estimates of the cost at all ?
Mr. GORDON. NO. A S I say, we are looking forward to an increase
in 1965, although a lower rate of increase than from 1963 to 1964, but
we have not gone beyond that.
Mr. K N O X . I f my memory serves me correctly, I believe through
the medium of the press it was somthing over $10 billion that would
be spent within the next 2 or 3 years on this one project alone.
Mr. GORDON. I am not familiar with that figure, Mr. Knox.
Mr. K N O X . It would seem to me that if we are in such desperate
trouble as far as the fiscal responsibilities of the Nation are concerned,
that we should certainly have some programs that could be set aside
temporarily until that eventful day when we are supposed to be able
to recoup additional tax dollars in order to bring about a balanced
budget. I believe you said that would be 1967; is that correct ?
Mr. GORDON. That is right.
Mr. KNOX. I think that the American people are greatly alarmed,
at least from the tenor of the mail that I receive, over the fact that we
are going to have an increase in the national debt that will bring us up
to $320 billion, to $323 billion, and no attempt is being made to cut
back upon spending. I think the alarm mostly is because of the fact
that people are fearful of inflation and increased prices that would
possibly be detrimental to their future and to the future of the
Nation.
I feel very strongly myself as far as taxes are concerned that taxes
are too high, but at the same time, as long as we expect to receive everything from the Federal Government, there is only one way that the
Federal Government can make the money available, and that is first,
by tlie Government to take it from the people or continue to create
an increase in the national debt.
I don't think it is good, sound fiscal policy to continue on the same
line year after year, knowing this is not something that is coming by
happenstance where we could not foresee it, but we are requested now
to decrease taxes and increase spending. That is the recommendation
of the administration. Do you think that this is the proper policy
to pursue?
Mr. GORDON. On the matter of increased spending, Mr. Knox, I presume you are correct in saying that some of your constituents feel
that the administration is not making an effort to restrain spending.
I would, however, disagree with that. I think a very strenuous effort
is being made.
I am afraid I am being repetitive now. I cite you the hard facts
which are contained in the 1964 budget, which I think represents the
beginning of a new climate of expenditure policy under which we have
achieved a very important objective in holding the domestic civilian




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sector at or below the level of the previous year. The same restrictive
policies which were embodied in the 1964 budget will be continued
and intensified in subsequent years.
My response would be that there is a serious and effective effort being
made to restrain expenditures. This I think is going to become more
and more visible as time goes on.
. Mr. K N O X . I just cannot agree with you in that respect. I certainly rely to a great degree upon the news media to keep us informed
of some of the problems that are confronting the several departments
of the Government.
I f my memory serves me properly, I believe in the Agriculture Department this year they are asking for an increase of employees that
will bring them up to 127,000, whereas in 1959 or 1960 it was around
60,000. How can you expect that we are going to have efficiency and
reduce spending?
Mr. GORDON. The total increase in civilian employment is about
36,500 people. I f the employment increased over that same period
at the rate the population is increasing, it would increase 41,000 people. So, over this year, the rise in Government employment, despite
the increase in worldoad and in the complexity of the tasks performed,
is being held to a rate below the rate of increase in the population.
As Secretary Dillon has already pointed out, the President in his
speech to the American Bankers Association said that this would
continue to be our policy, and we are going to continue to hold the
rate of increase in Federal employment below the rate of increase
both in population and State and local government employment.
Mr. K N O X . Using the Agriculture Department, day by day we have
fewer and fewer farmers and people that follow the pursuit of agriculture. Still our cost of the Department that is regimenting the
farmers today continues to increase. Is that not true ?
Mr. GORDON. Expenditures for price supports go down from 1 9 6 3
to 1964. I certainly grant you your principal point, which is that
over recent years the cost of agricultural programs has been increasing. This one year we are talking about, however, I think you will
find the opposite is the case.
A s to employment in agriculture, I could give you more detailed
information. My clear impression is that a good part o f the ificr^se'
in the employment in the Agriculture Department is not for agriculture per se? but is in the Forest Service, having to do with an increase in timber cutting and the construction of roads and trails,
increased maintenance, and increased numbers of visitors to National
forests. This represents a large part of the increased employment
in the Department of Agriculture.
Mr. K N O X . Going back to the moon shot, isn't it true that Boeing
was awarded a $400 million contract yesterday? Could not this
have been postponed ?
Mr. GORDON. I presume this is correct, sir.
Mr. K N O X . D O you not believe honestly that it could have been
postponed?
Mr. GORDON. I certainly believe it could have been postponed.
Mr. K N O X . D O you think it would have been in the best interests,
of the Nation to defer it ?




60

CONTINUATION OF PRESENT DEBT CEILING 60'

Mr. GORDON, IT would liave deferred our progress toward the objective which Ave have enunciated and agreed upon and are moving
toward in a very orderly way.
I would point out that in developing a program of this kind which
takes a number of years, it is generally false economy to do it in
fits and starts. To start and stop usually involves higher longrun
cost than if you develop the program on a smooth, expanding basis.
I don't think we would save money in the long run if we did it in a
jerky, jumpy way, rather than in the present, planned way.
Mr. Kxox. Don't you think there would have been an incentive for
this committee to act more favorably upon the President's request of
the tax cut if the administration had shown some discretion prior to
the awarding of this $400 million contract of yesterday ?
Mr. GORDON. Mr. Knox, I think we are showing a great deal of
< Li sere lion. It does seem to me, however, it is a question of how you
think it should be done. I think there can be higher longrun costs
incurred in crash programs, sudden decisions to reverse, to start, to
stop.
What we are trying to do every day is to identify opportunities to
do the work of the Federal Government more economically. As I
pointed out earlier, ever since the budget was submitted to Congress
Hi January, we have submitted supplemcntals to the Congress which
represent a reduction of $150 million in appropriations below the levels
embodied in that budget.
This is a continuing process. We have found ways of discharging
t he Federal Government's responsibilities, getting the programs accomplished, at lower cost. This is our job. W e would be legitimately subject to criticism if we weren't doing it.
Mr. K N O X . It seems to me that there could be no great loss as far as
the objective is concerned of landing a man on the moon because of the
fact that we do not have any conception of what we are about to find
or whether it is even going" to be possible for a man to land on the
moon. Is that not true? What is that great objective that you
speak of ?
Mr. GORDON. Are. you asking me to say whether it is going to be
possible ? I presume so. I think we have a good enough chance or
we would not have started. I am not enough of a scientist to estimate
our chances of being successful. I presume we will be successful.
Mr. K N O X . I S it not so that the people who head up N A S A , that they
have not informed you of the justification and the need for the urgency
to appropriate these funds for this one particular project of landing
a man on the moon ?
Mr. GORDON. Indeed they have. As a matter of fact, we, in a corporate sense now—as you know, my own association with the Budget
Bureau is not quite 2 months old, and I was not personally involved
in the 1964 budgetary process—I do know that the staff of the Budget
Bureau and the staff of the N A S A worked very, very closely in developing the estimates which are contained in the present budget.
I would draw this distinction that I made a moment ago between
the part of the N A S A program which relates to the manned lunar
landing, where the task was to keep it on schedule to achieve the goal
at the end of this decade, and other programs, which were cut back
rather sharply.




CONTINUATION OF PRESENT DEBT CEILING

61'

Mr. K N O X . Have you been informed as to the need to get the man
on the moon in the 1960's ?
Mr. GORDON. This, I think, Mr. Knox, was a decision—a very important national decision—following a recommendation which was
made by the President in the first half of 1961, which was widely
discussed in the country, and which was supported by the country
and the Congress. It relates not only to national security aspects, but
involves very important aspects relating to scientific research, technical knowledge, and understanding which may have very desirable
consequences for us as a nation.
This was thrashed out, I think, at considerable length and the decision was made. It is a long-term program. Having made such
a decision, you can always change your mind. But I think it would
be a great mistake to cnange your mind one way one year and the
other way the next year, because if you did it that way, I suspect
you would pay a lot more for the same result.
Mr. K N O X . Don't you feel that there is a responsibility as far as
getting our house in order before we launch such a program as the
lunar project?
Mr. GORDON. I do, indeed. That is precisely why I think we have
accomplished something important in holding all expenditures other
than for national defense, space, and interest in 1964 below the 1963
level.
Mr. K N O X . I have one other question, Mr. Secretary and Mr. Director.
W h y is it that automation in industry reduces employment while
automation in Government seems to increase employment?
Secretary DILLON. I don't know. I can answer on the part of the
Treasury Department, that it is most heavily automated and is still
automating, and that is the fiscal services which handle the making
of money, the distribution of money, the payment of checks, disbursing, Federal accounting, handling of the public debt, those great
areas have very substantially automated and as a result we are now
doing in this year very considerably more, maybe 50 percent more
work in volume than we did 12 or 13 years ago with less than half
the people.
Every year for the last 4 or 5 years the total number of people in
these areas has trended down—some years faster than others. The
Treasury Department budget for 1964 is still down. Figures would
show an increase overall for Treasury. That increase is solely in the
two revenue-collecting agencies overall—the two revenue-collecting
agencies, which are the Bureau of Internal Revenue and the Customs
Service. All the rest of the operations of the Treasury put together
are decreasing and it is largely on account of this automation that you
have mentioned. It has been very dramatic. I imagine similar
things can be said of others.
Mr. GORDON. They can. I think we would have had a much more
rapid increase in Federal employment had it not been for the increases
in productivity that have taken place.
As a parallel, let me cite the example of the A.T. & T. I f I remember correctly, and my numbers may be slightly off, the telephone
companies, taken together, had about 200,000 employees in the early
1920's. This was before the dial system, before long-distance dial-




62

CONTINUATION OF PRESENT DEBT CEILING 62'

ing, before the numerous forms of automation. And today they have
over 600,000 employees.
I think the appropriate question is how many would they have today
if there had not been the increases in productivity which have occurred
over this period?
Mr. K N O X . Possibly their expansion would not have been as great.
Mr. GORDON. That is right.
Mr. K N O X . Possibly the agencies of Government would not have
grown so rapidly. Probably they would have been pruned back.
Mr. GORDON. IS this an argument for not improving efficiency ?
Mr. KNOX. NO. This is a question of increased employment.
Mr. STAATS. Overall, Federal employment from 1963 to 1964 goes
up about IV2 percent as against about a 5-percent increase in the total
expenditures. This doesn't tell the whole story, because much of the
expenditures are in the form of contracts with private industry.
I think it should be said very honestly and fairly that in all of the
large operations which do lend themselves to mechanization and automation, the number of units of output has steadily increased over the
last 10 years in proportion to the number of personnel. W e don't
look at the costs entirely in terms of personnel. You also have to
look at the cost of the equipment that it requires to produce that
result.
We try to look at the cost of the unit of output rather than simply
the number of personnel.
Mr. GORDON. One case I remember, Mr. Knox, is the case of the
Veterans* Administration. In the handling of the national service
life insurance program, if I remember correctly, about a decade ago
there were some 17,000 employees involved in administrative work.
Today there are about 3,000, and the number of policies is just about
the same.
This is one of the most dramatic instances of improvement in
productivity brought about by the introduction of automatic data
processing equipment.
Mr. STAATS. Another example is the last census, where about 20
percent additional work was involved over the previous census, but
at 10 percent less cost.
Mr. KNOX. I have one final question.
If the Congress, in its wisdom, should decide they are going to authorize an increase in the national debt to the extent of $320 billion,
what will be the carrying cost?
Secretary DILLON. The average carrying cost of the Federal debt,
the interest cost now, the latest figure is 3.3 percent.
Mr. K N O X . That is the average figure over your long term?
Secretary DILLON. The whole Federal debt. I would see no better
way than to use that average figure, assuming you place the new debt
relatively in the same proportions as the outstanding debt.
Mr. K N O X . Based on the fact that the last issues which were sold
cost 4.1?
Secretary DILLON. 4 . 0 1 was for long-term debt. If you sold it all
long term it would cost 4 percent. If you sold it all in short-term
bills it would cost something less than 3 percent. The overall average
works out to 3.3 percent.
It might be that in that average you probably have a valid point,
that there are some long-outstanding issues that were issued after




CONTINUATION OF PRESENT DEBT CEILING

63'

the war that are as low as 2 % percent which bring that average down,
so that the stuff you are putting out now would probably be somewhat
higher. They might on an average be as much as Sy2 percent.
Mr. K N O X . In other words, bonds that are coming due that carry
a long rate of interest now are not being resubscribea by the holders ?
Secretary DILLON. Not at that rate of interest; no.
Mr. KNOX. I S that negotiated, Mr. Secretary, or is that on bids?
Secretary DILLON. Some of them are by public bids. W e have
done that for the first time on long-term bonds this last issue in
January, which was the first public bidding. Otherwise, it has been
the practice for longer term securities, the Treasury just sets a figure
which they think is a fair price and people come in and either buy or
don't buy. They have a certain ability to do that.
I f there is a broad market and a lot of securities outstanding, they
can see what the proper market is by looking at the prices of the
outstanding issues.
I would say if you are talking about putting an additional amount
of debt, whatever the additional amount was needed for an increase
up to whatever amount would be increased next year, that additional
amount would cost about 3y 2 percent, probably, on the average.
I would say if you are looking at the overall cost of carrying the
total debt, it wouldn't change very much from the 3.3 percent because
that is the present figure for $300 or $400 billion presently outstanding.
Mr. K N O X . There would be that much interest carrying charge?
Secretary DILLON. On that. The 3 Y 2 percent might change the
average for the rest to 3.1 or 3.2 or 3.3 or something like that.
Mr. K N O X . That is all, Mr. Chairman.
The CHAIRMAN. Mr. Byrnes.
Mr. BYRNES. Mr. Secretary, your public debt subject to limitation
as far as your needs are concerned reaches a real critical point, according to your table, on June 15. I was wondering about that. On
May 3 1 you have $ 3 0 4 . 4 billion. I suppose that is progressively
moving up to $ 3 0 7 billion during the first part of June.
Secretary DILLON. Yes.
Mr. BYRNES. Or do you hit a particular week?
Secretary DILLON. NO, it is just progressive. What happens is
that, there are some months in which we get big payments.
Mr. BYRNES. I understand that. I am talking about how it works
out by days here in this month of June. The reason I inquire about
that is because within a period of apparently a couple of weeks you
move from a need of a borrowing authority of $304 billion up to $307
billion, and then you move way down to $302 billion.
In other words, you have a big rise and a sharp falloff all within 1
month. I was wondering how that adjusts itself by days.
I come then to the question, since it is only a short period of time
involved, whether this can't be spread out in order to avoid that very
high peak of $307 billion ?
Do you get my point ?
Secretary DILLON. I think I do. I think that would require delaying the payment of some Government bills. It would be something
that probably the Budget Bureau would have to look into. Of course,
the regular payrolls you have to meet when they are due, but there
might be a portion of that expenditure for that month, whatever the
proportion of it is that is due to be paid to contractors, maybe could




CONTINUATION OF PRESENT DEBT CEILING 64'

lie put over until the 20th of the month, at which time, or the 23d
or 24th, when we do have the month.
Mr. BYRNES. The purchases, for instance, that will be made tomorrow or the next day, instead of having a due date of payment being the
15th of June, could be set up to be payable on the 25th at a time when
you have more than enough credit as far as the ceiling is concerned.
That is the kind of thing I was wondering about; whether there
are not some adjustments that could be made and whether they should
not be made. Why do you get, in this 1 month, this very severe rise
in your borrowing needs'and then a very sharp falloff i It means you
have to g o out and get some real short borrowing, I would assume.
Secretary DILLON. We really have to have a large enough cash balance to carry over those times. As you pointed out, December 15,
that is just before another fairly large payment, our cash balance is
always very small. Our cash balance would probably be relatively
small on June 15. It would probably be relatively small on March 15.
Mr. BYRNES. Could you try to work the June situation out by days
so we can look at it ?
Secretary DILLON. We will have to do that with the Budget Bureau, where these expenditures come from. We will see what we can
do.
Mr. BYRNES. I was thinking particularly as far as your needs show
up now.
Secretary DILLON. I know we have daily things for revenue. I
think they probably have daily figures also for expenditures.
Mr. BYRNES. This seems to me to be the real crucial period you will
run into. You will run into another one at the end of June. You
have an impossible situation as far as the first of July is concerned.
You can't accommodate a $285 billion ceiling. I am reasonable enough
to suggest, Mr. Secretary, that you can't accommodate that.
The CHAIRMAN. What Mr. Byrnes is leading up to is whether or
not it is essential to get through the month of June that we have
the $308 billion ceiling at that time.
Secretary DILLON. Yes, I gathered that is what we had in mind.
I f we couldn't find some other way of either putting off expenditures,
we normally carry out for a couple of weeks or more so that they
wouldnt' fall at that time. My guess would be that if we were going
to follow that route, we would probably find, as a practical matter, we
would have to start earlier ana put some expenditures off for longer
than a week of two. W e might nave to put some off for a month or 2
months.
The CHAIRMAN. I f you would get the table for us for in the morning, that will show your revenues by day in the month of June, and
if Mr. Gordon could get the same table showing our expenditures by
days in June so that any day we wanted to look to, not just June
15 and June 30, we could see what the public debt subject to the limitation would have to be, it would be helpful to us, I think, in exploring
further the point Mr. Byrnes has in mind.
Could you do that by in the morning?
Secretary DILLON. W e certainly can do it for revenues. I can't
guarantee on expenditures, but they can try. Maybe they can do it.
Mr. GORDON. W e will do our best, Mr. Chairman.
The CHAIRMAN. It would be helpful to us if you could have that
in the morning.




CONTINUATION OF PRESENT DEBT CEILING

65'

Mr. BYRNES. Just one other brief item to simply make the record
clear.
W e did have some discussion this morning about the accelerated
public works. The director called our attention to the fact that Congress had exceeded what the administration called for. I think it is
necessary to define what aspect of the Congress insisted on that.
I just want to put this in the record: that in the Senate it passed by
a vote of 44 to 32. There was not a great majority there. When it
came to the House, it passed the House by 192 to 221. But I would
like the record to further show that 148 Republicans voted against
the whole bill, not just a matter of whether you are going to exceed the
President's request; and 19 Republicans voted for the $900 million.
So I don't think that you had a great mandate there. There were
some of us in the Congress who were rather insistent that some of those
programs are just the things that get you into the mess that we are in
today as far as the debt ceiling is concerned.
That is all, Mr. Chairman.
The CHAIRMAN. Mr. Secretary or Mr. Gordon, one or both of you,
please prepare for this record, if you will, what reduced need there
might be for a ceiling on the public debt if some of the Treasury
holdings of securities issued by Government corporations and other
agencies could be sold by the Treasury to the public. Give us some
idea of the extent to which such sales could occur without loss, of
course, to the Government.
I don't mean to say that we should sell all of them. What I am
thinking about is that there may be some of these securities that the
public will buy if given an opportunity, at whatever cost the Government has in those securities.
If you have information of that sort, would you put it in the record ?
We won't have time to receive it now, if it is $500 million or $1 billion
or whatever. I think there are some $28 billion together, or more,
of these securities. I want to know because it has been suggested to me
that there would be less need for increase in the ceiling if we disposed
of those securities that we could dispose of without loss to the Government. Give us some idea, if you will, of the amount and whether
or not it would have an appreciable effect upon future debt ceilings
and how soon such a program could be carried out if it were feasible
and the extent to which it could be carried out.
Mr. GORDON. May I just say, Mr. Chairman, as you undoubtedly
know, the 1963 budget provides for the sale of financial assets of the
sort you are referring to of over $900 million. The 1964 budget
provides for doubling of that figure. It estimates sales of financial
assets of about $1,800 million.
This doesn't answer your full question, but I just wanted to convey
that this is an area in which we are already very active.
The CHAIRMAN. I understood you were. I thought this record
might reflect what it is that is being done.
Mr. STAATS. When you say "without cost," you mean acquisition
cost; is that correct? Disposed of without cost, you have reference
to the acquisition cost?
The CHAIRMAN. What I am thinking of is this: that I would not
have you include certain obligations that you have to sell at less than
the face value of the Treasury holding in that security. Those that
you can get the Government's money back, that is what I am talking
about, if you can sell them.



CONTINUATION OF PRESENT DEBT CEILING 66'

Then, too, you might tell us why these securities will be sold in fiscal
1964 and not in fiscal 1963, if you will.
Mr. GORDON. Very good.
(The following material was supplied for the record:)
STATEMENT

ON

SALES

AND

SALABILITY OP F I N A N C I A L
GOVERNMENT

ASSETS

OF

FEDERAL

< Prepared at request of the Chairman of House Committee on Ways and Means)
On June 30, 1963, the Federal Government will hold an estimated $30 billion
in direct loans, mortgages, and other financial assets. In most cases the interest
rates or other characteristics of these loans make them unsuitable for sale to
private lenders. Indeed, had private credit been available to the borrowers
on terms as attractive as those offered under the various Government lending
programs, in almost every case the loans would not have been made by the
Federal Government.
Nevertheless, some portions of this portfolio are appropriate candidates for a
carefully planned program of sales. Substantial sales of assets are, indeed,
provided for in the President's 1964 budget—$926 million in fiscal 1963 and
$1,846 million in fiscal 1964. Table I lists these sales by type of asset In
addition, the 1964 budget reflects proposals for—
(a) Administrative action to obtain federally insured private financing
estimated at $280 million on resales of acquired properties by the Federal
Housing Administration, thus avoiding corresponding budget expenditures;
and
(&) Legislation to permit substitution of federally insured loans for M
large part of the direct Federal loans now made for rural housing by the
Farmers Home Administration; if authorized by the Congress, this insurance
program will permit a reduction of about $80 million in direct Federal outlays in fiscal 1964 relative to 1963.
Table II classifies the various loans and mortgages held by the Federal Government into a number of categories, on the basis of the factors affecting their
salability, and provides brief descriptions of the relevant characteristics of the
loans. For the reasons noted in the table, and discussed further below, the
loans and mortgages in the first four categories of table II, totaling $22.6 billion,
are generally not appropriate for sale. The remaining major portfolios—totaling some $7.3 billion, contain many loans or mortgages which do lend themselves
to a planned program of disposal, a program which is now being carried out.
As the table indicates, however, these portfolios also contain a large volume of
loans which are not suitable for sale, or which could be sold only at large discounts. There are valid reasons to pursue a planned program of asset sales—
substituting, where appropriate, private for public credit. There are equally
compelling reasons to avoid a crash effort to unload Government-held securities
on the market.
1. Funds acquired through sales of federally held credit instruments reduce
the amount of Treasury securities which would otherwise have to be issued.
Hence the overall impact of such sales is to a large extent offset. However,
large sales of specialized assets—e.g., mortgages—can absorb funds and raise
interest rates in a particular market. The housing market is particularly
sensitive to changes in interest rates and the availability of funds. Federal
asset sales must be carefully planned to avoid depressing mortgage prices and
contributing to an undesirable reduction in housing construction.
2. Attempting to sell too large a volume of assets too qiuckly would depress
the price of the assets; in consequence, the Government would suffer capital
losses which could have been avoided by a more carefully paced sales program.
3. Sound policy renuires that the prices at which comparable mortgages are
offered for sale by different Government agencies be substantially the same.
The Government cannot be in the position of having one agency undercutting
the prices of another. The schedule of sale prices established by the Federal
National Mortgage Association (FNMA) for its secondary market (trust fund)
operations is used as the basis for sales prices on other Government mortgages.
This schedule reflects the range of current market prices. "Cut-rate" sales of
Government mortgages below these prices would violate the rule of "similar
prices for similar assets" and tend to depress mortgage prices in general.
4. In some cases—e.g., college housing loans—a careful program of Government sales can build up private investor interest in the particular types of




CONTINUATION OF PRESENT DEBT CEILING

67'

obligations, and lead, in future years, to a reduced need for Government direct
loans. However, a crash program of sales, at heavy discounts, might simply
postpone the day when the private market would be willing to absorb these
loans at reasonable prices, and might also make it more difficult for colleges
and universities currently to float dormitory loans in the private market.
The asset sales program for the fiscal years 1963 and 1964 takes these various
considerations into account. If the demand for loans and mortgages is larger
than expected when the budget was formulated, additional sales will be possible
on the same price and yield basis as previously assumed. In recent weeks there
have been some indications of improvement in the mortgage market; if this improvement persists, fiscal 1968 sales of financial assets will probably exceed the
estimates in the budget submitted last January.
MAJOR CATEGORIES OF FEDERAL FINANCIAL

ASSETS

The various major types of Federal financial assets are listed with brief
comments in table II. The following brief discussion is based on that table.
1. Some classes of financial assets cannot or should not be sold ($10.9 billion) .—A large volume of Governmentfinancialassets represent loans whose very
nature makes them largely unsuitable for sale to private lenders. 'Some loans
in this category are repayable in "soft" foreign currencies, some bear little or no
interest, some are owed by countries with current financial problems, etc. The
marginal comments in the table indicate the particular characteristics which
would prevent the sale of such assets in the private market.
2. In some programs legislation would be needed to allow sales, to allow sales
below par, or to provide the guarantees necessary to make sales feasible ($7
billion).—In some cases present law does not allow the sale of loans, e.g., rural
electrification loans, and rural housing mortgages held by the Farmers' Home
Administration. In other cases, current legislation does not permit sales below
par, and the loans held bear interest rates such that below-par prices would be
necessary for sale, e.g., most of the direct mortgage loans held by the Veterans'
Administration. In still other cases, legislation would be required to enable the
Government to insure or guarantee the loans; without such insurance the loans
probably would not be attractive to private lenders, e.g., ship construction loans
of the Maritime Administration. Even if appropriate legislation were passed,
including authority to provide insurance or guarantees, most loans in this category are of such quality or carry such interest rates as to require large discounts.
However, some sales might be possible at reasonable discounts.
3. Some classes of assets, otherwise salable, carry low interest rates or are not
of investment quality. Sizable discounts below par would be required ($3.1
billion).—The fact that an asset must be sold at a discount is not, in itself, a
sufficient reason to preclude its sale. Where, for purposes of public policy, loans
have been made by the Federal Government at interest rates and terms substantially more favorable than those available in the private market, a large discount
would have to be accepted in order to dispose of the assets. In many cases,
sales of assets to the private sector can contribute to the development of private
interest in unfamiliar types of credit instruments, leading to the eventual establishment of reasonable private rates and terms. In such cases, it might be
appropriate to accept a substantial discount on the initial offerings, as the price
of creating a new market for the particular credit instruments involved. Further, the existence of a discount which simply reflects the fact that the level of
interest rates has risen since the loan was acquired should be no bar to the sale
of the assets involved. However, when the discount reflects an important difference between the market and the Government in the evaluation of risk qualities,
as often happens, there is reason to avoid liquidating such assets. The public's
interest is better served by concentrating an asset sales program in those portfolios whose assets are familiar and desirable to private lending institutions.
In this way, the prices received by the Government for a given volume of asset
sales are likely to be maximized.
4. In one case, sales of certificates against a pool of assets are a continuing
practice, but an increase in sales would involve significant interest costs to the
Government ($1.5 billion.).—Loans against crops are a major instrument of the
Commodity Credit Corporation's price support program. Certificates of interest in a pool of these loans are sold to individual banks at interest rates (currently 3 percent) slightly higher than the Treasury bill rate. The $1,471 million
in table II for this category represents the amount of CCC loans against which,
it is estimated, there will be no certificates outstanding on June 30, 1963. It




68

CONTINUATION OF PRESENT DEBT CEILING

would be possible to sell certificates against these remaining loans by offering
a higher interest rate. Since the bulk of these certificates are redeemable on
demand by the banks, it would also be necessary to raise the interest rate on $1
billion of certificates outstanding. The additional one-half of 1 percent interest
which would probably be required to sell the additional certificates equal to most
of the $1,471 million of loans carried by CXX) would cost the Government an extra
$12 million per year.
5. In the case of the Export-Import Bank ($$.5 billion) sale of participations
in a pool of loans is planned,—The Export-Import Bank is assembling a pool of
loans against which participations will be sold to private lenders. A pool of
adequate size with interest rates, maturities, and capital repayment schedules
consistent with the terms of the participation agreement must be assembled.
To assure that the Government obtains appropriate terms, careful preplanning
and surveying of the private credit market is necessary. In order to make the
sale desirable from the Government's point of view, the size of the offering should
be substantial.
Of the $3.5 billion of loans which the Export-Import Bank is estimated to hold
as of June 30. 1963. a substantial volume is not suitable for inclusion in a pool
because of low interest rates, or unsuitable capital repayment schedules. Further, the capacity of the private capital market to absorb this particular type of
credit must l>e considered in determining the magnitude of any sales program.
6. Some other classes of assets contain significant amounts of readily salable
paper
billion).—The portfolios in this category contain assets which are
most suitable for sales. At present mortgage prices, a large proportion of these
assets would be priced at a discount. Moreover, a substantial increase in mortgage sales beyond the amounts now contemplated (see table I ) would almost
«*ertnin1.v require that prices be lowered. The amount of sales which will be possible without a reduction in prices and a depressing effect on the housing credit
market will depend upon conditions in the money markets generally and the
mortgage market in particular. In addition, further evaluation of individual
mortgages by quality, geographic location, etc.. will be necessary to determine
how many can. in fact, be sold at or near the prevailing market prices for new
mortgages.
The college housing loans to public institutions held by the Community Facilities Administration represent a wide range of quality and interest rates. W e
plan to sell $50 million of these loans and we expect they can be disposed of in
the near future at advantageous terms. We are currently exploring various
possible methods to increase the salability of these loans. A hurried disposal
program, however, would almost surely prevent the Government from obtaining
the best terms and prejudice the chances for the best development of this prospective market, as well as disrupting the modest continuing private market for
housing bonds of public universities and colleges.
TABLE

I.—Sale of financial assets in fiscal years 196S and 1964 estimated in 1964
budget
[In millions of dollars]
Agency and program

Department- of A p iculture: Commodity Credit Corporation.
Housing and Home Finance Agencv: Community Facilities Administration,
College housing loans to public institutions
Federal National Mortgage Association:
Special assistance functions
Management and liauidating functions
Federal Housing Administration
Veterans Administration:
Direct loan program
Loan guarantee program (vendee loans)
Export-Import Bank of Washington
Federal Home Loan Bank Board: Federal Savings and Loan Insurance
Corporation loans
Small Business Administration
Total..

Sales in fiscal Sales in fiscal
19631
19641
2 $639
50
199
60

18

150
60

18
147
540

1,846

i Sales estimates exclude (a) amortization, (6) prepayments, (c) sales made as part of the process of insuring loans, and (d) sales to F N M A .
, . ,,
* Excess of certificates issued (sales) over redemption of certificates issued during the year (excluding redemption of prior-year certificates).




CONTINUATION OF PRESENT DEBT CEILING
TABLE

69'

II.—Sales and salabUity of financial assets
[In millions of dollars]

Agency and program

Outstanding
direct loans,
June 30, 1963

Remarks on salability

1964 budget)
1. Some classes of financial assets cannot or
should not be sold:
Department of Defense: Military assistance credits.

198

Department of Health, Education, and
Welfare: Defense education loans.

294

Department of the Interior: Bureau of
Reclamation loans.
Department of State: Loans to United
Nations.

141

Agency for International Development
loans.

6,202

74

Treasury Department:
Loan to United Kingdom.

1,205

Defense production loans..

118

Housing and Home Finance Agency:
Community Facilities Administration:
Miscellaneous programs.
Federal Housing Administration: Assigned mortgages and defaulted home
improvement notes.
Urban Renewal Administration
Public Housing Administration.,
Federal Home Loan Bank Board: Federal
Savings and Loan Insurance Corporation
loans.
Subtotal..
2. In some programs legislation would be
needed to allow sales, to allow sales below
par, or to provide the guarantees necessary to make sales feasible:
Department of Agriculture:
Rural Electrification Administration.
Farmers Home Administration




121

300
153
91
35

These instruments are nonnegotiable and
bear interest rates ranging from Oto 3 H
percent.
Federal contributions repayable only after
1969 (later, under proposed legislation).
Repayable portion of contribution cannot
be determined in advance. If student
borrower becomes teacher, a portion of
capital and interest repayments are
"forgiven."
Most loans are noninterest bearing.
1948 headquarters loan is non-interestbearing. Total original 1962 bond issue
not yet fully sold making U.S. sale inappropriate.
Repayment to United
States to be in form of reductions in
future U.S. contributions to U.N.
About H of this total is repayable in dollars,
of which about half is owed by European
countries—mainly
percent, 35-year
loans. Other loans (1) are repayable in
local currencies; (2) have low interest
rates (e.g., % percent) and/or (3) are owed
by countries with current financial problems. Where debtor's balance-of-payments permits, Treasury is pressing for
prepayment and sales might adversely
affect efforts to close gap in balance of
payments.
Sale would require modification of loan
agreement. Interest rate only 2 percent.
(Actual balance now $55,000,000 due to a
prepayment.) Remainder not salable
due to default, interest payment deferment, or present efforts to refinance
privately.
Consists mainly of long-term low interest
rate loans, interest-free advances, and
liquidating programs. No reasonable
prospects for sale even at substantial
discounts.
Mortgage and note payments already in
arrears; many have relatively low interest
rates.
Bulk of loans made only when local questions preclude private bond counsel from
approving loans for private investment,
hence not salable.
Short-term notes are initially too small for
economical private financing; long-term
bond sales subject to difficult administrative or legal problems.
Mainly conventional home mortgages
acquired in settlement of loans to associations; most are now subject to legal
questions, but are ultimately salable in
future years.

10,932

3,720
1,572

Legislation required for sale; very large discounts required due to 2-percent interest
rate.
Legislation required for most assets to
allow sale and to permit guarantees; large
discounts likely on major portions.

CONTINUATION OF PRESENT DEBT CEILING 70'

70

TABLE

II.—Sales and salability of financial assets—Continued
(In millions of dollars]

Agency and program

2. In some programs etc. continued
Department of Commerce:
Area Redevelopment Administration.
Maritime Administration..
Treasury Department:
Loans to District of Columbia..
Veterans- Administration:
program.

Direct loan

Subtotal..
3. Some classes of assets, otherwise salable,
carry low interest rates or are not of investment quality. Sizable discounts below par would be required:
Oeneral Services Administration:
Sides credit
Public power bonds...
Housing and Home Finance Agency:
Federal National Mortgage Association:
Management and liquidating
functions.

Community Facilities Administration:
College housing loans to private
institutions.
Small Business Administration

Subtotal.
4. In one case, sales of certificates against a
pool of assets are a continuing practice,
but an increase in sales would involve significant interest costs to the Oovernment:
Department of Agriculture: Commodity Credit Corporation.

Subtotal.

Outstanding
direct loans,
June 30,1963
(estimated in
1964 budget)

29

110
122
1.475




Legislation required, probably including a
guarantee of commercial and industrial
loans against default; large discounts
likely due to interest rates and residual
risks.
Legislation required for a guarantee against
default: large discount likely due to interest rate (3H percent).
Legislation required for sale; discount not
likely due to Federal tax-exemption, but
sale of assets carrying tax exemption
would involve some cost to Treasury.
Legislation required for sales below par.
Over half of portfolio at 4H percent or
less, and most loans are in rural areas.
Thus substantial discounts would be
involved.

7,028

128
61

1,275

785
894

Much of portfolio would require large discounts because of below-market interest
rates.
Unsecured revenue bonds, not backed by
credit of the States involved. Would
require very large discount due mainly
to 2^-percent interest rate.
Discounts would range from 8 to 12 percent; larger on those ($153,000,000) uninsured. Interest rates from 4 to 4H percent. Also these are old relatively small
mortgages and therefore less attractive
to private lenders.
Fully taxable; substantial discount required. Interest rates from 2% to ZH
jpercent.
SB A, in making loans, first attempts to
secure private participation. Only a
minor portion now in SBA portfolio are
salable at par without extensive guarantee.

3,143

1,471

Present interest rate on certificates is 3
percent; to attain marked increase in
private financing would entail higher
rate for all certificates and put additional
pressure on 1964 budget.

1,471

5. In one case, sale of participations in a pool of
government loans is being arranged:
Export-Import Bank of Washington....

Subtotal.

Remarks on salability

Sale of participations in a $500,000,000
privately acceptable pool now planned.
Sales of individual loans of $60,000,000
estimated for 1963 and $40,000,000 for
1964. Substantial volume of loans unsuitable for inclusion in pool due to
interest rates or repayment schedules.
Planned volume of participation sales
must take into account capacity of
market to absorb this type of credit.
3,466

CONTINUATION OF PRESENT DEBT CEILING
TABLE

71'

II.—Sales and salability offinancialassets—Continued
[In millions of dollars]
Outstanding
direct loans,
June 90,1963
(estimated in
1964 budget)

Agency and program

6. Some other classes of assets contain significant amounts of salable paper:
Housing and Home Finance Agency:
Community Facilities Administration:
College housing loans to public
institutions.
Public facility loans.

782
134

Federal National Mortgage Association: Special assistance functions.

2,102

Federal Housing Administration:
Excluding assigned mortgages
and defaulted home improve
ment notes.
Veterans' Administration: Loan guarantee program (vendee loans).

350

Subtotal
Total
Very small programs.

461

Remarks on salability

Bulk of sales would require large discounts;
however, some can and will be sold at or
above par.
Some are salable at par; most would require
discounts.
Some can and will be sold at or above par;
most would require varying discounts
because of submarket interest rates, location and/or quality. Administrative and
market probems also hamper rapid sales.
Sizable amount salable at par or small
discounts in 1964; administrative limitations prevent large 1963 expansion.
Additional sales possible only with reduction in prices (increased discounts) or improvement of market in areas where bulk
of portfolio concentrated.

3,829
29,869
113

Grand total

The C H A I R M A N . Then you can be back at 10 o'clock in the morning
in executive session.
Without objection, the committee, will adjourn until 10 a.m. in the
morning.
(The following material was filed with the committee:)
CHAMBER OF COMMERCE OF THE UNITED STATES,

Washington, I).C., February 27,1963.

H o n . WILBUR D . MILLS,

Chairman, Committee on Ways and Means,
House of Representatives, Washington, D.C.
DEAR MR. C H A I R M A N : The request of the administration for extension of the
temporary $308 billion debt limit underscores the need for stringent Federal
fiscal belt-tightening against the possibility of a continually mounting debt.
Greater spending restraints in the past would have made the present request
unnecessary. It is still not too late to invoke a moratorium on new spending
proposals until the budget and debt questions are clarified.
The chamber of commerce of the United States believes that the repeated requests for increasing the temporary debt limitation have been a major factor
in causing widespread and serious concern over the true nature of the administration's fiscal policies.
The unprecedented frequency of these requests,
coupled with an apparent disdain for conventional budget policies found in the
statements of Government officials, have caused a high degree of unfavorable
public reaction. This reaction has reached sufficient magnitude that Dr. Walter
W. Heller, Chairman of the President's Council of Economic Advisers, has commented on it several times. Recently Dr. Heller had the following to say:
" I think it is quite remarkable that the basic puritan ethic of the American
I>eople should be such that they want to deny themselves tax reductions because
ot (a) their fears of deficits, and the additions to the national debt; and (b)
because they do not understand that their spending, in effect, makes this contribution to the national growth and full employment."




CONTINUATION OF PRESENT DEBT CEILING 72'
Dr. Heller's amazement at the strength of what he calls the "puritan ethic"
is not shared by all, including many professional economists. Dr. Jules Backman
of New York University was quoted in a recent issue of U.S. News & World Report as follows:
"Regardless of whether he (Dr. Heller) calls it a passive deficit, a stimulating
deficit, or any other kind of deficit, his prescription to stimulate growth is to
increase the deficit.
"As Gertrude Stein might have said, a deficit is a deficit is a deficit.. Personally. 1 prefer the 'puritan ethic' to the 'spendthrift ethic* so prevalent in this
country.*'
The 1964 budget
In his 1084 budget message, the President stated, "* * * I have felt obliged
to limit severely my 1964 exi>enditure proposals." This was heartening to many
until the budget document was analyzed in some detail. In a budget that many
hoped might be a model of fiscal restraint, expanded and new spending programs
abounded.
The President had stated that with the exception of defense, space, and interest on the debt, programs would be held below this year's level.
Overlooked by some was that "this years level" includes $3.1) billion of additional appropriations to be requested from Congress this session on top of the
$J*9.3 billion appropriated in the previous Congress.
Several programs in the 1964 budget seemed in direct conflict with any
"restraint"—
1. Xondefense public works: $7.2 billion, up $2 billion over 1962.
2. Xondefense research and development: $5.8 billion in expenditures
planned—a $2 billion increase over 1963 and more than double the 1062
amount.
3. International programs: $6 billion in appropriations asked in spire of
repeated evidence of waste and mismanagement of foreign aid.
4. New education subsidies: $1.2 billion in the so-called education "package" of the administration.
r>. Federal employment: Increase of 46.000 liondefense Federal civilian
employees asked for 1964 to reach total of more than 2,r»70,000-—an overall
increase of nearly 86.000 employees over 1962.
6. Mass transit subsidies: $100 million requested—as much as $10 billion
in prospect if the Federal Government really gets into this program.
7. Youth opportunities: $100 million asked, largely to revive a CCC-type
program of the 1930's.
8. Domestic Peace Corps: $40 million proposed to send Federal social
workers into local communities.
9. Outdoor recreation grants: $2.r> million for Federal grants and other
programs to provide outdoor recreational facilities.
The administration took the somewhat curious position that extreme restraint
had been imposed in that many Federal agencies did not get all they asked
for in the 1964 budget.
The President was not able to include in his budget message an estimate of
the new debt ceiling that he would request for 1964. He did indicate, however,
that the debt would stand at about $316 billion as of June 30, 1964.
The role of the debt ceiling
Although many claim that the debt ceiling serves no useful purpose any
longer, it must not be overlooked that the present hearings, as a minimum, serve
to focus attention on the Federal spending issue. Because of the unique
descending sliding-scale debt limitation developed by this committee last year,
this focusing of attention comes relatively early in the session and at a time
when no major spending legislation has cleared the Congress.
Where can the budget he reduced*
The problem of mounting national debts clearly starts with congressional
action on specific spending proposals. It is often stated that review of the budget
is the responsibility of the Appropriations Committees, but obviously all Members of the House and Senate share responsibility for the enactment of appropriations.
Significantly, this year even before the budget was received in Congress, but
when its approximate size was known, both Congressman Clarence Cannon,




CONTINUATION OF PRESENT DEBT CEILING

73'

chairman of the House Appropriations Committee, and Congressman Ben F.
Jensen, ranking minority member of that committee, called for substantial cuts.
The national chamber presently is engaged in an intensive analysis of the
1964 budget to determine areas where savings can be accomplished. Nearly a
score of national chamber committees are devoting their time to this work
and the results will be published following approval of the recommendations
by the chamber's board of directors at its meeting on March 15-16.
Last year, these same committees made more than 90 recommendations for
reducing the 1963 budget, identifying potential appropriation savings of more
than $5 billion. Congress voted reductions in 71 of these areas, at a savings
of nearly $3 billion.
I would appreciate it if you would include this letter in the record of the
present hearings to provide for a temporary increase in the public debt limit
Cordially,
THERON J. RICE, Legislative Action General Manager.

(Whereupon, at 3:50 p.m., the committee adjourned.)




o