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INCREASE IN PERMANENT DEBT LIMITATION
HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
E I G H T Y - F I F T H
C O N G R E S S
SECOND SESSION
ON
H. R. 13580
AN ACT TO INCREASE THE PUBLIC DEBT LIMIT
AUGUST 15, 1958
Printed for the use of the Committee on Finance
U N I T E D STATES
GOVERNMENT P R I N T I N G O F F I C E
30019 0
WASHINGTON : 1958
COMMITTEE ON FINANCE
H A R R Y F L O O D B Y R D , Virginia,
R O B E R T S. K E R R , Oklahoma
J. A L L E N F R E A R , JR., Delaware
R U S S E L L B. L O N G , Louisiana
G E O R G E A. S M A T H E R S , Florida
C L I N T O N P. A N D E R S O N , N e w Mexico
P A U L H . D O U G L A S , Illinois
A L B E R T G O R E , Tennessee
ELIZABETH B . SPRINGER, Chief
II
Chairman
E D W A R D M A R T I N , Pennsylvania
J O H N J. W I L L I A M S , Delaware
R A L P H E. F L A N D E R S , Vermont
G E O R G E W. M A L O N E , Nevada
F R A N K C A R L S O N , Kansas
W A L L A C E F. B E N N E T T , Utah
W I L L I A M E. J E N N E R , Indiana
Clerk
C O N T E N T S
Page
Text of H. R. 13580
1
STATEMENTS
Anderson, Hon. Robert B., Secretary of the Treasury; accompanied by
Julian B. Baird, Under Secretary for Monetary Affairs; and Dan Throop
Smith, Deputy to the Secretary
Stans, Hon. Maurice H., Director of the Bureau of the Budget
2
8
ADDITIONAL INFORMATION
Actual cash balance and debt January-June 1958, and forecast July 1958.June 1959 based on constant operating cash balance of $3.5 billion
(excluding free gold) (based on tentative estimates—subject to revision) _
5
Deficit spending, testimony re
15-21
Estimated leeway under proposed $288 billion statutory debt limit
23
Forecast of cash position and debt, fiscal year 1959
6
Public debt subject to limit
7
59
United States deposits in New York banks, 1953 to May 1, 1957
Weekly statistics on United States deposits in selected New York banks,
January 1953 to August 1955
53
Weekly statistics on United States deposits in selected New York banks,
August 17, 1955, through September 5, 1956
56
Weekly statistics on United States deposits in selected New York banks,
September 5, 1956, through May 1, 1957
58
HI
INCREASE IN PERMANENT DEBT LIMITATION
F R I D A Y , AUGUST 15, 1958
U N I T E D STATES SENATE,
C O M M I T T E E ON F I N A N C E ,
Washington, D. 0.
The committee met, pursuant to notice, at 10:15 a. m., in room 312,r
Senate Office Building, Senator Harry Flood Byrd (chairman)
presiding.
Present: Senators Byrd, Kerr, Smathers, Anderson, Douglas, Gore,
Martin, Williams, Malone, Carlson, and Bennett.
Also present: Elizabeth B. Springer, chief clerk.
The C H A I R M A N . The committee will come to order.
I submit for the record a copy H. E. 13580.
(H. R. 13580 is as follows:)
[H. R. 13580, 85th Cong., 2d sess.]
AN ACT To increase the public debt limit
Be it enacted by the Senate and House of Representatives
of the United States
of America in Congress assembled, That section 21 of the Second Liberty Bond
Act, as amended (31 U. S. C., sec. 757b), is amended to read as follows:
"SEC. 21. The face amount of obligations issued under authority of this Act,
and the face amount of obligations guaranteed as to principal and interest by
the United States (except such guaranteed obligations as may be held by the
Secretary of the Treasury), shall not exceed in the aggregate $285,000,000,000
outstanding at any one time. The current redemption value of any obligation
issued on a discount basis which is redeemable prior to maturity at the option
of the holder thereof shall be considered, for the purposes of this section, to be
the face amount of such obligation.''
SEC. 2. During the period beginning on the date of the enactment of this Act
and ending on June 30, 1960, the public debt limit set forth in the fir^t sentence
of section 21 of the Second Liberty Bond Act, as amended by the fijrst section
of this Act, shall be temporarily increased by $3,000,000,000.
SEC. 3. The Act entitled "An Act to provide for a temporary increase in the
public debt limit", approved February 26, 1958 (Public Law 85-336; 72 Stat. 27),
is hereby repealed.
Passed the House of Representatives August 6,1958.
Attest:
R A L P H R . ROBERTS^ Clerk.
The C H A I R M A N . The first witness on H. R. 13580 is the Secretary
of the Treasury.
I t has been suggested that the Secretary read his statement, and
then that the Director of the Budget read his statement without interruption ; and that the questions follow the two statements.
Senator KERR. That is they will both read them before either is
questioned ?
T h e CHAIRMAN.
Yes.
Mr. Secretary, we are delighted to have you, sir. Please proceed.
Secretary ANDERSON. Thank you, Mr. Chairman.
1
2
INCREASE IN PERMANENT DEBT LIMITATION
STATEMENT OF HON. ROBERT B. ANDERSON, SECRETARY OF THE
TREASURY; ACCOMPANIED BY JULIAN B. BAIRD, UNDER SECRETARY FOR MONETARY AFFAIRS; AND DAN THROOP SMITH,
DEPUTY TO THE SECRETARY
Secretary ANDERSON. Mr. Chairman and gentlemen, the President
requested on July 28, in letters addressed to the Speaker of the
House and the President of the Senate, that the Congress increase
the regular statutory debt limit to $285 billion and provide an additional temporary increase of $3 billion to expire June 30,1960. H. R.
13580 was passed by the House on August 6 to carry out the President's
request. I am appearing this morning to urge your favorable consideration of this bill.
I appeared before this committee last January to urge enactment
of a bill to provide a temporary increase of $5 biilion in the statutory
limit on the public debt. The bill was enacted and approved on
February 26, 1958, and provides a temporary increase from $275
billion to $280 billion until June 30, 1959, in the limit on the public
debt.
When I appeared in January, the need for a debt-limit increase
was predicated on the following factors :
1. The fact that cash balances should be maintained at a more
adequate and prudent level.
2. There was need for more flexibility to allowT efficient and economical management of the debt.
3. Even with a balanced budget there would still be large seasonal
fluctuations in receipts which wrould make operations under the $275
billion limit most difficult.
The budget estimates on which we made our recommendation anticipated a deficit for the fiscal year ending June 30, 1958, of $388
million, and a surplus for the fiscal year ending June 30, 1959, of
about $466 million.
At that time, it was particularly difficult to estimate the extent of
the change in economic conditions. The impact of the recession on
corporate profits, w^hich are such an important source of revenue,
and the extent of the duration of the interruption in the growth of
personal income were hard to foresee for a period extending 18 months
into the future.
Instead of a budget deficit of $388 million for the year ended June
30, we incurred a deficit of $2.8 billion. This deficit w^as brought
about because our net revenues amounted to $69.1 billion, against the
January estimates of $72.4 billion.
Instead of entering the current fiscal year ending June 30, 1959,
with an anticipated budget surplus of $466 million, we are now faced
with an estimated budget deficit of about $12 billion. This amount
is based on estimates of $79 billion for expenditures and $67 billion
for receipts. In giving these estimates we recognize the difficulty of
making judgments this far ahead. They are our best estimates, and
as such, provide a reasonable approach to consideration of the debt
limit.
This substantial change in the outlook of our fiscal situation for the
current year makes it imperative that we again review the statutory
debt limit.
3 INCREASE IN PERMANENT DEBT LIMITATION
We can no longer operate with a $5 billion temporary extension of
the $275 billion limit because we cannot look forward to a debt of $275
billion or less on June 30, 1959. The estimated deficit will result in
the public debt outstanding on June 30, 1959, of nearly $285 billion.
It is estimated that our cash working balance will amount to between
$4 to $5 billion on that date.
An increase in the debt limit is needed even though the general
revenue balance in the Treasury on June 30,1958, amounted to about
$9,750 million, as compared to $5,590 million on June 30, 1957. On
June 30, 1958, the gross amount of public debt and guaranteed obligations subject to the debt limit was $276,013 million as compared to the
debt subject to limit on June 30,1957, of $270,188 million.
The general fund balance on June 30, 1958, amounted to about
$9,750 million, but the cash working balance (funds available to meet
the day-to-day expenditures representing balances in Federal Eeserve
banks in available funds and in Treasury tax and loan accounts)
amounted to $8,628 million or about $4 billion higher than on June 30,
1957. The lower balance a year ago was due to the fact that a large
part of the tax collections in that month was used to retire public
debt obligations.
These reductions (of tax anticipation issues) amounted to $4,650
million in June 1957, while in June 1958 there were no maturing tax
anticipation issues, and outstanding marketable public debt obligations increased about $650 million. However, the lower 1957 balance
made it necessary for the Treasury to borrow $3 billion on July 3,
1957, to cover the heavy outlays during July last year. With the
higher balances on June 30,1958, the Treasury did not have to do any
cash financing this July, even though expenditures are expected to
exceed receipts by about $4.7 billion during the month. We are borrowing $3.5 billion in early August for cash requirements of the next
couple of months.
The statutory debt limit should be amended to give recognition to
the current outlook for the year. During the period since 1954, while
the Treasury has been operating under temporary increases in the
public debt limit, and public debt obligations were issued in excess of
the permanent debt limit, it could be reasonably estimated that the
excess could be repaid from tax collections prior to the expiration of
the temporary increases in the debt limit, and in fact they were. In
the situation we now face, that is not the case. At this point I would
like to direct your attention to the attached chart which graphically
illustrates this situation.
Mr. Chairman, if you will look at the chart and tables, the first
table indicates the requirements of the public debt, column 1 showing
an average working balance of $3y2 billion; column 2 showing the
public debt subject
to limitation with that amount of working balance;
column 3 showrs an allowance to provide flexibility in financing and
for contingencies, and the fourth column shows the public debt limitation that would be required with both the operating balance and the
contingencies.
You will notice that with these two, operating balance and contingencies, there are several periods between now and June 30 when
we come very close to or exceed the $288 billion which we are requesting.
4
INCREASE IN PERMANENT DEBT LIMITATION
I should also point out that in establishing the $3.5 billion worth of
working capital, we should bear in mind that at current rates of expenditure the Treasury is spending approximately $1.5 billion on
each 5 working days.
With increased expenditures contemplated for next year, these expenditures would increase.
I t would appear that the only sound course at the present time is
to permanently increase the statutory limit to $285 billion.
In addition, a further temporary increase of $3 billion will afford
us a margin to take care of contingencies. - Furthermore, a regular
limit of $285 billion may present problems to the Treasury before the
end of the fiscal year because there are still substantial seasonal
fluctuations in the collection of revenues. We will have to look at the
situation again before the end of the fiscal year to determine our
course of action beyond that date in the light of developments. When
budget surpluses are again in prospect, the matter of the permanent
debt limit can be reviewed.
The figures we are using today do not include any changes in estimated expenditures which could eventuate due to recent developments
in the international situation.
These developments do, however, point up the need for being in a
position to take care of contingencies.
I am appending a table setting forth our forecast of cash balances
and outstanding public debt for the period ending June 30, 1959,
including actual figures for the period from January to June 1958.
(The chart and table referred to are as follows:)
9 INCREASE IN PERMANENT DEBT LIMITATION
Actual'cash balance and debt, January-June 1958, and forecast, July
1959, based on constant operating cash balance of $3.5 billion
free gold)
1958-June
(excluding
[Based on tentative estimates—subject to revision]
[In billions]
Operating balance
Federal Reserve banks
and depositaries (excluding free
gold)
Actual:
Jan. 15, 1958—.
Jan. 31
Feb. 15
Feb. 28 i
Mar. 15
Mar. 31
Apr. 15
Apr. 30
M a y 15
M a y 31
June 15_
June 30
Estimated:
July 15 (actual)
July 31
Aug. 15
Aug. 31
Sept. 15
Sept. 30
Oct. 15
Oct. 31_
N o v . 15
N o v . 30
Dec. 15
Dec. 31
Jan. 15, 1959—.
Jan. 31
Feb. 15
Feb. 28
Mar. 15
Mar. 31
Apr. 15
Apr. 30
M a y 15
M a y 31
June 15
June 30
$1.7
2.2
1.7
3.4
2.8
5.1
5.0
5.2
4.6
5.1
3.3
5.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
Public debt
subject to
limitation
Allowance to
provide flexibility in
Total public
financing
debt limitaand for con- tion required
tingencies
$274.1
274.2
274.0
274.3
275.3
272.3
274.9
274.7
274.6
275.3
274.9
276.0
275.2
275.2
276.5
276.8
277.6
275.6
278.6
279.7
280.5
280.8
283.0
281.9
283.3
283.3
284.2
283.4
284.8
281.5
283.4
284.5
284.9
285.2
287.2
283.0
$3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
1
Statutory debt limitation of $275 billion was temporarily increased on Feb. 26,1958, to $280 billion u n t i l
June 30, 1959.
NOTE.—When the 15th of a month falls on Saturday or Sunday, the figures relate to the following business
day.
30019 O — 5 8 — 2
6
INCREASE IN PERMANENT DEBT LIMITATION
Forecast of cash position: q,nd debt, ftseal year 1959
[Based on tentative estimates—Subject to revision]
[In billions]
July
1958
Change in general fund balance
General fund balance at beginning
General fund balance at end
Operating
cash balance at end (including
gold)1
Public debt outstanding:
Beginning
Change
_
End
Debt subject to limit
^
Midmonth figures:
Operating cash balance (including gold) i _
Debt subject to limit.
Change in general fund balance
General fund balance at beginning
General fund balance at end
Operating cash balance at end (including
gold) L
Public debt outstanding:
Beginning
Change
End
Debt subject to limit
Midmonth figures:
Operating cash balance (including gold) 1 .
Debt subject to limit
SepAugust tember October
November
December
Subtotal
July-December
-1.6
6.2
+0.1
4.6
-1.3
4.7
+1-1
3.4
-5.2
9.7
-4.7
9.7
-hi. 2
, 5.0
5.0
6.2
4.6
4.7
3.4
4.5
4.5
4.3
5.6
4.0
4.1
2.8
3.9
3.9
276.3
-.4
275.9
+2.9
278.8
-2.4
276.4
+3.8
280. 2
-.2
280.0
+2.2
276.3
+5.9
275.9
275. 6
278.8
278.5
276.4
276.1
280.2
279.9
280.0
279.7
282.2
281.9
282.2
281.9
6.0
275.7
5.2
277.8
2.2
276.3
5.5
280.2
3.0
279.6
2.9
282.0
January Feb1959
ruary
March
April
May
June
-1.0
6.2
-1.7
5.2
+0.2
3.5
+1.4
3.7
-0.2
5.1
6.2
5.2
3.5
3.7
5.1
4.9
4.9
5.5
4.6
2.9
3.0
4.5
4.2
4.2
282.2
+3.0
285.2
-.8
284.4
-3.6
280.8
+3.1
283.9
+2.2
286.1
-2.5
276.3
+7.3
285.2
284.9
284.4
284.1
280.8
280.5
283.9
283.6
286.1
285.8
283.6
283.3
283.6
283.3
5.7
285.1
3.4
283.7
2.8
283.7
4.2
283-7
3.8
284.8
2.2
285.5
+1-7
4.5
Total
-4. 8
9.7
1
This balance differs from the general fund balance as it includes only Treasury accounts in Federal
Reserve banks (collected), Treasury tax and loan accounts, and gold in general fund.
PUBLIC DEBT SUBJECT TO LIMIT
288%
$Bil.
/278
280
{
1
280V
275i
285»
J*
Proposal
r
\
j V
1
I
283.3
JJ.L,
Estimated
270
260-
250
1 11
1954
Office of the Secretary of the Treasury
1955
1956
1957
1958
Fiscal Years
1959
I
I960
B-II50-F
*<l
8
INCREASE IN PERMANENT
DEBT
LIMITATION
Secretary ANDERSON. If I may, one moment, Mr. Chairman, refer to
the second table, under the heading "Public Debt Outstanding," the
figure indicates the amount of public debt that will be outstanding
at the beginning of the month. The second figure indicates the change,
and the third figure indicates the debt outstanding at the end of the
month.
Then the last line indicates the midmonth balance. So that you
have the beginning, the middle, and the end of the month and I should
say that even in this 15-day period there can be wide fluctuations
of several billions of dollars.
Thank you, Mr. Chairman.
The CHAIRMAN. The next witness will be the Director of the Budget,.
who will make his statement and then the witnesses can be examined
by the committee.
STATEMENT OF MAURICE H. STANS, DIRECTOR OF THE BUREAU
OF THE BUDGET
Mr. STANS. Mr. Chairman and members of the committee
Senator MALONE. Mr. Chairman, are we going to ask the distinguished Secretary of the Treasury any questions ?
The C H A I R M A N . Both of them will be asked but it was suggested wTe
will get the whole picture before us and then examine the Secretary
of the Treasury and the Director of the Budget .
Senator MALONE. Who is our second witness ?
The C H A I R M A N . The Director of the Budget, Mr. Stans. He is
looking at you now.
Senator MALONE. I have seen him before, but I do not have any
pleasant recollection.
The C H A I R M A N . G O ahead, Mr. Stans.
Mr. STANS. On June 12, when I last testified before this committee,
I summarized the prospective budgetary situation for the fiscal year
1959 as it then appeared. Since the budgetary outlook is directly
related to consideration of H. R. 13580, I propose today to bring the
1959 budget outlook up to date.
Last January, the budget estimates indicated total expenditures of
$73.9 billion for this fiscal year. It now appears that spending will
be substantially higher than that amount, and probably will reach
$79 billion.
Of course, it is impossible to prepare precise revisions of the expenditure estimates before the close of the congressional session. At present, for example, some major appropriation bills for fiscal 1959 have
not yet been enacted. Moreover, a number of substantive bills are still
pending before the Congress wlrch could affect significantly the total
expenditures this year.
However, many changes from the January budget can be reasonably
estimated at this time. These changes can be grouped in several
categories:
First, defense: Expenditures for mili f ary functions will be up by
about 500 to 700 million dollars from the budget estimates, taking
into account recommendations by the administration for added
authorizations and also the military and civilian pay raises which
have been enacted. Tlrs estimated increase is in addition to the $500
million that was included in the budget for defense contingencies.
9 INCREASE IN PERMANENT DEBT LIMITATION
Next, agriculture: It now appears that agricultural programs will
cost roughly a billion and a half dollars more than was anticipated
last January. This increase reflects various factors such as the exceptionally large wheat crop and changes in the outlook and programs
for exports.
Third, housing: Under the housing legislation enacted earlier in
this session, spending for mortgage purchases and for direct housing
loans to veterans could be more than $1 billion above the budget.
Fourth, unemployment benefits: Advances to States under the temporary program for providing supplemental unemployment compensation to workers, combined with higher expenditures for unemployment benefits to veterans and former Federal employees, are estimated
to increase Ihe budget by $600 million.
Fifth, postal service: The enactment of pay raises higher than recommended and taking effect at an earlier date, together with postage
rate increases wlrch fall short of the President's recommendations,
will result in a postal deficit this year which will be a half billion dollars greater than estimated in the budget.
Sixth, the general category of other increases: A number of other
programs will cost more than originally expected. Pay of civilian
employees outside the Defense and Post Office Departments will be
higher than budgeted because the pay raise was higher and most of the
retroactive payments were made in fiscal 1959. Construction programs of the Corps of Engineers and the Department of the Interior
have been speeded up and some construction of the General Services
Admin'stration has been shifted from lease-purchase to direct
financing. Other increases have been enacted for aid to schools in
federally affected areas, health research, hospitals, small-business investment, and veterans' programs. The National Aeronautics and
Space Administration will have a larger program than its predecessor,
and supplemental appropriations are pending for atomic energy,
postal construction, civil defense, overseas information activities, and
other items. The overall effect of these various increases is about a
billion dollars.
Finally, reductions: A decrease from the January budget seems
likely for interest on the public debt. The amount of appropriations
for mutual security programs reported in the Senate is somewhat
below the budget aiso, but the effect on expenditures would not be as
much in the first year as the change in appropriations. I think we can
estimate these two reductions in round figures at about one-half billion
dollars.
Beyond these categories, other legislative items that would add substantially to the budget have received some favorable action in the
Congress and are still under consideration. For example, the housing
bill reported by the House Banking and Currency Committee would
increase authorizations more than $1 billion over the budget. There
are also bills for unemployment compensation for peacetime veterans,
area assistance, minerals stabilization, waste treatment facilities, airport construction, public assistance, and educational television, which
propose to provide authorizations not budgeted or to increase budgeted
amounts. These examples, which do not at all exhaust the list, could
increase authorizations for fiscal 1959 by as much as $2 billion, and
would also provide further authority for succeeding years.
10
INCREASE IN PERMANENT DEBT LIMITATION
I very much hope that final action by the Congress on these bills
will not require expenditures beyond those recommended by the
administration.
However, with some allowance for the uncertainties related to this
pending legislation and other matters, I believe it reasonable to expect
that 1959 expenditures will exceed the budget by $5 billion, thereby
making the total about $79 billion.
The Treasury and the staff of the Joint Committee on Internal
Revenue Taxation estimate that our revenues will amount to about
$67 billion.
Thus the present outlook is for a budget deficit in the general magnitude of $12 billion.
I hope that we will be able to keep expenditures below the $79
billion we currently estimate.
I hope that revenues will exceed the present estimate of $67 billion.
I hope that the deficit will turn out to be less than $12 billion.
But we must recognize that there are many uncertainties in estimating expenditures and revenues this far in advance. It is possible that
the actual deficit could be even higher than we now foresee.
It is my belief that the debt limit should be high enough to provide
for these expectations, and should also allow for seasonal variations
in tax collections and for flexibility in managing the debt. I therefore endorse H. R. 13580, which would provide a permanent limit of
$285 billion, with a temporary increase of $3 billion above that amount.
The CHAIRMAN. Thank you, Mr. Stans.
The chairman would like to read this statement.
When Congress convened in January it was told by the administration that the budget w^ould be virtually balanced in the past fiscal
year and that there w^ould be a surplus in this fiscal year. Actually
there was a $2.8 billion deficit in the last fiscal year ending June 30
and another deficit of $12 billion is anticipated in the present fiscal
year.
The administration has asked for 2 debt ceiling increases in a period
of 6 months aggregating $13 billion, making a total debt limit of
$288 billion.
The Secretary of the Treasury has indicated that he may have to
ask for another debt ceiling increase when Congress convenes in January.
This unprecedented deterioration of our fiscal condition in a brief
space of 6 months should shock every American into a realization
of the perils that confront us.
Deficit spending will promote serious inflation and if continued
will destroy much of the present purchasing power of our existing
50-cent dollar.
The Budget Director anticipates an $80 billion expenditure budget
this fiscal year, and this will continue. In 5 years it is predicted we
will spend $400 billion. On the basis of the present revenue there
would be an accumulated deficit of $65 billion in the next 5-year period.
The debt then would approach $350 billion.
It is evident that we have a runaway budget and little effort is
being made by either the administration or Congress to control it.
I have discussed this matter with the President, who has expressed
his deep concern.
11 INCREASE IN PERMANENT DEBT LIMITATION
As chairman of the Joint Committee on Keduction of Unessential
Expenditures, I am preparing a memorandum for him urging that
all expenditures in the new budget now in preparation be reduced,
including those for programs and projects which may be desirable but
not absolutely essential. Waste and extravagance in every branch of
the Federal Government should be eliminated.
Unless we change our course, we are going to certain disaster in
our fiscal economy.
When the American dollar goes down, then the currency of the
world collapses. Drastic action wTill be necessary to prevent this real
disaster.
Now, Mr. Secretary, I am going to make my questions brief because the members of the committee have other meetings.
I am somewhat mystified as to why it was, that 6 months ago, a
balanced budget predicted in the last fiscal year, and this year, and
now we found that the aggregate of the deficits approaches $15 billion. Why was it that the estimates given to the Congress in January were so erroneous ?
Secretary ANDERSON. Mr. Chairman, there is always a very great
hazard in trying to anticipate both the direction which the economy
will take and the amount of revenues which are going to be derived
under the direction which the economy is moving, because one must
remember that the amount of revenue collected does not always move
in direct proportion to such things as gross national product.
In the instance of corporations, for example, which are very important to our calculations, any decline in profits, quite apart in some
instances from volume of business, are exceedingly damaging to our
revenue estimates.
Now the deficit which has occurred at the end of this fiscal year is
essentially brought about by a decline in revenues.
In January we estimated there w^ould be $72.4 billion of revenue.
The revenues which have been collected thus far are $69.1 billion.
Most of this is in the area of personal incomes.
Now, the deficit which is anticipated for fiscal 1959 is represented
generally by a decline of $7 billion in estimated revenue receipts, and
about $5 billion in increased expenditures over the budget estimates.
The CHAIRMAN. Weren't those conditions that brought about the
reduction in revenue more or less apparent in January ?
That does not happen overnight. We go back 6 months or so in
collection of our taxes.
Secretary ANDERSON. One
The CHAIRMAN. There was nearly as much recession in January as
there was in February and March. I just do not understand why,
under the conditions existing at that time, you overestimated the
revenues so much.
Secretary ANDERSON. Well, very frankly, Senator, I point up again
that one has to—if one looks by hindsight it is always easier to see
w^here your mistakes have been, but when one tries to anticipate what
is going to be a decline in corporate profits, and the rate of corporate
profits, one just cannot m,ake precise judgments, and a fluctuation of
several billions of dollars is not an unusual thing:.
The CHAIRMAN. That decline had already occurred in the latter
part of 1957.
12
INCREASE IN PERMANENT
DEBT
LIMITATION
Secretary ANDERSON. There had been some decline in 1 9 5 7 .
The C H A I R M A N . Apparently there had been no consideration given
to that decline.
Secretary ANDERSON. There was consideration given to it Senator,
but frankly, the decline in profits was greater in the first half of 1958
than we anticipated, and
The C H A I R M A N . You actually estimated in January a $ 3 billion
increase in tax receipts, did you not, as compared to the previous
years ?
Secretary ANDERSON. Yes, we did.
The C H A I R M A N . Yet the recession started
Secretary ANDERSON. Two billion.
The C H A I R M A N . The recession started about September or October.
Secretary ANDERSON. Well, it certainly started back in the fall of
1957.
The C H A I R M A N . And business conditions of corporations are reflected a year later in the taxes.
That is correct, is it not ?
Secretary ANDERSON. That is correct.
The C H A I R M A N . That is a great portion of taxes, are not paid currently.
Secretary ANDERSON. Yes, sir.
The C H A I R M A N. Without being critical, and you know of my great
respect and admiration for you, I just think that that was quite an
error $15 billion over 2 years ?
Secretary ANDERSON. It was about a break even, sir.
Senator KERR. A $400 million deficit for this year and four- or fivehundred-million-dollar surplus.
The C H A I R M A N . That is approximately what I said.
Secretary ANDERSON. $1 billion change.
The C H A I R M A N . That changed to a deficit of $ 1 5 billion.
Secretary ANDERSON. Over the 2 years.
The C H A I R M A N . Over the 2 years.
Secretary ANDERSON. Yes, sir.
The C H A I R M A N . Well, that is a colossal miscalculation. I have
been keeping up with these things for 25 years and I do not remember
a greater error.
Secretary ANDERSON. Well, sir, I would like to point out to the
Senator that even using the best data that we have, and the best calculations we have, we are still in 1958 revising the figures we thought
were earned as corporate profits back as far as 1955.
Recently, in July, the Economic Indicators pointed out that in
1955, we earned $44.9 billion. x
Senator KERR. I S that corporate ?
Secretary ANDERSON. Corporate, when as a matter of fact prior to
that time we had considered w7e had earned $42.5 billion or an increase
of $2.4 billion.
In 1956 it wras estimated that we had earned $43 billion. In the
July revisions we determined that we earned $45.5 billion or an adjustment of $2.5 billion.
Even for 1957 it was estimated at that time we earned $41.2 billion.
In July of 1958 we have revised it upward by $2.2 billion—
Senator KERR. $ 4 4 . 3 billion ?
13 INCREASE
IN PERMANENT
DEBT
Secretary ANDERSON. Beg pardon ?
Senator K E R R . $ 4 4 . 3 billion ?
Secretary A N D E R S O N . $43.4 billion.
Senator K E R R . Yes.
Secretary ANDERSON. From $ 4 1 . 2 billion to
in
1957.
The C H A I R M A N .
LIMITATION
$43.4
billion, this was
Was the fact that the administration in January
did not recognize there w^as a recession the reason that you did not
reduce your estimates then ? You could have reduced the estimates
then although the budget was made up in October and November.
Secretary A N D E R S O N . Yes.
The C H A I R M A N . But even in January, I think you said the same
surplus would exist. But I would not press that because it is water
over the dam.
What I am concerned about very much is, When do you think and
how do you think the budget can be balanced again ?
Secretary ANDERSON. Well, Senator, the only way that the budget
can be balanced is by reductions of expenditures or by increasing
revenues or both.
The C H A I R M A N . N O W assuming that we have more inflation, and I
am one who believes we are going to have it, especially if we continue
this deficit spending, won't the increase in revenue be absorbed by the
inflated prices the Government will pay for what it buys ?
Secretary ANDERSON. That would depend, of course, on the extent
of the inflation.
The C H A I R M A N . D O you think these continued deficits will stimulate inflation ?
.
.
.
Secretary ANDERSON. A deficit is certainly on the inflationary side
and a continuation of deficits would be more inflationary than a
single deficit.
I think what this country has got to realize is that it must pay its
bills, and that whatever is required we must not allow either inflation
or deflation in this country to run a ruinous course.
The C H A I R M A N . A deficit of $ 1 2 billion, if continued, would certainly be very inflationary, would it not ?
Secretary ANDERSON. If continued; yes, sir.
The C H A I R M A N . And that would offset any increase in revenue because the Government then would have to spend more for what it
buys.
Secretary ANDERSON. Well, I would like to reply to this categorically
because I do not know how much the inflation would increase.
The C H A I R M A N . Inflation reduces the value of the dollar and therefore dollar appropriations w^on't buy as much.
Secretary ANDERSON. That is correct.
The C H A I R M A N . In your judgment what prospect is there for reducing the Federal expenditures ?
Secretary ANDERSON. Well, Senator, I will say that this is not a job
simply for the Treasury. This is a job for Congress, it is a job for
all of the Departments of the Government.
I should like to point out that if one takes the appropriations and
expenditures for defense, mutual security, for interest on the debt, .for
all veterans benefits, and for atomic energy, we are talking about
approximately 83 percent of what we spend, and the remaining func30019 0—58
3
14
INCREASE IN PERMANENT DEBT
LIMITATION
tions of the Government are cared for by approximately the remaining
17 percent.
Senator KERR. Which amounts to what in terms of dollars ?
Secretary ANDERSON. Well, it would be
Mr. STANS. $ 1 3 billion to $ 1 4 billioji, according to the January
budget estimate.
Secretary ANDERSON. I think one simply
The C H A I R M A N . It is true we have a joint responsibility, I agree
with you on that. But isn't the first step on the preparation of the
budget taken in the executive branch ?
Secretary ANDERSON. The executive branch has the responsibility
for the preparation of the budget and submitting it to the Congress
as recommendations; yes, sir.
The CHAIRMAN. That is a first step toward reducing expenses.
Secretary ANDERSON. Yes.
The C H A I R M A N . SO the responsibility for initiating reductions rests
primarily upon the executive branch when it prepares the budget.
Secretary ANDERSON. The administration certainly has the first responsibility in preparing the budget. But I would certainly say that
any effective reduction of expenditures has to be a cooperative effort
between the
The CHAIRMAN. Everybody recognizes that.
Secretary ANDERSON. Between the Congress and the Administration.
The C H A I R M A N . I am speaking of the first responsibility.
Secretary ANDERSON. Yes.
The CHAIRMAN. If these deficits continue and apparently you think
there is great difficulty in reducing expenditures because 87 percent
Secretary ANDERSON. Eighty-three percent.
The C H A I R M A N . Are untouchable. I do not agree with that. You
include foreign aid in that 83 percent, and I think the time has got to
come when we have got to stop supporting nations abroad out of
borrowed money.
We have added $62 billion to the public debt of this country in order to give away in these programs abroad and I think we have got
to do something about that.
Now suppose we cannot reduce expenditures or rather we do not
reduce expenditures, I think we can. Would you advocate an increase
in taxes to balance the budget ?
Secretary ANDERSON. Senator, let me say in response to your question, first, that in outlining these five areas in which the major expenditures occur, I do not by that method purport to suggest that
they are untouchable. I simply point out that in the world of tensions in which we live, and considering the nature of the items which
are involved, that one must appreciate the difficulties that are associated with the realization of balancing the budget.
Now with reference to the second aspect of the auestion, I am not
at this moment prepared to say what recommendations we would
make with reference to our tax structure.
I will say that I believe that the country must take into consideration and be willing to evaluate all courses that are necessary or may
become necessary to assure that inflation in the country does not impose a ruinous course upon the country.
15 INCREASE IN PERMANENT DEBT LIMITATION
The C H A I R M A N . And you think A $12 billion or $10 billion deficit
over a series of years would certainly be inflationary, there is no question about that.
Secretary A N D E R S O N . I am certain of that.
The C H A I R M A N . I want to insert in the record quotations from witnesses who testified before this committee, including Secretary Humphrey, Mr. Bernard Baruch, and others, to the effect that deficit spending was perhaps the most inflationary of all.
(The information referred to is as follows:)
O F F I C I A L S OF TRADE A N D B U S I N E S S
ASSOCIATIONS
Question 14. How much of a factor in your opinion has deficit spending by
the Federal Government since the end of World War II been in contributing to
or promoting inflation?
1. (Mr. Brinkman:) It appears to be rather conclusive that deficit spending
since World War II has been a factor in contributing to inflation by exerting
pressure on a tight-money supply, which was during a period of our economic
history when consumers were competing for relatively scarce goods and services.
2. (Mr. Faricy:) Deficit spending by the Federal Government has been a
significant, though not the only, factor contributing to inflation since the end
of World War II. Lax fiscal policies tied in with loose monetary and credit
policies were especially conducive to inflation in the immediate postwar years.
Budget surpluses, reduction of the Government debt, and credit restraint were
not sufficiently pursued.
3. (Mr. Lightner:) The total deficits from 1940 through 1946 were $215,027
million. Here is the source of the inflationary conflagration that could not be
extinguished. In the 11 years 1947 through 1957 there were 6 deficit years,
with a total deficit of $25,696 million, and 5 surplus years with a total surplus
of $15,905 million. The net budget deficit for the 11 years was therefore $9,791
million.
Superficially it would appear that a net total deficit of some $9.8 billion over
an 11-year period would be inflationary on net balance. But there were 2 surplus years at the beginning of the period (1947, 1948), 2 at the end (1956-57)
and one in the middle (1951). The surplus years prevented the deficits from
having an uninterrupted inflationary effect.
4. (Mr. Patton:) With the now acknowledged multiplier effect of a balanced
budget in the framework of properly structured taxation and Government programs, there is no need for a budgetary deficit. However, deficit spending cannot be given the major blame for price inflation during the past few years.
5. (Mr. Shuman:) The real basis for our postwar inflation was laid during
the war when truly enormous deficits were financed to a large degree by selling
bonds to the commercial banks. While postwar deficits have contributed to
inflation, this contribution has not been a major factor in comparison with the
rise in the public debt which took place during the war years.
6. (Mr. Talbott:) Deficit spending since World War II has not been the
chief cause of postwar inflation, but deficit spending during World War II was,
without doubt, the biggest single cause of the immediate postwar inflation—
especially rapid increase in prices during the period 1945-48.
During World War II Federal deficit greatly inflated the money supply. In
addition, wartime borrowing from the Federal Reserve System and commercial
banks added greatly to bank reserves and the lending capacity of the banking
system, and thereby made possible a further increase in the money supply by
a multiple expansion of bank credit.
It should be pointed out that rapidly rising Government expenditures, even
though covered or nearly covered by taxation, may create excess demand and
inflationary pressures. Given our present tax structure, inflation of prices, and
incomes increases tax revenues more than proportionately and helps to cover
growing Government expenditures. To be sure, such a process also raises the
costs of Government, too, but where there is a lag in Government spending,
deficits in real terms may be concealed for a time by inflationary finance. In
other words, inflation may precede a deficit rather than follow it during a period
of rapid mobilization when future commitments of Government are increasing
sharply.
During the inflation of 1956-57, current Government deficits could hardly be
made a whipping boy since cash surpluses were achieved in those years.
16
INCREASE IN PERMANENT DEBT LIMITATION
Inflations are complex phenomena. Government deficits are only one element in a given situation, though at times they may be the crucial element.
Certainly, continuous deficits financed by central banks or the banking system
will produce advanced inflation. Historically, nations have taken this route to
avoid the hard political problems of honest public finance.
EXECUTIVES OF CORPORATIONS
1. (Mr. Adams:) I think it is difficult to measure the inflationary impact of
postwar Treasury deficits. Wartime spending probably caused the initial inflationary surge.
A large Treasury budget and high tax rates are in themselves inflationary;
they reduce the volume of savings and force increased bank credit which in turn
increases the supply of money.
2. (Mr. Beise:) Deficit spending by the Federal Government since the end of
World War II was not a significant contributor to inflationary pressures except
as it was associated with wartime expenditures in 1952 and 1953.
3. (Mr. Ecker:) Directly, deficit spending by the Federal Government has
not been a major factor among the forces contributing to monetary expansion
during the period since World War II.
Indirectly, Government deficits did contribute to inflationary pressures.
Financing of Government deficits by individuals and businesses absorbed funds
which might otherwise have gone to finance a portion of the requirements of
private enterprise which were financed by commercial banks.
4. (Mr. Fitzgerald:) On balance, deficit spending by the Federal Government
over the past decade has not been carried out on a scale to contribute greatly
to inflationary pressures.
5. (Mr. Gund:) The deficits during the Korean war had an effect on rising
prices during that period. Little effect since then, except through spending for
military hardware which furnishes protection but is not available for civilian
economy.
6. (Mr. Jarvis:) Deficit spending has of course been a contributing factor.
However, much of the deficit spending that has shown up in the past decade
in the form of inflation was actually spent or "planted" during the war itself.
7. (Mr. Jerome:) Deficit spending by the Federal Government since the end of
World War II has had some inflationary effect, but the great increase in debt
during this period has been in private debt.
8. (Mr. Keener:) Federal Government deficits have not been a major factor
contributing to inflation since World War II. As a whole, during this period
there has been a surplus. This does not mean that governmental spending and
taxing programs have not encouraged inflation.
9. (Mr. Leftwich:) It would be difficult to isolate Federal deficit spending
since World War II as a main inflationary force. Federal deficit financing unquestionably contributed to inflation pressures, but it was probably more of a
piece with other directly related causes such as farm price supports, etc.
10. (Mr. Livingston:) The comparatively modest rise in the Federal debt in
the postwar period compared with the war years, and the approximate balance
in the number of budget deficit and surplus years, suggests that the postwar
inflation must be attributed mainly to the very large volume of deficit war
financing.
11. (Mr. McConnell:) The high level of Federal spending for goods and
services has in itself contributed to inflation since the type of goods and services
needed most were in competition with the booming sectors of private demand
for raw materials, skilled manpower and productive capacity.
12. (Mr. Smith:) On the whole Federal deficit spending has been a minor
factor in contributing to inflation in the postwar period. Much more of a factor
contributing to inflation was the huge Federal deficit of World War II. A
second factor contributing to inflation was not related to the deficit, per se, but
to the sheer size or weight, of Federal expenditures for final goods and services
produced by the economy.
13. (Mr. Symes:) Deficit spending, in the sense of the Federal Government's
spending more cash than it received, has been a minor factor. The huge
increase in the money supply which contributed to the postwar inflation was
created by deficit financing during the war.
14. (Mr. Odell:) The Federal deficit has been a factor, but in recent years
it has not been a major factor, in contributing to inflation.
17 INCREASE IN PERMANENT DEBT LIMITATION
ECONOMISTS A N D PROFESSORS .
Question 14. How much of a factor in your opinion Has deficit spending by this
Federal Government since the end of World War II ibeen in contributing to or
producing inflation?
1. (Mr. Ellis:) Negligibly. Budget deficits since World War II have not been
sufficient to account for inflation.
2. (Mr. Ensley:) The total cash deficit in the deficit years 1949 and 1952-55
amounted to $10.8 billion—in current prices, total gross national product for
these 12 calendar years aggregated $3,880 billion. Deficits, therefore, represented less than 0.3 percent of income over the entire period. The deficits, per
se, therefore, hardly represent a major factor in the postwar inflation.
3. (Mr. Haberler:) I do not think that deficit spending by the Federal Government since the end of the war has been an important inflationary factor. But
it cannot be denied that the large size of the budget (even if balanced) and the
fact that the Government is ready to incur a deficit in periods of depression so
as to counteract the decline in output and employment is, at least from the long
run standpoint, a highly inflationary factor.
4. (Mr. Leavey:) Increased Government spending is inflationary irrespective
of whether the budget is balanced or unbalanced. Deficit spending merely postpones the ultimate adjustment since it has the effect of running presses to print
money.
Our experience since the Korean war was demonstrated the fallacy of believing
that there is any correlation between inflation and deflation and between budget
surpluses and deficits. In the so-called constant-dollar peribd of 1951-55 there
was a budget deficit every year with a total deficit for the 4 years of approximately $21 billion. Actually there was a continuing inflation during the period,
which was hidden by the decline in farm prices. In the years 1956 and 1957
the country experienced the sharpest inflation in the postwar period even though
budget surpluses were shown in both years.
5. (Mr. Lee:) In the period since World War II there is little evidence that
Government deficits, per se, have contributed in material ways to inflation. It
is rather than Government surpluses have been reduced in times of inflation when
Government surpluses should, in fact, have been increased.
6. (Mr. Samuelson:) Postwar fiscal policy has on the whole been well devised.
7. (Mr. Thompson:) Deficit spending by the Federal Government since the
end of World War II has contributed to inflation by indirectly encouraging more
expansion in the private sectors of the economy than would have been likely
otherwise.
8. (Mr. Whittlesey:) Deficit financing since the end of World War II was
not a significant factor in causing inflation. The inflation in this period was
mainly the delayed result of developments that occurred during World War II
and factors resulting from the Korean war.
9. (Mr. Yntema:) Deficit spending by the Federal Government since the end
of World War II has not been an important factor in contributing to or producing
inflation.
The deficit financing of the Government that occurred during World War II
did, however, have a major inflationary effect in the postwar period. The inflation of 1946-48 was primarily a reaction to the excess money and near money
that was created by Government borrowing during the war.
The following is an excerpt from the comments made by Mr. Malcolm Bryan,
President of the Federal Reserve Bank of Atlanta (p. 113 of the compendium) :
"The principal problems of the postwar period have been the direct result of
fiscal inadequacy in the war period, when far too much reliance was placed on
borrowing, especially through bank credit, and far too little reliance was placed
on taxation and on borrowing the savings of the public. The resulting expansion
in the money supply brought in train an almost inevitable inflation, to which
most of the postwar economic problems are directly and importantly related.
"The adequacy of the fiscal system to meet the expenditure requirements of
the Federal Government, however, is not the whole test of the system's long-run
economic soundness. The size of the tax take, and the sources on which levied,
may be having an important effect on the monetary savings available to the
American economy, and may exert an inflationary pressure by promoting the substitution of bank-credit expansion for real savings."
18
INCREASE IN PERMANENT DEBT LIMITATION
The following are excerpts from the testimony of Dean Charles C. Abbott with
respect to the effect , that deficit financing has on inflation:
Excerpts from part 6 , page 2 0 6 4 :
"Dr. ABBOTT. Deficit financing creates inflationary pressures. So does inept
debt management. It is the job of the Federal Reserve to counteract pressures
that arise from these directions just as much as it is to offset the consequences of
overspending or speculation by private persons and business concerns."
Excerpt from part 6, page 2 0 6 5 :
"The C H A I R M A N . * * * I assume you regard deficits as inflationary.
"Dr. ABBOTT. Potentially inflationary. Sometimes immediately inflationary—
always potentially inflationary. It depends in part on how the debt is managed.
"The C H A I R M A N . In the period from 1 9 3 9 to date we have lost 5 2 cents of
the purchasing power of the dollar and have increased our debt very heavily.
Do you think deficits have been one of the main factors in bringing about that loss
of the purchasing value of the dollar?
" D r . ABBOTT. Y e s , I d o . * * * "
Excerpt from part 6 , page 2 0 7 2 :
In answer to a question by Senator Martin, Dean Abbott had the following
to say: "I would say in the first place that deficit spending will make more
difficult the control of inflation."
The following excerpts were taken from the comments made by Mr. Carl E.
Allen, president of the Federal Reserve Bank of Chicago (p. 116 of the compendium) :
"It is important to note that the huge sums required for financing the war
were raised in large part by methods which produced rapid expansion of bank
credit and the money supply. Unfortunately, only 40 percent of the funds obtained were raised through taxation and an excessive portion of the balance
was derived from the sale of securities to commercial banking institutions, resulting in creation of new supplies of money. The expansion of bank credit
and purchasing power contributed to the buying power of our people in the postwar period and to the inflationary pressures which, held in abeyance in large
part by wartime regulations, became active when those regulations were removed."
(P. 118 of the compendium) :
"One of your questions suggests that the growth of private debt in recent
years may have become a threat to the stability and vitality of the American
economy. I believe that to be the case, and I would include public debt as well
because that is the debt of the people just as surely as their own private debts.
They must both be serviced and paid out of private income."
(P. 122 of the compendium) :
"As mentioned earlier in this letter, we have suffered grievously from inflation in the past 20 years, and, while inflationary pressures appear relatively
inactive at the moment, their resurgence is an ever-present possibility and source
of anxiety. Government deficits under such conditions are, of course, undesirable."
EXCERPTS FROM MR. B A R U C H ' S
TESTIMONY
Mr. Baruch in his prepared statement had the following to say about the
effect of inflation on our economy and the most important cause of inflation.
He said:
"But, above all else, once and for all, we must relieve our defense program and
our entire economy of the toll paid to inflation. Think of the planes we could
have bought, the research we could have conducted, the extra benefits we could
have provided our Armed Forces with the billions lost through inflation.
"Inflation, gentlemen, is the most important economic fact of our time—the
single greatest peril to our economic health. Its most important cause has been
the tremendous expenditures for war—for nonproductive goods and services—
which were financed too largely through borrowing and too little through taxes."
Further in his statement Mr. Baruch had the following to say:
"A nation, no less than an individual, must keep its financial house in order.
Its financial strength, no less than an individual's, will determine its capacity
to withstand economic adversity. The credit of the United States Government
is the foundation upon which our solvency and security rest. The strained con-
19 INCREASE IN PERMANENT DEBT LIMITATION
ditions of our credit handicaps our efforts to cope with the recession. We must
prevent any further weakening of-it by tax cuts or deficit spending or lifting
the borrowing ceiling every time the debt presses against it."
At the conclusion of his prepared statement Mr. Baruch was questioned by
members of the committee; the following is an excerpt from the hearings:
"The CHAIRMAN. Do you regard Federal deficit financing as one of the main
factors in creating inflation ?
"Mr. B A R U C H . Yes, sir. I think the main cause of inflation today was the
deficit financing of war—the enormous borrowing in World War II and Korea.
The war expenditures should have been accompanied by sufficient taxes to pay
for them as nearly as possible and by controls, on prices, profits, and wages * * *."
Senator Anderson (Democrat, of New Mexico) asked Mr. Baruch the following
question (p. 1647) : "Can we, in your opinion, Mr. Baruch, have sound economic
growth with either inflation or with $9 billion deficits?" Mr. Baruch answered
with an emphatic, "No, sir."
Senator Williams asked Mr. Baruch the following question (p. 1671) :
"Senator W I L L I A M S . Earlier this year Congress was asked and agreed to increase the national debt by $5 billion.
"There is talk now that perhaps we will be asked again either during this year
or next year to increase the debt further. What would be your opinion as to
action we should take in compliance with that?
"Mr. B A R U C H . I think it would be a most disastrous thing."
The Chairman submitted to Mr. Baruch several questions, requesting that Mr.
Baruch supply the answers for the record. Two of these questions deal with
inflation and are quoted as follows (p. 1686) :
"The C H A I R M A N . D O you agree that deficit financing by Government is, in
fact, a postponement of taxes ?
"Mr. B A R U C H . Of course. If the deficit is ever to be made up it will have to
be made up out of taxes in the future. Deficit financing is worse than the postponement of taxes. It has the same effect as printing money.
"The C H A I R M A N (p. 1687). If we allow the inflation spiral to be renewed and
continued, what do you foresee as the results in the next 1, 2, or 3 years?
"Mr. BARUCH. If the inflationary spiral is resumed we will see a continued rise
in prices ; a progressively larger national debt; a dollar shrunken even more than
it is now; the continued reduction in value of all savings, pensions, insurance; the
scaling down and eventually the possibility of the repudiation of all debts."
EXCERPTS FROM
SECRETARY H U M P H R E Y ' S
TESTIMONY
In his opening statement to the committee, Secretary Humphrey stated (p. 17) :
"Federal deficits necessitate increased Federal borrowing—more Federal
borrowing to the extent it comes from banks, means the creation of additional
bank credit. This tends to create more spendable dollars than there are goods
to buy.
"As your chairman, Senator Byrd, so clearly pointed out in his remarks to
the Senate on August 13, 1954: 'Deficit spending is perhaps the greatest single
factor in the cheapening of the value of the money.'
"In* ending deficits,
we* have eliminated
this
*
*
* very inflationary
*
* pressure."
In a colloquy with Senator Byrd (p. 65) :
"The C H A I R M A N . I think you have said before that large deficit spending—
and we have had large deficit spending during World War II and the Korean
war—is probably the most important factor in inflation; is that correct?
"Secretary H U M P H R E Y . I think there is nothing that will push you along the
road to inflation much faster than large Government deficit spending."
*
*
*
*
*
*
*
In a colloquy with Senator Flanders (p. 356) :
"Senator FLANDERS. * * * (In) general would you say that massive Government expenditure tends in the direction of inflation through an increase in the
money supply?
"Secretary H U M P H R E Y . Well, massive Government expenditure, particularly
if it is deficit expenditure, is inflationary."
*
*
*
*
*
In a colloquy with Senator Jenner (p. 649) :
*
*
20
INCREASE IN PERMANENT DEBT LIMITATION
"Senator JENNER. The first question, is it correct to say that the proposals
for permanent deficit spending with their extreme increase in Government
budgets, their artificially low interest rates and profits, and their indifference
to paying off the debt, would bring about massive inflation?
"Secretary H U M P H R E Y . It certainly would, Mr. Senator, and there is no way
that I could imagine that you could bring it on to a greater degree than by the
combination of circumstances that you have outlined in this question."
EXCERPTS FROM MR. MARTIN'S
TESTIMONY
The following colloquy between Senator Williams and Mr. Martin (p. 1317) :
"Senator W I L L I A M S . D O you feel that Government deficits are one of the major
contributing factors toward inflation?
"Mr. MARTIN. I think that—I never favor deficit financing, although I recognize
that it can sometimes have an impetus on our economy.
"But again, it is like debt, that I commented on yesterday. It is not a situation
to be desired. Under certain circumstances it may be useful, but—and I do not
want to make a blanket statement on it, but I never favor deficit financing. I
think it is wrong in principle; and I think it is not really the benefit, even when
it is used, that those who claim it has the benefits think it has."
•
*
*
*
*
*
*
The following colloquy between Senator Byrd and Mr. Martin took place on
page 1436:
"The C H A I R M A N . On Senator Carlson's time, the Chair would like to ask one
question. As I understand your testimony this morning, Mr. Martin, you think
too much spending and too little savings are among the chief factors in the current
inflation?
"Mr. MARTIN : That is correct, sir.
"The C H A I R M A N . Now the Federal Government owes, as you know, approximately $275 billion and is spending from 98 to 99 percent of its current income.
Would you agree with me that perhaps the Federal Government is perhaps the
chief offender?
"Mr. MARTIN. I do agree with that, sir.
"The C H A I R M A N . Would you agree that reduction in the public debt would be
one of the best things to do to avoid any further inflation ?
"Mr. MARTIN. I do, indeed."
The following collquy between Senator Martin and Mr. Martin (p. 1955) :
"Senator MARTIN. Mr. Martin, you indicated yesterday that you estimated we
might have a deficit of $10 billion in fiscal 1959 and that therefore a tax cut
would not be desirable.
"Do you think a $10 billion deficit a favorable factor to reverse the recession
and regain high employment levels?
"Mr. MARTIN. Well, I do not like deficits under any conditions, Senator; but
since we are in a recessionary period, the point I tried to emphasize yesterday was
that I was willing to accept the deficit financing on a temporary basis as a
stimulant to the economy; but I questioned (p. 1956) whether it was wise, without having a clearer indication of the extent of the current recession, to perhaps
double the amount of that deficit and put the Government so far in the hole
that Congress would have to face up very quickly to the necessity of cutting down
on various Government programs or of raising taxes in trying to get back
to a budget balance again.
"Senator MARTIN. D O you feel a higher figure of Government debt would put
us back on an inflationary spiral, or assist in doing that?
"Mr. MARTIN. Well, you are projecting into the future—I certainly think it
would tend in that direction."
EXCERPTS FROM MR. BURGESS' TESTIMONY
A colloquy between Senator Flanders and Mr. Burgess at page 1129:
"Senator FLANDERS. I would like to inquire, Mr. Secretary, whether, in your
judgment, the expansion of credit by deficit Government financing involves a
peculiar contribution to inflation.
"The thing that has been in my mind is this: If we have large Government
expenditures without corresponding Government income, so that we have to in-
21 INCREASE IN PERMANENT DEBT LIMITATION
crease our indebtedness, that, by means we discussed yesterday tends to increase
the available supply of money.
"Now, is it not true that that kind of an expenditure which does not go into
the production of goods and services for people to buy, is it not true that that
is a particularly vicious kind of credit production from the standpoint of inflation?"
"Mr. B U R G E S S . Yes, that is entirely true and that is a point we always try to
make, that when the Government spends money, it does not produce goods which
the people can buy.
"On the other hand, if we have an increase in commercial loans of banks, the
mechanical effect at the borrowing window may be just as inflationary as with
the Government, but the people who borrow use the money normally to produce
goods or services which meet human needs, so it tends to balance off the additional creation of money.
"May I add this, Senator; that historically the great inflations of history have
been based on the deficit financing of governments."
*
*
*
*
*
*
*
"The C H A I R M A N (p. 1 1 3 0 ) . Government debt is certainly not productive, is it?"
"Mr. B U R G E S S . Government debt is not productive; therefore, it is the worse
kind of debt.
"And I added in my first answer that, as you study the history of prices and
economic movements, the great inflations have been caused (p. 1131) by Government deficits which were financed out of bank money, and particularly when
they were financed out of Federal Reserve money. That is the most dangerous,
central bank money."
The C H A I R M A N . Suppose the joint efforts of all of us to reduce the
budget are unsuccessful and we are faced with this inflation, which
may be ruinous to us, would you then advocate under those conditions
an increase in taxes ?
Secretary ANDERSON. Senator Byrd, I do not want to rule that out,
rule out as a possibility changes in our tax structure. At the same
time, I would not like to try to say today what we would recommend
at some time in the future.
The C H A I R M A N . I do not mean any specific recommendation. I am
speaking of increase in the general tax burden in order to reduce or
stop the inflation.
Secretary ANDERSON. I would simply like to say that we would not
rule out the possibility of changes in the tax structure which might
increase the revenues of the country, and that we would have to be
governed both by circumstances that then existed and by what we
judge to be the effect of the proposals, both short and long range.
The C H A I R M A N . I certainly recognize the great hardship of any increase in taxes.
I do not see how it could be accomplished to any great extent and
this makes it more imperative to reduce these expenditures. I want
to point out since 1954 we have increased the domestic civilian expenditures by 60 percent.
Has the stock market in your judgment gone up in the face of declining earnings, in the face of bad news, on the theory that we are
facing a future inflationary period ?
Secretary ANDERSON. I of course would not be in position to know
what motivates people in their purchases, but I would think certainly
the market conditions affecting the stock market and other markets
would be influenced by what people believe the future course of the
economy would be.
The C H A I R M A N . S O those who purchased stocks evidently had in
mind that there is going to be more inflation, because under normal
30019 0—58
4
22
INCREASE I N PERMANENT DEBT LIMITATION
conditions the stock market would not go up in the face of the fact
that some of these companies are earning much less than they were
earning the year before.
Just one more question and then other members of the committee
will interrogate you.
You asked in—when was it, February
Secretary ANDERSON. January.
The C H A I R M A N . For a $ 5 billion temporary increase on the basis
to expire on June 30, 1959. Now, I want to ask you if you could not
live with the proposition that this $5 billion temporary increase be left
as it is, and that then you be given a permanent increase of $8 billion.
I t does not seem quite reasonable to me that just 3 months ago you
should ask for a temporary increase of "$5 billion, and then come and
say that that part of it should be made permanent, and the balance
of it should be extended to 1960.
I am the one who first suggested a temporary increase to Secretary
Humphrey. I think it has the advantage of giving Congress a chance
to look over the fiscal situation, it requires the administration to come
up and justify an extension.
I fully realize, as all Members of Congress must recognize, there
must be a sufficient debt ceiling to permit you to pay the expenses that
have been authorized. I would like to know whether you think you
could live with the situation whereby the present temporary increase
remains as it is, and that in addition the permanent limit is raised $8
billion to $283 billion. That would give you $288 billion until June 3,
1959, and $283 billion thereafter.
Secretary ANDERSON. Senator Byrd, if I may, I would like to point
out the reasons why w^e have asked for the permanent increase of $10
billion.
On the bottom of page 3 of my statement you will notice that I say
that since 1954, while the Treasury has been operating under temporary increases in the public debt limit, and the public debt obligations
were issued in excess of the permanent debt limit, it could be reasonably anticipated that the excess could be repaid from tax collections
prior to the expiration of the temporary increases in the debt limit,
and in fact, they were so—on page 2, the next to the last paragraph of
my statement, I point out the estimated deficit will result in a public
debt outstanding on June 30,1959, of nearly $285 billion.
The C H A I R M A N . But that includes cash on hand.
Secretary ANDERSON. Yes.
Now it has been my feeling, Senator Byrd, that if we should recommend less than the $10 billion permanent debt limit,- the Members of
this Congress and others might very well say to me, "This is all right,
where do you expect to get the money by next J une 30 ?"
The C H A I R M A N . Where did you expect to get it when you recommend a temporary increase in February ?
Secretary ANDERSON. At that time we were operating under a
budget which had forecast coming out at a surplus position.
The C H A I R M A N . YOU we^e operating at a time when you must have
known that your estimates of revenue were not correct because the
recession started 6 months tyefore that date.
Let me ask you this: Isji't it true under.this $288 billion limit, in
the bill now pending, that ^ou will have a leeway—borrowing capacity
23 INCREASE IN PERMANENT DEBT LIMITATION
plus the cash on hand, on October 31 of $12 billion, $12.2 billion; December 31, $10 billion ?
Secretary ANDERSON. I have to look at the figures here.
The CHAIRMAN. Let's take October 3 1 , you will have leeway, and
by that I mean you will have an unused borrowing authority, plus the "
operating cash balance, of $12.2 billion.
Secretary ANDERSON. I assume what the Senator is doing is adding
together the operating balance, contingencies
The CHAIRMAN. The leeway is composed of the operating balance
plus the unused borrowing authority.
Secretary ANDERSON. That is correct, Senator Byrd, if one could
run his operating balances down to zero and his
The CHAIRMAN. I didn't say run them down to zero. I just asked
you whether it was not true that both of them add to $12.2 billion, on
October 31.
Secretary ANDERSON. That is correct.
The CHAIRMAN. And on December 3 1 there would be a total of
$10 billion, and on March 31, $10.4 billion.
April 15 of next year, $8.5 billion. Of course, there has been a
controversy from time to time as to how much cash balance should
be on hand. I think you finally decided there should be from 3 to
4 billion dollars.
(The leeway chart is as follows:)
Estimated
leeway
under proposed
$288 billion statutory
debt
limit
[In billions]
Fiscal year 1959
Proposed $288
billion statutory debt
limit
Estimated
debt outstanding
(subject to
limit)
Leeway under $288 billion debt limit
Unused
borrowing
authority
Estimated
operating
cash balance
Total
1958
July 15
July 31
Aug. 15--.
Aug. 31
Sept. 15.
Sept. 30
Oct. 15
Oct. 31
Nov. 15
Nov. 30
Dec. 15
Dec. 31
i $288
i 288
288
288
288
288
288
288
288
288
288
288
$275. 7
275.6
277.8
278.5
276.3
276.1
280.2
279.9
279.6
279.7
282.0
281.9
$12.3
12.4
10.2
9.5
11.7
11.9
7.8
8.1
8.4
8.3
6.0
6.1
$6.0
4.3"
5.2
5.6
2.2
4.0
5.5
4.1
3.0
2.8
2.9
3.9
$18.3
16.7
15.4
15.1
13.9
15.9
13.3
12.2
11.4
11.1
8.9
10.0
288
288
288
288
288
288
288
288
288
288
288
288
285.1
284.9
283.7
284.1
283.7
280.5
283.7
283.6
284.8
285.8
285.5
283.3
3.4
3.1
4.3
3.9
4.3
7.5
4.3
4.4
3.2
2.2
2.5
4.7
5.7
5.5
3.4
4.6
2.8
2.9
4.2
3.0
3.8
4.5
2.2
4.2
9.1
8.6
7.7
8.5
7.1
10.4
8.5
7.4
7.0
6.7
4.7
8.9
1959
Jan. 15
Jan. 31
Feb. 15
Feb. 28
Mar. 15
Mar. 31
Apr. 15
Apr. 30
May 15
May 31
June 15
June 30
1
Based on $288 billion proposed limit (not actual $280 billion limit).
24
INCREASE IN PERMANENT
DEBT
LIMITATION
The CHAIRMAN. That is one reason Mr. Humphrey did not get his
increase in the debt limit when he asked for it. He wanted a $15
billion increase. But he had a large operating cash balance on hand.
The Congress will meet next year, next January, of course.
Secretary ANDERSON. That is correct, sir.
The C H A I R M A N . And we can review the situation then. What this
does, what the House bill does, is to postpone the temporary increase
to 1960, June 30,1960.
Secretary ANDERSON. That is correct, sir.
The C H A I R M A N . I should think you would be willing to permit the
Congress to go over this question when you have to ask for an increase
in the temporary debt limit—as you knowT when this temporary debt
extension was first authorized, it was 6 billion, and then a year later
the administration consented to a reduction of 3 billion, you recall that.
Secretary ANDERSON. That is correct, sir.
The CHAIRMAN. Then I think it was last July, just a year ago, that
you acquiesced in eliminating the temporary increase.
Secretary ANDERSON. We did not ask for a temporary increase.
The CHAIRMAN. Well, Secretary Humphrey, both of you appeared
before the committee—you took office when ?
Secretary ANDERSON. In July of last year.
The CHAIRMAN. Secretary Humphrey appeared before the committee in June and agreed that it could be eliminated, and I think you
acquiesced in it at that time.
Secretary ANDERSON. A S the Senator will remember, we did not
ask for an increase, but sent letters to the respective commitees pointing out that we would try to operate within the limitation.
The C H A I R M A N . I understand that, but you acquiesced in it. That
wras just a year ago.
I talked with Secretary Humphrey, I worked in very close cooperation with the Treasury.
Secretary ANDERSON. Yes; we appreciate that.
The CHAIRMAN. And I think unless some great damage should result the bill that you yourself asked for just 3 months ago should be
permitted to stand, aiong with an $8 biilion increase in the permament limit.
Secretary ANDERSON. Would the Senator's amendment propose to
expire on June 30,1959 ?
The C H A I R M A N . That is right.
Just like it is now and just like you asked for 3 months ago.
All of this deterioration could not have come in 3 or 4 months.
There was a recession last October, and the $5 billion temporary
increase wTas your own proposal. The Congress did not change it.
Secretary ANDERSON. That is correct, sir.
In December of last year, we could not tell what the fourth quarter
profits were for the end of the calendar year 1957. We could not tell
what the first 2 quarters corporate profits would be for the calendar
year 1958 until after the expiration of June.
These calculations are now based upon what we would anticipate
revenues to be for the fiscal year 1959, after having the benefit of the
experience of determining what the corporate, earnings would be for
the first 6 months of this year, and anticipating some recovery.
Now wThat we have done is to try to point out that with a debt
anticipated of approximately 285 billion at the end of June of next
25 INCREASE IN PERMANENT
DEBT
LIMITATION
year, that we would propose the increase of 10 billion on that basis
as a permanent basis because we do not now see, under the circumstances as they exist, how you are going to retire it back to the permanent limit, and at the same time, ask for the extension of the
temporary.
Now we also point out that we will have to look at the situation again
before the end of the fiscal year to determine our course of action
under those circumstances. So these are the bases upon which the
request has been made.
The C H A I R M A N . Mr. Secretary, you know we meet in January.
Secretary ANDERSON. That is correct.
The C H A I R M A N . And you know if you come up then and prove to
the two committees, the House Ways and Means Committee and the
Finance Committee of the Senate you can get an extension of the
temporary increase just as we have granted it before.
Secretary ANDERSON. That I know.
The C H A I R M A N . The second year they eliminated 3 billion of it
and the third year they eliminated all of it.
Secretary ANDERSON. Yes, sir.
The C H A I R M A N . Just to be frank with you, I think the debt ceiling
is the only protection the Congress has. You have $70 billion of
unexpended balances, the executive branch, and if we appropriate 80
billion this year, there would be $150 billion available for expenditure if the money could be secured or if the administration chose to
spend it.
Mr. Humphrey, who was opposed to the tight debt limit when he
first came in testified to this committee and told me personally that
he believed that a reasonably tight debt limit was a wise thing, because you can always come to Congress and get an increase when it
is necessary. The debt limit, I think, will prevent extravagant expenditures.
Do you have any further comment to make on that ?
What great harm could be done ?
Secretary ANDERSON. Senator Byrd, we would certainly under the
proposal have the same amount of debt limit through June of next
year. I would still say, sir, we would prefer the other method because
of the reasons which I have pointed out, because we believe that the
debt outstanding will be approximately 285 billion by next June 30,
and we do not have a way of paying it off. But I do not disagree
The C H A I R M A N . We are not going to demand that it be paid off
if it cannot be done. It simply gives us a review.
Secretary ANDERSON. Yes.
The C H A I R M A N . YOU do not see any disaster that would occur if
this committee
Secretary ANDERSON. I do not see where there would be a disaster.
Senator M A R T I N . Mr. Chairman, I will be very brief because I know
some members of the committee want to get to other meetings, and
anything that I am now stating or any questions that I may ask are
not in criticism of anyone in the administration and it is not in
criticism of anybody in Congress. .
There is not any question that—the chairman has stated it so well—
that the expenditures of our country are the responsibility of both the
executive department and Congress. You have already stated that
26
INCREASE IN PERMANENT DEBT LIMITATION
there is danger of a deficit of $10 to $12 billion for quite a long time
in the future unless expenditures are reduced, or taxes increased.
That is the statement as I understand it, and you also agree with
our chairman that deficit financing, governmental deficit financing, is
one of the greatest causes of inflation, and we all realize that inflation
is so detrimental, particularly to the so-called middle class in our
country and those living on fixed incomes.
Now, the chairman has stated and asked you the question relative
to the buying of common stocks, and I do not know of a company
that has not had decreased earnings, yet the stock market right even
this morning indicates that the public is buying more extensively than
anytime in many months, which indicates that the public is beginning
to hedge against inflation, which is, and I feel, that is a very detrimental thing to our economy.
Now this matter of governmental expenditures, the chairman has
already spoken about, and I just want to ask one or two questions
relative to it.
We start out by budget estimates. I noticed that Chairman Mills
the other day stated that maybe we could balance the budget by a
decrease across the board of 20 percent.
To my own mind, and I have been in governmental work all my life,
there is only about one item of expenditure in Government that is untouchable and that is interest on bonds at the local level or at the
State level, or at the Federal level. There is not any question but what
all of the others can be reduced if the Executive and Congress decide
they should be.
Now, I had hoped, and the reason I am asking these questions right
now, it is up to the American people. Here in the United States we
the people are the Government, and I have always contended that
when the people of the United States thoroughly understand a problem that they give a very good answer, and I think if the American
people understood the great danger of deficit financing that they
would demand that we would cut down the cost of government, and
I would like to give as one illustration, this: I have urged expenditures for national defense practically all my life. You used to come
down before Congress urging greater expenditures. But I would like
to give an illustration, and this is particularly to the Budget Bureau:
Take, for example, in defense we have in the United States, or at
least we did a year ago, because I made a survey of it a year ago, we
have in the United States, 2,000 posts, stations, and camps with 1 million civilian employees. I do not think there is any question that a
lot of those installations could be consolidated with others. Each
one of those posts or stations or camps requires a commander, it requires a staff, it requires a security force, it requires a housekeeping
force and that, to my mind, would make—could reduce expenditures
of national defense without damaging national defense.
Then I think you should give further consideration to stockpiling.
A war is never fought with the implements that you have on hand at
the beginning of that war.
You develop new methods, and that is why the United States has
been so successful in the wars it has waged, that we have the ingenuity
to invent better things, and so forth.
Now, you spoke, Mr. Secretary, a while ago, that there would be
two ways of reducing the budget, one was less expenditures and to
27 INCREASE IN PERMANENT DEBT LIMITATION
my mind that is the sound way to do it, and the other is by increasing
taxes. If we increased taxes right now isn't there danger of diminishing returns, that you would take away the incentive of the people?
Secretary ANDERSON. One always has to weigh, sir, the detrimental
effects of a progressive tax system upon incentive, and I think this
would have to be evaluated as a matter of judgment.
I t would certainly raise such questions as to whether or not one
wanted to increase current rates or to propose to look at other forms
of revenue.
As I indicated to Senator Byrd, these are the sort of things which
we do not rule out, but they are the sort of things which I think have
to be determined and adjudicated in the light of their both current
and long-range effects.
Senator MARTIN. Mr. Secretary, along last January when everybody was talking reduction of taxes to help in this curtailment of the
so-called recession, I made the statement that I favored increasing
taxes rather than decreasing them unless we could have a balanced
budget, and I still stand on that proposition.
I think it is sound.
But I would just like to again ask you this question: What prospect
is there of a balanced budget in the next 2 or 3 fiscal years ?
Secretary ANDERSON. Senator, this is a very difficult question.
Senator MARTIN. I know it is, Mr. Secretary, and I apologize for
asking it, but I want to get it to the people of the United States that
the people of the United States have a very serious problem confronting them as far as deficit financing is concerned. I appreciate
greatly the work that you have done and the work that Secretary
Humphrey has done.
I appreciate the work that the present Budget Director has done.
You have all done magnificent jobs, and I am leaving Congress, but
I am not leaving active work in our country for a strong defense and,
when I say a strong defense, the greatest part of our defense is a
strong, sound, dynamic economy, so wTith that I would like for you to
answer that question, or give comment on it. I know it is a difficult
thing to answer.
Secretary ANDERSON. Yes. The comment which I would make,
Senator, is this: In the first place, enlarged expenditure commitments tend to create not just expenditures which rise at one year and
fall subsequently, but they tend to create a continuity of programs in
which there is a continuing high level of cost and, therefore, higher
levels of expenditures.
I think that, in fairness, one would say that, as one examines the
kind of expenditure programs we are now engaged in, they are
characterized more by a probability of continuance rather than a
foreseeable short decline.
On the other hand, in examining revenues, one must remember that
revenues go up as business revitalizes and makes improvement. One
looks at the receipts, for example, between 1955 and 1956. In 1955,
there were receipts of $60.4 billion. In 1956, this had increased to
$68.2 billion.
Now, I think th&t most of us are looking forward to an increase
in the level of business activity in this country. The announcement
of personal incomes yesterday was higher than the alltime high of
28
INCREASE IN PERMANENT
DEBT
LIMITATION
August of last year. A number of other factors are equally significant.
Senator M A R T I N . Right there, and I apologize for interrupting you.
Secretary ANDERSON. Yes.
Senator M A R T I N . But isn't that increased income partly due to
inflation ?
Secretary ANDERSON. Well, I would say that most of it is due to a
resumption of employment and hours of work, because we take into
consideration the amounts of money which are transfer payments and
deduct it from the total.
But it is always difficult even to make judgments a year ahead, and
I think what one has to say here, instead of trying to be categorical
about where we are going to be, is to say that the trend is for higher
expenditures, that we have to be observant as to the rate of recovery
which we accomplish in this country and as to the effect that it has
upon the income and profits of individuals and the profits of business
so that in a few months from now we will be better able to judge the
course of our revenue receipts.
Senator M A R T I N . I will end with this: There are three segments to
expenditures of Government, governmental expenditures, in the
United States: There is the Executive, there is Congress, and the
people themselves; and the people themselves, if they want expenditures reduced, and they are vocal enough, it will be done. I will not
take any more time.
The C H A I R M A N . I just want to make this comment about increase
in taxes. The questions I asked the Secretary were to emphasize the
fact that the expenditures should be reduced. My personal feeling
is that increase in taxes, especially now, will bring about, as Senator
Martin has said, diminishing returns, and, certainly, do great injury
to recovery.
Secretary ANDERSON. Yes.
The C H A I R M A N . SO, it is all the more important that we reduce expenditures.
Are there other questions ?
Senator SMATHERS. Senator and Mr. Chairman, may I just say that
I am prepared to vote for the request made by the Secretary of the
Treasury, and I do not believe that we can intelligently ask a man of
Bob Anderson's ability and responsibility to come down here and
assume the job of running the fiscal policies of our Nation and then
tie his hands in so doing. So, I am prepared to vote for him. However, before doing so, I would just like to ask two questions.
Mr. Secretary, we read where the discount rate has been raised
today. Is it your view that we are moving already into an inflationary
era from what had amounted to a recessionary atmosphere just a few
months ago ?
Secretary ANDERSON. Senator Smathers, I should like to say that
the operations of the rediscount rate which became applicable in the
Federal Reserve district at San Francisco yesterday, are, of course,
the exclusive responsibility of the Federal Reserve System, and, while
we exchange information quite completely, I believe very strongly
in the independence of the Federal Reserve System, and recognize
that this is purely a decision on their part.
I am sure it is a decision which has been made by the' Federal Reserve bank in San Francisco and the Board here in light of their
own evaluation of the changes in conditions.
29 INCREASE
IN PERMANENT
DEBT
LIMITATION
I also believe that, as one looks at the deficit which has already
accrued, as one looks at the deficit which is anticipated, one cannot
escape the conclusion that these are inflationary in their character.
The degree to which they operate as inflationary elements is not
confined to these factors alone, but to other elements which develop
in the economy.
I think what all of us have to do is to watch the growth or change
of any economic tendency in our economy quite carefully, to be willing
to move in a manner so as to assure, as best we can, that neither inflation nor deflation run a ruinous course in our country.
Senator S M A T H E R S . Y O U , then, yourself, have not arrived at or wish
at this time, apparently, to take no official position as to whether or
not we are actually moving into an inflationary period ?
Secretary ANDERSON. Other than to say, sir, that, certainly, we have
a revival in most of the areas of business activity. We have larger
anticipated expenditures, for example, in housing. The business index for the last couple of months has been going up. The deficit for
this last year has already been accumulated. The deficit for this next
year is certainly looming as a large one, and one would simply have
to say that these are all inflationary pressures, and that the problem
now is to be sure that we do not allow these pressures to so affect our
total economy in the country as to impose undue burdens and undue
penalties upon us.
Senator S M A T H E R S . I S it your view that some of these actions which
the Congress has taken this year, such as the housing bill and the road
bill and things of that nature, the effect of them has been to pull us
out of the recessionary period and move us into this prospective inflationary period ?
Secretary A N D E R S O N . I think, Senator, that as one looks at the expenditures from the period January of this year through June 30, the
actual expenditure in dollars was slightly less than we had anticipated.
On the other hand, a great many commitments were made during
this period, commitments for defense expenditures, credit was eased,
terms upon which housing might be started, both the terms of down
payment and interest payments were decreased.
The road-building program was stepped up.
As one looks at the prospects for 1959, one sees a decline of about
$7 billion in what we anticipated in revenues and an increase of
about $5 billion over what we expected as expenditures.
This is the total where you add up to the $12 billion.
Now, with the economy of the country demonstrating a resiliency
of its own, a capacity to readjust and to revitalize itself, I think all
of this tends toward inflationary pressures that we have to be aware
of and that we have to be sure we do not allow to come to be dominant.
Senator S M A T H E R S . D O you think if we reduced taxes and thereby
had a substantial reduction in revenue return to the Treasury that that
would have the effect of forcing the administration to make a smaller
recommendation of expenditures to the Congress.
Secretary ANDERSON. Well, if there was a reduction in revenues,
however it might be accomplished, one—both as an administration
and as a Congress—would have to accept its reduced expenditures
or increased deficit financing, and increased deficit financing would
certainly be inflationary.
30019 0—58
5
30
INCREASE IN PERMANENT DEBT
LIMITATION
Senator SMATHERS. I gather from that if that were the case then
it would be only logical to presume there would be a smaller recommendation of expenditures from the executive branch of the Government.
Secretary ANDERSON. I could not now speak for what will be recommended in the President's next budget, but certainly, nothing is more
important than the consideration of expenditures, whether they are
recommendations by the executive or actions taken by the Congress.
Senator SMATHERS. All right.
Thank you very much, Mr. Secretary.
The CHAIRMAN. Are there any further questions ?
Senator MALONE. Mr. Secretary, I do not have to state again in the
record my high regard for you, and that you are being used as a
middleman. The things that happen and cost money, about all the
say you have in it is as one member of the Cabinet; is that not true?
Secretary ANDERSON. Yes, I would say that is true.
Senator MALONE. If you are overruled or whatever the ruling of
the Cabinet or the President on policy that costs money, then your
sole job is to pay the bills, is it not ?
Secretary ANDERSON. Certainly the responsibility of the Treasury
to meet the obligations of the Government exists.
Senator MALONE. Well, isn't that what you are for ?
Secretary ANDERSON. Yes.
Senator MALONE. Therefore, you have very little to do with the
policy that spends the money but w7hen it—after it is committed,
Congress appropriates it—then you just have to tell them how to get
it, that is about it; is that correct ?
Secretary ANDERSON. That is correct, sir.
Senator MALONE. S O far as the people are concerned, I have been
in many States in the last few months, the people are stunned, they
are beyond reaction. It has been going on now 24 years, and they do
not know what to do. I think the election, though, is going to be a
very great disappointment to many of us. There are more than 250
depressed areas in the United States accounting for around 6 million
unemployed.
There is a bill in the House to help depressed areas. If it passes
it will cost you a little more money. We bring about these depressed
areas ourselves.
The State Department has advocated this bill for 15 years, that
we remake the industrial map of the United States and the depressed
areas as a result of our imports, low-cost labor, then we have the
money, the Government money to train workers for other jobs, these
working men, and ship them somewhere else, and then make up as
near as we can, maybe some help to the stockholders and to the people
that we break with the policies.
That is just something that is coming up.
Didn't our inflation start about 1933 and 1934? Didn't it really
become accelerated
Secretary ANDERSON. Senator, my recollection of the movements of
the level of costs, prices during that era, is not sufficiently clear to be
responsive.
Senator MALONE. Would you supply for the record some kind of a
chart as to when this inflation of the dollar, the cheapening of the
dollar, really became accelerated for the first time ?
31 I N C R E A S E
IN
PERMANENT
DEBT
LIMITATION
Secretary A N D E R S O N . We will certainly furnish what we have
available to the Senator.
Senator M A L O N E . If you do not have it available, who do you think
would have it ?
Secretary A N D E R S O N . I am sure we have all the figures, Senator.
Senator M A L O N E . I am sure you do, too.
How much inflation has there been in the last 12 to 18 months, say,
2 years, to make it easy ?
Secretary A N D E R S O N . According to our calculations, beginning January 1956, the purchasing power of the dollar, equated to the period
1947-49, I mean 1939, is equal to 100,1 beg your pardon
Senator A N D E R S O N . Say that again.
Secretary A N D E R S O N . 1 9 3 9 equaled 1 0 0 . The purchasing power of
the dollar on January 1956, would be 51.8. On January 1957, it
would be 50.3. On January 1958, it would be 48.6.
Senator M A L O N E . 4 8 . 6 ?
Secretary A N D E R S O N . In June of 1 9 5 8 , on the same basis, it would
be 4 8 . 0 .
Senator A N D E R S O N . Forty-eight what ?
Secretary A N D E R S O N . 48.0.
Senator M A L O N E . Then even according to your figures there is a
steadily increasing inflation ?
Secretary A N D E R S O N . There has been a steady decline in purchasing
power during this period.
Senator M A L O N E . D O you have any figures compared to 1 9 3 3 — t h e
1933 dollar compared to the 1939 dollar ?
Secretary A N D E R S O N . I do not have them with me, I would be glad
to get them for the Senator.
Senator M A L O N E . If you will, I would appreciate it.
(The information referred to is as follows:)
Consumer
Price
Index
Consumer
Price Index'
(1947-49=100)
Year:
1939.
1940.
1941.
1942.
1943.
1944.
1945.
1946.
1947.
1948.
1949.
1950
1951.
1952.
1953
1954
1955
1956.
1957.
1
55.
74.
75.
76.
83.
95.
102.
101.
102.
111.
113.
114.
114.
114.
116.
120.
and purchasing
of the
Purchasing
power 1of the
dollar (calendar year
1939=100)
107.4
100.0
99.2
94.4
* 85.2
80.3
79.0
77.2
71.2
62.2
57.8
58.3
57.8
53.5
52.3
51.9
51.7
51.9
51.1
49.4
As measured by the BLS Consumer Price Index.
power
dollar
Purchasing
Consumer
power of the
Price Index dollar 1 (cal(1947-49=100) endar year
1939=100)
Recent months:
1956—January. _ April
July
October
1957—January _. April
July
August
September
October
November
December _
1958—January.._
February. .
March
April
May
June
114.6
114.9
117.0
117.7
118.2
119.3
120.8
121.0
121.1
121.1
121.6
121.6
122.3
122.5
123.3
123.5
123.6
123.7
51.8
51.7
50.8
50.5
50.3
49.8
49.2
49.1
49.1
49.1
48.8
48.8
48.6
48.5
48.2
48.1
48.1
48.0
32
INCREASE IN PERMANENT DEBT LIMITATION
Senator MALONE. Now, it depresses me to read the papers, and I
brought them with me this morning on my way up and I took a little
look at them. Who is it who makes these commitments all over the
world that Congress then receives legislation to fulfill, and then you
have the responsibility to get the money ? Who is making these commitments all over the world, money wise ?
Secretary ANDERSON. Senator, I would assume that there are some
commitments made by a variety of departments.
Senator MALONE. By what ?
Secretary ANDERSON. By a variety of the departments of the Government, primarily in the
Senator MALONE. Who are the principal ones ?
Secretary ANDERSON. Primarily the State Department and the Defense Department.
Senator MALONE. The State Department is a spearhead. I think
Mr. Dulles testified that he was the one who carried out the policy,
discussed it with other members of the Cabinet, and then he was the
one who went into the nations and promised the money and all. Who
is it that promises these trade concessions; is that the Department of
Commerce, or who is that ?
Secretary ANDERSON. I think the State Department is the American
representative, Senator.
Senator MALONE. I notice in the paper this morning, that "United
States Aide Assures Canada on Trade."
Chief of Foreign Commerce Predicts Easier Customs in Toronto Talk—
and goes on to say:
The imposition of import limitations on Canadian oil, Mr. Macy said—
Loring K. Macy. I crossed his trail once before on another matter.
I think it was Mr. Loring K. Macy when we got a man by the name
of Lee who was one of the finest traders we were able to find out of
the Department of Commerce about 1948, and we had him up as a
witness, but Mr. Macy said that they need not worry about this. I t
would not hurt Canada, our limitations on Canadian oil, he went on
to say. The purport of the article is they need not worry, we would
take care of everything.
We have in the Wall Street Journal, that great journal of New
York, the bible, you know, the bible of economy, "United States Allies Ease Curbs on Trade with Red Nations.
"Weeks Doesn't Spell out Items; Machine Tools, Oil Tankers Probably on List."
In my visit to Russia in 1955, I traveled 14,000 miles there in each
of the Socialist Republics, as they call them, I found a good deal
of machinery from Cincinnati and various places, but they were making a play then that they were limited to certain items. I had the list,
I got it in Paris, but of course those items are reaching Russia and
Communist China at the same time. Now they are coming out into
the open, and I just thought it might be of interest to the committee that the nation that we are building up to fight us—that probably
they need that machinery. If we are going to fight them, we will want
to make it as fair as we can. We don't want to pick on any cripples.
What effect does it have, when the Federal Reserve Board raises
the discount rate to 2 percent from 1% percent? What is the effect?
33 INCREASE IN PERMANENT DEBT LIMITATION
Secretary ANDERSON. Well, of course the effect will be that the area
w7here it is applicable, which is the San Francisco area, that commercial banks borrowing from the Federal Reserve Bank will pay a
quarter of 1 percent more interest.
Senator M A L O N E . What is the effect on the customer ? I mean the
ordinary guy out there in Wellington, Nev., or up in Vermont, who
does not know anything about the Federal Reserve Board. He just
wants to finance his business.
Secretary ANDERSON. It would be difficult for me to give an answer as to how quickly or whether the banks will transfer it.
Senator M A L O N E . What has it done for him? What is the effect
of it?
Secretary ANDERSON. Well, obviously it is done with the idea of
placing some measure of restraint upon borrowings as represented
by the increase in the rediscount rate.
Senator M A L O N E . They have the ability to do that. How much of
a leeway does the Federal Reserve Board have on the discount rate ?
How low could they go and how high could they go ?
Secretary ANDERSON. There may be a limit as to how high they
can go. I frankly am unaware of any limitation.
Senator M A L O N E . Could you furnish that for the record? You
couldn't remember all about it.
Secretary ANDERSON. Yes.
(The information referred to is as follows:)
The Federal Reserve Act provides that any Federal Reserve bank may
establish from time to time, subject to review and determination by the Board
of Governors of the Federal Reserve System, rates of discount to be charged
by the Federal Reserve bank for each class of paper, which shall be fixed with
a view of accommodating commerce and business. No mention is made of how
high the rates could be set, but the rates are set with the view of accommodating
commerce and business.
Secretary ANDERSON. The process, as the Senator knows, is normally
for the board of d'rectors of the respective banks in the Federal Reserve districts to make a recommendation to the Federal Reserve Board
in Washington fliat the rate be increased, and the Board itself then
Senator M A L O N E . As a restraint, then, on business.
Secretary ANDERSON. Well, as some restraint on the borrowings by
commercial banks from the central banks.
Senator M A L O N E . Of course that means the customers, it is handed
on to the customer.
Secretary ANDERSON. Ultimately it would have that effect.
Senator M A L O N E . Isn't that wThat it is for ?
If they are extending too much credit in the bay area and they
want to slacken that up or they think they can stand that much interest,
then they regulate it, isn't that the purpose of it ?
Secretary ANDERSON. Yes. But I would say this is more of a signal,
when the increase is up a quarter of 1 percent, that there is a belief
on the part of the Board of Directors of the Federal Reserve Bank
of San Francesco that there should be an added restraint on borrowings.
Senator M A L O N E . Yes.
Now then, a business that goes into business and they can pay 1
percent or whatever the discount rate is at the moment, or pay
2 percent, whatever it is, and they go into business on that basis and
34
INCREASE IN PERMANENT DEBT
LIMITATION
have to refinance on a higher rate, what effect does that have on a
business ?
. .
Secretary ANDERSON. Well, I would assume the Senator is meaning
if you went into a business and calculated your return on one rate of
interest
Senator MALONE. Yes.
Secretary ANDERSON. And thereafter you were required to refinance
at a higher rate of interest, that there would be a diminution of
profit.
Senator MALONE. And maybe a disappearance of profit.
Secretary ANDERSON. Yes; I think
Senator MALONE. And maybe a failure of business.
Secretary ANDERSON. I think one must keep in mind these interest payments are tax deductible and therefore the measure of the
effect of it would be the necessary cost after taxes.
Senator MALONE. Which is very little these days at best, is that
about right ?
Secretary ANDERSON. Yes, sir.
Senator MALONE. NOW, then, I see that the " U . S. Offers Prospects
of Easing Water Lack if Arabs Accept Aid Plan. Officials Privately
Talk of Help From the Atom, Scientists and American Capital."
American capital is what interests me. Who made that commitment?
Secretary ANDERSON. Senator, the only thing I can say on that subject is to refer the Senator to the speech the President made at the
General Assembly, and other than that, I would not be in position to
know any details about it.
Senator MALONE. Anyway, if they send this aid over there, all you
have to do is pay the bill. You do not know anything about it; anyway, you are not responsible for it. You just pay the bill.
Secretary ANDERSON. Well, all the commitments or charges that
are made by any of the Departments of Government ultimately find
their way to the Treasury and we have to pay them.
Senator MALONE. YOU are ultimately the fall guy. You have to
come up here and face the music. That is why we feel the way we
do about you this morning. I have been in Arabia, been in a private
plane and flew all over in 1947. That is a pretty big order, to ease
the water supply in Arabia. I t sounds good on paper; a good deal
like building the dam for Nasser on the Nile. I have been up the Nile,
too, I suppose you have.
I see Mr. Dulles, according to the Wall Street Journal of August 15,
that is today, "Dulles Battles at U. N. to Save Mideast Program;
Arabs are Skeptical of Aid Plan," of furnishing water, I suppose.
We used to fly a hundred miles there and just see a camel and a goat
and a man and woman and a little boy or something, you know. We
would be up there 700 feet high, and 50 or 60 miles further you would
see another little unit. They milk the goat and make cheese out of it,
they told me is how they live, and some dried dates. If you had a
well every little bit, I suppose that is what they have in mind. The
Arabs live there and they are skeptical.
These headlines bother me.
On curbing inflation
35 INCREASE IN PERMANENT DEBT LIMITATION
Secretary ANDERSON. A S I indicated before, Senator, this particular move of the Federal Reserve System is a signal toward a restraint
on borrowingi
Senator MALONE. They think if they borrow too much money it
might be more inflation ?
Secretary ANDERSON. I think it should be said so far as I know
there is very little borrowing at this moment by the commercial banks
from the Federal Reserve. The free reserves have been relatively high
in the country.
Senator MALONE. But in any case it is going to cost them a quarter
percent more today than it did yesterday.
Secretary ANDERSON. When they borrow.
Senator MALONE. I see, too, "Tunisia Will Get United States,
British Arms." Tunisia, is that the place which has been a colony
of France for a good many years, where they have all that trouble
in there ?
Secretary ANDERSON. I think probably the Senator refers perhaps
to Algeria.
Senator MALONE. Tunisia, it says. "Move To Strengthen Nation
Against Algerian Rebels Approved by French."
Secretary ANDERSON. Tunisia, of course, is the country of which
Mr. Bourguiba is President, and I think the Senator is probably referring in his question relative to France to the Algerian situation.
Senator MALONE. We have already given them the arms and the
newspapers carried the story pretty liberally that the sidearms and
arms they are using on the Algerians we have already furnished the
French, that is true, is it not ?
Now, we are furnishing arms to Tunisia to fight off the Algerians.
Secretary ANDERSON. I have not had the privilege of reading the
article.
Senator MALONE. I understand that. You have to read them every
morning to get as mad as I get.
I see that "Paris Sets Rules For Algeria Vote." They are going
to vote on something that the French will let them have and they set
the rules. That sounded very interesting.
The New York Times has an editorial this morning, "A New Hemispheric Policy."
The announcement in Washington on Tuesday that the United States is now
willing to join an Inter-American Development Institution has great significance
for the hemisphere. Moreover, it is startling news, for it represents a basic
change in thinking in the executive branch of the Government.
This is one more important result of the shock administered to the Government by Vice President Nixon's South American trip last May. Since then
the President's brother, Milton Eisenhower, has made his swing around Central
America and Secretary Dulles has visited Rio de Janeiro. Both returned with
reports that seem to have reinforced the deductions from Mr. Nixon's experience.
The upshot of the editorial is that
is that right ?
Secretary ANDERSON. The United
ness to engage in the establishment
institution.
Senator MALONE. What does that
puts up the money ?
we have a new bank coming up,
States has indicated its willingof an Inter-American financing
mean from our standpoint, who
36
Secretary
tic* J
INCREASE I N PERMANENT DEBT
ANDERSON:
LIMITATION
Well, certainly this country would be a par-
x
^ant.
Senator MALONE. About like 1 horse and 1 rabbit.
Secretary ANDERSON. Senator, I do not know.
Senator MALONE. I do not want to force an answer because you are
only one member of that Cabinet.
I see by the Washington Post that "Curbs Eased On Red Trade,"
and it goes on to say that "The United States yesterday announced
changes in its export policy allowing substantially more United States
goods to go to Iron Curtain countries," which of course is very interesting. It has been going there ever since World War I I . The committee here of Congress, of the Senate, uncovered the fact that they
had been sending copper tcl Russia here during World War II, or in
Korea, during Korea.
Wasn't Britain the first to recognize Red China ? At least it led
the way.
Secretary ANDERSON. YOU mean of the Western powers ? I do not
know, my memory is not such that I can give it.
Senator MALONE. I will supply it for the record. It was. In my
opinion, I said on the Senate floor at that time we had promised to
follow them but we raised so much trouble over here they didn't do it
at once.
Then the Post also says, "British, United States To Let Tunis Have
Arms," and then, "Ike's Plan Stirs Ire in Mideast; Nehru Is Critical."
Mr. Nehru, that great capitalist in New Delhi. I visited him about
4*4 hours.
We got along fine because there was nothing that I told him that
he had heard before.
NOWt, Mr. Secretary, I want to say to the chairman of our committee,
the distinguished Senator from Virginia, I think we have the wrong
man here this morning. I think I have read the headlines of only
one morning, and every morning it will just scare every American who
is asked to read the papers, either Dulles or somebody has promised
more money or another bank we are going to finance or more free
trade, I think w7e ought to have Mr. Dulles here before we pass on
this thing just to find out what basis he is doing this on because our
Secretary of the Treasury and we all agree I am sure, I am not telling
anybody a thing, that we consider him one of the finest men in the
Cabinet, all they do, it just filters down to him and down to him to take
the rap and he is such a fine man he generally gets what he asks for
and if we could get to the bottom of this and if we are getting Mr.
Dulles, we are getting pretty close to it.
We did have another man doing this sort of thing at random and
that was—who was the fellow who tried to take over Pennsplvania—
Mr. Stassen. He w^as running wild 4 or 5 years. At least we have
got it cut down to only one man now in all this business.
Mr. Stassen is a fine man, according to his lights, and has more
energy than any human being I ever saw, but at least we have got
it cut down to one man.
Don't you think, Mr. Secretary, it would be a good idea for this
committee to hear Mr. Dulles to see just about how far we are going
in the red ?
37 INCREASE IN PERMANENT DEBT
LIMITATION
' Secretary ANDERSON. Frankly, Senator, I think that it would not
add anything at this time to the calculations which we have made; any
commitments that would be made would have to be made under existing appropriations or else they would have to be submitted to the Congress next year.
Senator MALONE. As our distinguished chairman has said, you have
$70 billion as a backlog there. He can call on that, can't he ?
Secretary ANDERSON. Yes, but the calculations which we have made
take into consideration what we judge to be the expenditures.
Senator MALONE. Where is Mr. Dulles today ?
Secretary ANDERSON. I do not know, sir, but I would assume in New
York.
Sentor MALONE. I S there anybody there that he could promise
money to ?
Secretary ANDERSON. I beg your pardon ?
Senator MALONE. I S there anybody there meeting him that he could
promise money to ? Maybe we do not have the whole story yet.
Secretary ANDERSON. I am sure, sir, that the calculations with
which we are concerned are those that take into account the reasonable expenditures which we expect out of existing appropriations
between now and next June and I would think any other ones would
have to be brought before the Congress.
Senator MALONE. If he promises more money between now and
next June and he could take it out of that $70 billion, couldn't he, if
he could get the debt limit raised high enough ?
Secretary ANDERSON. It could only come out if it were appropriated
for the purpose.
Senator MALONE. Well, I do not think—Mr. Chairman, I would
like to ask you a question about this: We have a new slant on that
$70 billion. I think you have been under the impression, at least I
have gathered that, and I depend a lot on your satistics, that this $70
billion is there, as a backlog, it has really been authorized, it is really
available any time the Appropriations Committee sets it up, would
it not?
The CHAIRMAN. It is appropriated.
Senator MALONE. It is appropriated, and you do not have to do anything. All you have to do is spend it.
Secretary ANDERSON. Yes, that is correct, sir, but what we do in
making the estimates wThich we submitted to the committee is determine from each of the departments of the Government their best
judgment as to the rate at which the money is going to be spent.
Senator MALONE. That is true. But Mr. Dulles is unpredictable.
All this in the last few days has been promised that I read you, it is
in the current papers this morning. Now Mr. Dulles is the fellow
who is doingj this.
We got rid of Stassen under some condition, I do not remember
why he quit, some reason, though, that he quit, and then he went to
Pennsylvania, and they wouldn't turn the Treasury over to him so
I guess he is going to work.
It is kind of hard on him to do that now. But Mr. Dulles has not
gone to work yet. He is spending money. He is committing it all
over the world, and when he goes into a place he has two things to
buy these agreements with, and, Mr. Secretary, I have to tell you
38
INCREASE I N PERMANENT
DEBT LIMITATION
I have been in all these nations and I do not say I know all about
them, but I know some of the people and they will sign anything as
long as we pay for it with no idea of keeping it at all and I do not
blame them.
So when he has the taxpayers' money, within the billions, to say to
the Arabs, "Now if you will just keep quiet another year, and not cause
us too much trouble, we will furnish the water for the Sahara Desert,"
that is quite a promise, but they might keep quiet for a year, if you
show them a billion or two dollars. He has promised that.
Then he can also make further trade agreements and give more of
the lifeblood of this Nation to buy agreements. All this was debated
on the floor, all of it was asked Mr. Dulles and he said "Yes" to every
one of them.
Senator DOUGLAS. Mr. Chairman
Senator MALONE. I am going to finish, if you don't mind, and I do
not interrupt you.
Senator DOUGLAS. I beg your pardon.
Senator MALONE. What I am getting at, Mr. Chairman, we just
have the wrong man here. You know Congress is not going to turn
this man down, he is just too fine a fellow for that, because he has
come up here and said, "Now here are the commitments that the Secretary has made." He didn't mention it to the Secretary. But he is
the fellow who is making them, "And I have got to meet the bills,"
and he is showing you unmistakable evidence he cannot match them,
he cannot meet them unless you do this. So far as I am concerned,
Mr. Chairman, it could be we could cancel Mr. Dulles' passport by
congressional act, and just not give him this $10 billion, and the first
thing you know he would be doing this diplomacy on his own account
instead of paying for it, and I am in favor of that, and I am not
in favor of raising the debt limit.
The C H A I R M A N . I say the Judiciary Committee would have to cancel
his passport.
Senator MALONE. That is all right. We might suggest it. We are
acquainted with them.
I just want to make this further suggestion: We do not have the
money, and it is just like the water in the sink, the more we appropriate to do this thing with and buy them, the less it is worth, and inflation is keeping pretty close tab on the appropriations above the
amounts you collect, and you are bleeding the American public white.
Our people in Nevada, you are getting over a hundred million dollars—a hundred million dollars from the State of Nevada, around
a hundred million dollars in taxes, and there are only 300,000 people
there, counting everybody. And they just cannot go much further.
The mines are shut down on account of imports, titanium factories are
shutting down on account of imports from Japan; 700 men laid off
the other day, last 6 months, 1,400 of them in copper at Ely. Lincoln
has about 1,500 men working in the whole county in mines, because
we are a great tungsten and lead county; Humboldt County, 40 percent of taxable property wiped out. By what ? By Mr. Dulles making all these trips around and promising them to the Arabs and to
the European countries, Asiatic countries, and giving it to them in
order for them to sign his agreements which no one intends to keep. .
39 INCREASE IN PERMANENT DEBT LIMITATION
When the tug is tightened, Europe is going to be neutral. I have
said all I am going to say. I am going to vote against it, and I
just love the Secretary of the Treasury, I just think he is one of the
finest men I ever knew. It is not his fault. Some way or another
he has got to say "No," and he can say it if he doesn't have any
money.
The CHAIRMAN. Are there any further questions ?
Senator ANDERSON. What effect do you think this is going to have,
Mr. Secretary, on your financing problems this fall? What I am
trying to point out is that the $12 billion is bound to be inflationary.
You mentioned a minute ago in answer to Senator Malone that a
Government bond, or that the dollar from 100 in 1939 was 48 today.
I was just trying to do a little calculating.
Suppose a man bought one of these E-bonds, thousand-dollar maturity value, and he paid $750 for it in 1939, and let the interest ride,
as we have been able to do after the termination of the bond. I figure
that he would have something like $500 of interest, maybe, plus little
more, he would get after he paid even the most modest tax. He would
get back about $1,150 when he cashed in the bond, maybe more than
that; $1,250. He gets a 48-cent dollar on it as against the 100-cent
dollar he paid for it. So he is going to get back $850 today for the
$750 he put in the investment some 20 years ago. Most people are
going to start thinking about that on these Government bonds some
of these days.
I just happened to send to my office for an analysis of an investment
firm which it makes up and I noticed that 2y 2 s at 61 were 101 when
they made this appraisal of value of stocks April 30, and the Wall
Street Journal this morning shows them 981%2- This, I assure you,
is a responsible firm. I do not want to get into it, but they are advisers to the Riggs National Bank, and they are advisers to the
Smithsonian and so forth. I think they are highly regarded. They
recommend to me in their letter of August 12 that out of an investment of around $150,000 of surplus funds that I buy $75,000 Treasury
3%s maturing in 1974, and $75,000 2%s, maturing in 1965; one to
yield 3.69, and the other to yield 3.29. Those were above par a short
time ago, way below par August of last year. Every time we come
to the end of the year the Government bond market seems to drop off
pretty substantially.
Wouldn't this deficit have a bad effect on the refinancing ?
Secretary ANDERSON. Senator Anderson, I think what you have
said emphasizes the concern wThich the country must have in taking
what steps it can and deems wise to prevent a runaway inflation.
Now, both the volume of refinancing which we have to do, and
the number of times which we have to go into the market increases
the difficulties so far as our debt is concerned.
One has to realize that the prices which are paid by investors for
these securities are dependent upon a number of factors, dependent
not only upon the way in which the value of the dollar may be moving, but dependent in part upon the way in which the economy generally is moving, and, normally, if you get a higher level of business
activity, a higher demand for credit from other parts of the American economy, this, of course, has an adverse effect, upon the bond
market.
40
INCREASE I N PERMANENT DEBT LIMITATION
I think, recently, if one looks at the problems you have got to weigh
(1) the technical situation which resulted from a great deal of speculation that took place during the period in which they were constantly
revising the market, and one has to look at changed economic conditions, one has to look at the fact that the Canadians elected to refinance a substantial part of their debt at comparatively higher rates
of interest. All of these have to be weighed, but, certainly, as a general proposition, the larger amount of the deficits when we already
have a high order of national indebtedness is going to make the problem more, rather than less, difficult.
Senator ANDERSON. What I am trying to get to here is this person
who puts in $750 and 20 years later takes out approximately $1,240
to $1,250, if he just leaves it alone for these 20 years. He has, on the
surface, a $500 gain. Actually, with a minimum tax, it is going to
come down to a $400 gain, and, by the time he gets through with the
erosion of the dollar, he has lost $200 for holding an investment 20
years in Government bonds.
Secretary ANDERSON. Of course, this is so, whether it be a Government security, municipal, or industrial, or whatever it might be.
Senator ANDERSON. I just happened to look. That is not true,
exactly, if you get to stocks.
Secretary ANDERSON. NO, because stocks move
Senator ANDERSON. If these deficits continue, aren't you going to
force people completely out of buying bonds into the buying of stocks ?
That is why I say I am not really objecting to this increase in debt
limit. I do not know what else you can do, but, certainly, it is the
overall problem of Government to bring these things back into balance. Billions of dollars can be saved m the agricultural program.
We all know we do noL have to have $6 billion or $7 billion to take
care of an agricultural program that used to cost $250 million.
I just wondered howT far the Treasury could go to say we have to
bring this thing back into balance to try to make it possible for the
Treasury to refinance. How many billions do you have to refiance
the rest of this fiscal year ? I t is an enormous sum. Is it not a hundred billion ?
Secretary ANDERSON. Approximately $ 3 0 billion.
Senator ANDERSON. Fiscal year?
Secretary ANDERSON. Fiscal year.
Senator ANDERSON. N O ; it cannot be.
Secretary ANDERSON. Yes; we started out in July with $ 4 5 billion
for the balance of the fiscal year through May 15, next year, and we
have financed about $15 billion, approximately $30 billion, not including bills.
Senator DOUGLAS. How much would they be?
Secretary ANDERSON. About $22 billion.
Senator ANDERSON. I had another figure. I admit I have been completely wrong on it.
Secretary ANDERSON. We are talking about refinancing.
Senator ANDERSON. When you have maturity coming up, you have
to refinance.
Secretary ANDERSON. That is correct.
Senator ANDERSON. I thought you had more than $30 billion of
maturities.
41 INCREASE IN PERMANENT DEBT LIMITATION
Secretary ANDERSON. NO, sir ; about $ 3 0 billion that we have not already financed. A few billion in savings bonds.
Senator ANDERSON. I merely hope the Treasury keeps sounding an
alarm that this is going to make the problems of refinancing more and
more difficult as inflation continues, and $12 billion deficits are bound
to be inflationary, no matter what anybody wishes or desires, Mr.
Secretary.
Secretary ANDERSON. Senator, I sounded an alarm quite recently.
Senator ANDERSON (presiding). Keep sounding it. I have no further questions.
Senator Carlson.
Senator CARLSON. I have just 1 or 2 things. This is the end of the
session, when we get to a period of accounting. I t has been a period
where Congress, and I am a part of the Congress, has voted to greatly
increase funds, and we have exceeded budget requests on many items,
and I was just checking this list that concerns me, for the future.
If I remember correctly, the President recommended to Congress in
his budget message that we vote for increased salaries for postal, classified, and military, a billion fifty some million; that may not be quite
an accurate figure. I would like to ask how much we spent on those
three increases.
Secretary ANDERSON. I would like to refer that to the Director of
the Budget; he has that figure, if you will.
Senator CARLSON. Just roughly, if you will.
Mr. STANS. Senator, I cannot give you the figures, offhand, I will
supply them for the record. The increase was about $400 million,
roughly, more than was in the budget.
(The following information was later supplied for the record:)
The President's budget for 1959 proposed military and civilian employee pay
raises which would entail an estimated $1,052 million of expenditures in 1959.
As enacted, the annual cost of these pay raises is now estimated at $1,445 million, an increase of $393 million. In addition, retroactive pay increases were
enacted which had not been recommended by the President. The cost of the
retroactive raise is estimated to be over $375 million, most of which has been
expended in fiscal 1959.
Senator CARLSON. The point I want to make is that—and I am the
one who is going to vote for this debt-limit increase—I do not think
we can do it any other way, and do not like it any better than anyone
else. But we ourselves, are very often responsible for these increases.
Senator Anderson mentioned agriculture; I think that must concern
every Member of the Congress. I notice you have a billion and a half
more for 1959.
Now, it just has been growing by leaps and bounds, and I come from
a wheat State. We grew 400 miliion bushels more wheat this year in
the United States than last year. I would urge the executive branch
of the Government to give some thought to going over some of these
farm programs and see if we cannot reduce them. I have discussed
several times the domestic parity program for wheat. I think we
ought to look at it for cotton and rice.
I do not say that is the only solution to this problem, but I do think
this continuous rise ought to be looked into, and the executive branch
of the Government has that responsibility, and these other items
where we have these increases; I noticed the Post Office deficit; here
we raised postage rates 1 cent this year, and I noticed by Senator
42
INCREASE IN PERMANENT DEBT LIMITATION
Byrd's statement that he has given us that the estimated deficit on
June 30,1959, could be $700 million.
What is the Bureau of hte Budget going to show ?
Mr. STANS. We now estimate, Senator, after taking into account
the increase in postage, the increase in wages, the increase in transportation paid the railroads and other factors, that the post office
will showT a deficit this year of around $600 million.
Senator CARLSON. Well, it is an amazing thing, when I believe we
started in at the beginning of this year with an anticipated deficit of
$550 million or $600 million and then we raised the postage rates and
second- and third-class rates, and still we are going to come up with
$600 million deficit.
Mr. STANS. Yes, sir, Senator, the pay increase, and the increased
transportation costs to the railroads and other costs have just almost
wholly absorbed the increase in postage rates within 1 year.
Senator CARLSON. I am willing to assume my share of responsibility
for voting many increases that we voted this time, but it concerns me
and I am not so certain but that Congress is going to have to give
serious consideration to Senator Byrd's proposal of an item veto. I
served as a Governor of a State with an item veto, and I think it is
very important in the fiscal policies of a State or a nation, and most
of our States have it.
Here the other day the President vetoed a bill with $589 million in
it, and I think that might be helpful if we could get something like
that. I am concerned about it, and I have to assume my share of the
blame.
I thank you, Mr. Secretary. You are doing a good job, but it is a
difficult job and we do not seem to help you too much.
Secretary ANDERSON. Senator, the whole problem of curbing excessive expenditures, of being sure that we accomplish these things,
what ought to be done for our country, is not just a problem for any
one of us, but it is a problem for the whole Nation, and I think while
each of us have some more specific responsibilities than others, we
must regard it as a national problem.
The CHAIRMAN. Are there any further questions? Senator DOUGLAS. Mr. Chairman, am I privileged to ask any questions ?
The C H A I R M A N . Yes, Senator Douglas.
Senator DOUGLAS. Mr. Anderson, let me say in the beginning that
I think in company with all the members of this committee, insofar as
I know all the Members of Congress, we appreciate very much the
modest manner in which you conduct yourself and your very gentlemanly conduct.
I would say that you have less of the insolence of office than anyone
I know. I t is no indication of the great power which you have, which
shows itself in your personal bearing. I hope you will realize that I
hold you in high esteem.
Secretary ANDERSON. I appreciate that, Senator.
Senator DOUGLAS. When, in January, you estimated the deficit was
going to be only around $300 million, you were estimating revenue of
$72.4 billion, is that not true ?
Secretary ANDERSON. That is correct, sir.
Senator DOUGLAS. And in practice, the revenue for the fiscal year
which ended the 30th of June amounted to only $69.1 billion.
43 INCREASE IN PERMANENT DEBT LIMITATION
Secretary ANDERSON. That is correct.
Senator DOUGLAS. SO that the deficit of $2.8 billion was entirely
caused by the reduction in revenues.
Secretary ANDERSON. Yes, practically.
Senator DOUGLAS. Was it not the economic recession which caused
the reduction in revenues ? There have been no changes in taxes.
Secretary ANDERSON. I think that is a fair statement; yes, sir.
Senator DOUGLAS. The decline in business activity and production,
diminished corporate profits and, therefore, diminished corporate
taxes; there was some reduction in individual incomes and, therefore,
reduction in individual income taxes, and some slight reduction in
excise taxes; is that not true ?
Secretary ANDERSON. That is correct, sir, most of it
Senator DOUGLAS. SO that the deficit has been due to the recession
and not the recession due to the deficit.
Secretary ANDERSON. Yes. I think the decline in receipts at the
end of this fiscal year was a reflection of the lessening of production.
Senator DOUGLAS. This may appear ungracious, but may I remind
you, you appeared on the 7th of February before the Joint Economic
Committee, and at that time, which was a month after the submission
of the budget, I questioned you as to whether you still stood on your
estimates, and I raised the point that the decline in production and
the increase in unemployment, would inevitably shrink corporate profits and individual incomes and, hence, result in a decrease in revenues
and, therefore, increase the deficit beyond what you contemplated.
Do you remember that ?
Secretary ANDERSON. I do indeed, sir.
Senator DOUGLAS. YOU will find it on pages 433 and 434 of the
hearings.
Secretary ANDERSON. Yes, sir.
Senator DOUGLAS. And in view of that, I questioned whether your
request for an increase in the debt limit was adequate. You will forgive me, will you not, if I read some of the passages ?
Secretary ANDERSON. Yes, sir.
Senator DOUGLAS. Page 4 3 4 :
I know no one likes to admit publicly that they had overestimated, but it would
be very humiliating, Mr. Anderson, if you have to come back before Congress
adjourns and ask for a raise in the debt limit once again. I may say I am
going to vote for an increase in the debt limit to $280 billion. But I beg you, don't
force us to do this twice. If we are going to do it, do it enough the first
time and give yourself enough leeway.
I think you are really heading for the rocks, myself.
Do you remember that ?
Secretary ANDERSON. I do, sir.
Senator DOUGLAS. DO you think I was a prophet of gloom and doom
when I uttered those sentiments ?
Secretary ANDERSON. I can only say, sir, that your prophecy turned
out t6 be a requirement on our part that we come back.
Senator DOUGLAS. Forgive me if I turn the knife around a little,
not at you but at the Treasury. [Laughter.]
Who was the more accurate prophet, the Treasury or the Senator
from Illinois ?
.
•
Secretary ANDERSON. Well, I could only say, sir, that the Treasury
was more optimistic than the circumstances apparently justified.
44
INCREASE I N PERMANENT DEBT LIMITATION
Senator DOUGLAS. And who was more realistic, the Treasury or
the Senator from Illinois ?
Secretary ANDERSON. The Senator from Illinois came closer to the
figures on June 30 than we wrere.
Senator DOUGLAS. Very much closer. Would you see that this testimony is communicated to your predecessor in office, Mr. George M.
Humphrey ?
Secretary ANDERSON. Yes, sir.
Senator DOUGLAS. Because Mr. Humphrey devoted a considerable
portion of his energies for some months trying to discredit the Senator from Illinois, calling him a prophet of gloom and doom, alleging
he had made prophecies which he had never made, twisting testimony
to give a false impression of what the Senator from Illinois had said,
and conducting himself in a manner very different from the present
occupant of the secretaryship of the Treasury.
Now, Mr. Anderson, I would like to question you about this coming
year. You estimated in January and in February that the revenues
to the Government for fiscal year 1958-59 would be approximately
$74 billion, is that not true ?
Secretary ANDERSON. Yes, $74.4 billion.
Senator DOUGLAS. N O W you estimate it will be $67 billion.
Secretary ANDERSON. Yes, sir.
Senator DOUGLAS. N O W then, in other words, you now say that your
January and February estimates for fiscal 1958-59 were $7 billion
too high.
Secretary ANDERSON. Yes, sir.
Senator DOUGLAS. Why have you revised your estimate ? Is it not
because of economic recession ?
Secretary ANDERSON. Senator Douglas, in the first place, one makes
these calculations largely on the basis of what you anticipate
Senator DOUGLAS. I understand.
Secretary ANDERSON. Will not only be the level of business activity
in the year in which you are then living, but how much revenue you
will get out of it.
Now as circumstances turned out, even with the relatively high level
of business activity in 1957, we did not get in revenue collections as
much as we would normally have anticipated from that level of business activity.
Senator DOUGLAS. Mr. Anderson, one of the reasons I like you is
that I think you are characteristically honest in your replies. Is it
not true that you expect a decrease in corporate profits for fiscal 195859 to a figure appreciably below what you expected in January and
February, and consequently the revised estimates for collections from
corporate taxes will be less than your original estimates ?
Secretary ANDERSON. That is correct.
Senator DOUGLAS. And that this accounts for the major portion of
the deficit?
Secretary ANDERSON. Larger than any other single item.
Senator DOUGLAS. And that in addition, do you not believe that
personal incomes will grow to the point which you anticipated for
1958-59? Is that not true? ;
Secretary ANDERSON. That is correct, sir.
Senator DOUGLAS. And similarly, that there will not be the same
increase in collection of excise taxes ?
45 INCREASE IN PERMANENT
DEBT
LIMITATION
I do not want to get into a contest with the Treasury and the
administration, but I will now take on the Budget Bureau a little bit,
because I hold in my hand here, as has been remarked before, a document entitled "Corporate Excise Tax Rate Extensions, Executive Proceedings" on the 7th of June of this year. That was 2 months ago.
The Bureau of the Budget came in with estimates that for the then
current year—that was only 3 weeks before the year ended—that you
would collect about $70 billion in revenue.
I questioned you and the Director of the Budget at that time, and
pointed out that our staff estimated that the collections would be
$69.1 billion. As a matter of fact, the collections were only $69.1 billion, so that our staff hit it right on the nose, and you were off by a
billion dollars, even though you had only 3 weeks to go.
Should we not all agree and publicly confess that not all the wisdom
and financial ability is concentrated down on Pennsylvania Avenue,
and that some of it might be located up here on Capitol Hill ?
Secretary ANDERSON. Certainly, Senator, we do not subscribe to
the proposition we have a monopoly either on wisdom or the ability to
judge the conditions in the future.
Senator DOUGLAS. Would you not say that evidence indicated that
possibly more of it was located up here than down at Pennsylvania
Avenue ?
Secretary ANDERSON. I would certainly say, sir, that the estimates
for last year and this year were more accurately judged by you
than by us.
Senator DOUGLAS. In this period where the favorite sport of executive officers is to denigrate the Legislature, these words should be put
in letters of burnished gold and presented on the desk of the leading
administrative officials of this administration to contemplate in the
morning.
Now, Mr. Secretary, let me ask another question, if I may. What
are you estimating for business conditions for this coming year ? Are
you assuming total tax collections of $67 billion ?
Secretary ANDERSON. We are assuming, of course, in the latter part
of this year there will be a general improvement in conditions.
Senator DOUGLAS. Yes. But how much of an improvement?
Secretary ANDERSON. The estimates on which we are basing these
calculations, Senator, the January budget, contemplated a level of
personal income of $357 billion.
Senator DOUGLAS. For fiscal 1 9 5 9 ?
Secretary ANDERSON. For calendar 1958. This is calendar 1958.
Senator DOUGLAS. Calendar ?
Secretary ANDERSON. Yes. This has now been revised to $ 3 5 2
billion—$357 billion to $ 3 5 2 billion.
Senator DOUGLAS. What would that produce in terms of a decrease
in receipts from individual income taxes ?
Secretary ANDERSON. We are estimating about $ 2 . 5 billion.
Senator DOUGLAS. What is that ?
Secretary ANDERSON. About $ 2 . 5 billion.
Senator DOUGLAS. Billion ?
Secretary ANDERSON. Yes.
Senator DOUGLAS. Decrease ?
Secretary ANDERSON* Yes.
46
INCREASE I N PERMANENT DEBT LIMITATION
Senator DOUGLAS. Does that include corporate, or is it just individual ?
Secretary ANDERSON. This is individual.
Senator DOUGLAS. Individual. Below your estimates of January ?
Secretary ANDERSON. That is correct.
The C H A I R M A N . Senator, will you yield at that point.
I would like to ask, what is the percentage.
Secretary ANDERSON. Would you mind if Dr. Smith gives you the
answer to that ?
Mr. S M I T H . That can be described in either of two ways, Senator
Byrd. The reduction of about $2.5 billion is from $38.5 billion to $36
billion. That would be roughly about 7 percent in the tax receipts.
I might add
The C H A I R M A N . Seven percent reflects a 7-percent loss in tax receipts?
Mr. S M I T H . Yes; 7 percent loss in tax receipts in the individual
income-tax component.
Now this also reflects an unusually high relationship between the
individual income and the tax receipts therefrom, because with the
reduction of $5 billion in the assumed personal income, $2.5 billion
reduction in individual receipts suggests a 50-percent relationship,
which of course is not the typical relationship.
Actually, the reason that exists is because, as the Secretary indicated
earlier, we had last year an unusually low individual low income-tax
receipt from the presently published figure of personal income, so
we start from a lower basis of individual income-tax receipts.
Senator DOUGLAS. Mr. Secretary, could I ask, what do you expect
the receipts from corporate income tax to be for fiscal 1959 as compared to estimates of January and February ?
Secretary ANDERSON. In J anuary we estimated that corporate profits would be approximately $44 billion.
Senator DOUGLAS. And that would yield $23 billion in corporate
income taxes ?
Secretary ANDERSON. That would yield a little over 20. You see,
while the 52-percent rate applies, not all corporations are in the
bracket at 52 percent.
Senator DOUGLAS. What is your estimate now?
Secretary ANDERSON. We are now estimating corporate profits of $36
billion.
Senator DOUGLAS. $ 7 billion less.
Secretary ANDERSON. $8 billion less.
Senator DOUGLAS. $8 billion less. And a decrease in corporate income taxes of how much ?
Secretary ANDERSON. Of about $3.7 billion.
Senator DOUGLAS. S O these are the two big items.
In other words, you expect fiscal 1959 to fall greatly below your
expectations of a few months ago.
Secretary ANDERSON. That is correct, sir, and to be
Senator DOUGLAS. And to be below fiscal 1957.
Secretary ANDERSON. Yes; I think that I should distinguish now—
calendar 1957. We are giving calendar 1958 figures.
Senator DOUGLAS. It would lj)e below calendar
Secretary ANDERSON. Because it would be reflected in 1958.
47 INCREASE IN PERMANENT
DEBT
LIMITATION
Senator DOUGLAS. In the meantime, the population is growing.
Secretary ANDERSON. That is right.
Senator DOUGLAS. SO you have national income and prosperity at a
lower level despite the fact that our population is growing, and that
normally, there is an increase in productivity of 3 percent or 3*4 percent per man-hour per year, so we are, not only failing to keep up
with the past, but also to make the usual gains, according to your
estimates.
Secretary ANDERSON. Well, the calendar year
Senator DOUGLAS. Please, Mr. Anderson, let us not get diverted
on a wild goose chase on differences between calendar years and fiscal
years.
Secretary ANDERSON. Yes.
Senator DOUGLAS. I am quite well aware of that difference, but
I mean these are just rough figures that I am giving. One can so confine a problem as to make it disappear.
Let me ask this question. In other words, the bad financial situation of the Government during the coming year is due more to the
recession than to any increase in expenditures by the Federal Government. The increased expenditures by the Federal Government would
be something in the order of $4 billion.
Secretary ANDERSON. $5 billion.
Senator DOUGLAS. An estimated decrease in revenues of the order
of $7 billion.
Secretary ANDERSON. Yes.
Senator DOUGLAS. The increase in expenditures has been occasioned
largely by increased military outlays which Congress believed were
necessary for the national security in view of all these tensions ?
Secretary ANDERSON. Well, I do not think that of the $ 5 billion most
of it is in the—not most of it is in the military.
Senator DOUGLAS. A large part of it.
Secretary ANDERSON. A substantial part of it? No, only a half
billion.
Mr. STANS. May I answer, Senator? In my opening statement I
indicated that of the $5 billion increase in expenditures over the budget, about $500 million to $700 million is in defense. The rest is in
civilian programs.
Senator DOUGLAS. I see. Atomic energy ?
Mr. STANS. Atomic energy is a relatively small additional amount.
Senator DOUGLAS. That is really in defense, in my judgment.
Mr. STANS. Well, it is less than $100 million in atomic energy.
Senator DOUGLAS. Foreign aid ?
Mr. STANS. Actually, we expect a decrease in expenditures in
foreign aid, for mutual security.
Senator DOUGLAS. What I am trying to get at is, if one takes the
deficit of $15 billion for 2 years, then $10 billion of the deficit will be
created by the decline in business activity, or two-thirds of the total;
only $5 billion, or one-third of the total, will be created by an increase in expenditures above those budgeted, and therefore it has been
the recession which has primarily created the problem; is that not
true ?
Secretary ANDERSON. That is correct, sir.
Senator DOUGLAS. Suppose conditions should not improve next year
as you anticipate? Have you given yourself enough leeway or will
48
INCREASE IN PERMANENT
DEBT LIMITATION
you possibly have to be coming back in January or February or March
or April for another increase in the debt limit ?
Secretary ANDERSON. Senator, I would hope certainly that we would
have a rate of sustainable recovery from here on. Our calculations, as
you can see, are based upon changes of underlying assumptions which
wTe have made.
These, I recognize, could vary.
Senator DOUGLAS. Here is the point. I like you so much, Mr. Anderson, that in February I was desirous of sparing you the humiliating
experience of coming up before the House and Senate a second time
and asking for a further increase in the debt limit when we would
have to bring up all these factors now7 before you, and I hate to ask
these questions because I do not like to humiliate anyone, even of the
opposite political party.
So that is why I urged you to ask for a larger increase in January
and February. You said "No."
Now have you given yourself enough leeway ? I would hate to see
you embarrassed a third time, Mr. Secretary, and for me to have to
go through this same process with you again to prove that I am a
better prophet than you are. That would pain me to the very depths
of my being.
Why do you not come in and ask for $15 billion so that you will
not have to be humiliated ?
Secretary ANDERSON. Senator, I fully realize that I or any other
occupant of this office faces a very substantial hazard in trying to guess
even a year or 12 months ahead in an economy which is as vast and
as complex as ours. I have the highest regard for the Senator and
for his experience in analyzing the movements of our economy.
Senator DOUGLAS. I wish that could be said to Mr. Humphrey.
Secretary ANDERSON. I can only say that we have in our estimates
tried to take into consideration what all of the departments believe
are their best estimates of expenditure. We have tried to take into
consideration wThat wTe think are reasonable assumptions, and wTe have
tried to be modest in our approach to the problem.
Senator DOUGLAS. If you believe, if you think the deficit is going
to be $12 billion, and your—how much is the debt now ?
Secretary ANDERSON. Approximately $278 billion.
Senator DOUGLAS. Well, $ 2 7 6 billion, plus $ 1 2 billion is $ 2 8 8 billion. Suppose your deficit should go above that, you will have to
come dowTn here again to request an increase in the debt limit, will you
not?
Secretary ANDERSON. If the Senator will look at the chart appended here, he w7ill see, for example, where on May 31 of 1959 we are
running $288.2 billion, which is over the $288 billion debt limit, which
simply means wTe would have to cut down on either the contingency
or operating capital.
Senator DOUGLAS. Y O U mean some interest-free deposits in the
Danks ?
Secretary ANDERSON. We would get to $ 2 9 0 billion. You are up
against the proposition several times, and frankly I have in my statement called attention to the fact we will have to look at the debt
ceiling problem again before the end of the next fiscal year.
The C H A I R M A N . Will the Senator yield at that point ?
These figures include $6.5 billion on hand.
49 INCREASE I N P E R M A N E N T
DEBT
LIMITATION
Senator DOUGLAS. I was going to come to that.
The C H A I R M A N . That is something the Senator from Illinois opposed when Secretary Humphrey was Secretary of the Treasury, and
he thought it was entirely too much to keep on hand.
Senator DOUGLAS. I am going to come to that.
Let me say this: I think in justice you should come in for a larger
increase because of probable business conditions, so personally if you
would come in for $15 billion, I would give it to you, not because I
want to but because I think it is more realistic.
Secretary ANDERSON. Yes.
Senator DOUGLAS. N O W let me turn to this question of the deposits
of Government funds in private banks. We have conversed, both
privately and publicly, about that. Do I understand you say they
amounted to $9% billion on the 30th of June ?
Secretary ANDERSON. On the 30th of June, $9,029 million.
Senator DOUGLAS. $ 9 billion.
Secretary ANDERSON. Yes.
Senator DOUGLAS. Those are interest-free deposits ?
Secretary ANDERSON. Yes. They were made up in this way, Senator: $401 million were represented by free gold which wTe have;
$410 million by the money in the Federal Reserve System; and $8,218
million in the commercial banks, against wThich at that time there
were outstanding calls by us of $2,227 million, so that the amount
above the outstanding calls was $5,991 million.
Senator DOUGLAS. These are interest-free deposits ?
Secretary ANDERSON. Yes.
Senator DOUGLAS. H O W do these deposits arise? Do they arise
from collection of taxes, which are then deposited by the Federal
Government in the banks, or do they arise from the purchase of shortterm Government securities by individuals and banks ?
Secretary ANDERSON. They arise in both those ways.
Senator DOUGLAS. But which is the chief origin ?
Secretary ANDERSON. The tax collections would be the largest.
Senator DOUGLAS. Would you supply a table
Secretary ANDERSON. We are looking for the table here, sir.
For the year 1957, Senator Douglas, proceeds from the sale of certificates, bonds, and so forth, $14,587 billion.
Senator DOUGLAS. Would you give me that figure again, Mr. Secretary ?
Secretary ANDERSON. $14,587 billion.
Senator DOUGLAS. From what source ?
Secretary ANDERSON. From the sale of securities.
Senator DOUGLAS. Sale of securities.
Secretary ANDERSON. From withheld and excise taxes, $ 2 6 , 7 0 9 billion.
And from other income by arrangements which we make, $4,153 billion.
Senator DOUGLAS. Mr. Secretary, when you sell shorttime governments, bills, notes, and so forth, what are your margin requirements ?
When an individual has purchased these securities, the margin on
stock was 50 percent; it is now 70 percent.
Secretary ANDERSON. There is no margin.
50
INCREASE
IN PERMANENT
DEBT
LIMITATION
Senator DOUGLAS. Y O U mean that a man can buy the Government
bonds without a cash payment, but entirely on borrowings from
banks ?
Secretary A N D E R S O N . I t would be on whatever the bank requirement was.
Senator DOUGLAS. I understand. What is that margin generally ?
Secretary A N D E R S O N . I do not know.
Mr. Baird advises me about 5 percent.
Senator DOUGLAS. S O there is a 70-percent margin now on the purchase of stocks, and a 5-percent margin on the purchase of Government bonds?
Secretary A N D E R S O N . Yes, sir. I t could be less than 5 percent.
Senator DOUGLAS. I am informed it is as low as 2 percent.
Secretary A N D E R S O N . Yes, I think there would be some as low as
that.
Senator DOUGLAS. When a bank invests in governments, how does it
buy ? What is the process by which a bank buys ?
Secretary A N D E R S O N . I t would buy the bonds and pledge it in its
tax and loan account.
Senator DOUGLAS. H O W does it pay the Government for those securities?
Secretary A N D E R S O N . Well, we would withdraw the funds on orders
by
Senator DOUGLAS. What they fundamentally do is what any commercial bank does; is that not true? It has set up a credit to the
account of the Federal Government against which the Federal Government can draw if it so desires.
Secretary A N D E R S O N . They set up an account for tax and loan funds.
Senator DOUGLAS. That is a commercial procedure in which the
banks create monetary purchasing power which they credit to the
Government in the purchase of short-time securities.
Secretary A N D E R S O N . Subject to our withdrawal.
Senator DOUGLAS. Yes, as in any bank.
Secretary A N D E R S O N . Yes.
Senator DOUGLAS. But as long as it is not withdrawn, they, therefore, collect interest for the short-time securities.
Secretary A N D E R S O N . Correct; after their issuance..
Senator DOUGLAS. And pay no interest to the Government on deposits w^hich are in their banks.
Secretary A N D E R S O N . That is correct.
Senator DOUGLAS. S O that they use the commercial banking system
to buy short-time governments on which they collect but the Government does not collect interest on the balance.
Secretary A N D E R S O N . On the deposits.
Senator DOUGLAS. Yes.
Is it not possible for the banks then to use the deposits which the
Government has with them to buy more short-term securities upon
which they will get interest ?
Secretary A N D E R S O N . Well, Senator, it would be rather precarious
business. If I may point out, as an example, whereas on the 30th of
June, as was indicated by our figures, $5,991 billion not subject to call
was in the various banks, on July 31, a month later, this had reduced
51 INCREASE IN PERMANENT
DEBT
LIMITATION
itself to $453 million in all the banks, so the withdrawals during that
month, calls on the banks, were about $5.5 billion.
The time within which the money can remain in the tax and loan
account is normally quite short because of the
Senator DOUGLAS. May I ask you this question: When you pay the
obligations of the Government—salaries, payments on contracts, and
so forth and so on—are the checks drawn on the individual banks or
on the Federal Reserve System ?
Secretary ANDERSON. They are drawn on the Treasury.
Senator DOUGLAS. They are drawn on the Treasury, and how are
they paid out?
Secretary ANDERSON. They are paid out of the Federal Reserve,
which is the fiscal agent of the Treasury.
Senator DOUGLAS. Not on the individual banks ?
Secretary ANDERSON. N O , sir.
Senator DOUGLAS. I have urged for several years, and I think this
is one matter the chairman and I have agreed on, that the Treasury
review this policy of interest-free deposits.
The CHAIRMAN. The Senator does not limit it to one matter.
Senator DOUGLAS. N O , no. I said it is one matter. [Laughter.]
That the Treasury review this policy of interest-free deposits.
I put into the record of the hearings on the debt ceiling increase in
February a study which I made of, I think, all the banks in New York
which are members of the New York Clearinghouse, and I think that
included all banks except 1 or 2 that are outside of the clearinghouse, and I made this study over a period of years, weekly, on their
balances. And I showed, as I remember the figures roughly, subject
to correction, there were some banks where the balances on a permanent deposit never fell below 50 to 60 million dollars.
So that even at low tide, so to speak, even at fiscal low tide, they
were using enormous sums of money deposited on which the Federal
Government got no interest.
I would agree that where the balance fluctuates, that you cannot
expect the same rate of interest, although I do not see any reason why
that could not perhaps be invested in short-time governments so that
the Government could collect the interest instead of the banks.
But on the hard core of deposits, and except for possibly one
sporadic moment when you mentioned the whole reserve went down,
that hard core has been very considerable. I also studied the Philadelphia accounts published by the Philadelphia Clearinghouse, and I
think the same thing is true, substantially, for all the other banks of
the country, and I think you will find we are making interest-free
deposits in enormous quantities to the banks of the country.
I have nothing against the banks. I wTant to make that clear. But
as has been correctly pointed out, we are in a difficult financial situation. Do you not think you had better start collecting some interest
on these interest-free deposits ?
Secretary ANDERSON. Senator Douglas, this is a matter which I
am sure you have given considerable study to. I think one has to
take into consideration the fact that we depend upon the commercial
banks to sell and issue United States savings bonds, we depend on
them to handle the withholding of S Q c i a l security and all these other
things.
52
INCREASE I N PERMANENT DEBT LIMITATION
Senator DOUGLAS. In other words, you will forgive me for interrupting, w^hat you say is this: You say this is justified as an exchange
of gifts. They give something to the Government in unpaid services,
so we will give them interest-free deposits.
Secretary ANDERSON. I think this: One has to weigh the actual
services which we ask of and which the banks do perform for us. I
think also that one has to w^eigh the very important and valuable
asset which wTe have in using those banks and distribution centers for
sales of securities where banks buy and redistribute to very small
institutions all over the country in which w^e would like to see the
securities, where the techniques of the market are such that the very
smallest of the banks do not have a practical and feasible means of
bidding.
There are also very tangible considerations which we have to
give.
There is another thing wre have to consider. Back in the thirties
when banks generally paid interest on their deposits, experience taught
us this was very frequently abused, and if wTe, the Government, were
going to charge interest on a demand deposit in a bank, it would be
difficult to see how others would carry
Senator DOUGLAS. Wa^t a minute. On this question of demand deposit, I am not asking that interest be paid on them. I am simply
saying if w e maintain these balances, wilich to my mind are not necessary, but if you do maintain them, why not put some of the money in
time deposits so that you can collect interest.
I know you cannot collect interest, under the law, on demand deposits, but why can you not under time deposits?
Secretary ANDERSON. SO far as I am advised, Senator—and frankly, I do not have in mind the study the Senator indicates; I will look
it up. I do not have it in mind, but the money which goes into the
tax and loan accounts wTe regard as demand deposits.
Senator DOUGLAS. But I introduced this evidence based on the clearinghouse figures over a period of years. We will get the appropriate
tables and send them to you, which showed that even at the point of
lowest deposits, there were New York banks which, subject to correction, had 50 to 60 million dollars. That wTas the low tide over a whole
period of years, interest-free deposits.
Secretary ANDERSON. Well, I am not familiar with the Senator's
study, but I will get it.
Senator DOUGLAS. They are in the record, and I will ask to have
them put in the record at this point.
(The material referred to follows:)
Weekly statistics
on United States deposits in selected New York banksy January
195S to August
1955
[In thousands]
$17,260
14,186
12,384
12,344
12,621
12,881
13,826
13,098
11,038
7,960
7,072
11,260
9,876
7,994
6,010
4,625
3,106
15,322
15,439
9,336
6,373
6,649
18,610
9,418
7,326
8,919
5,853
11,360
40,049
35,845
32,402
28,035
24,763
23,445
20,875
16,208
13,378
12,065
12,157
10,268
7,710
6,424
7,377
$29,493
23,891
21,775
21,745
23,971
25,328
33,592
35,113
31, 569
23,762
23,937
32,788
35,715
30,271
24,177
18,437
12,458
18,149
17,026
20,078
18,526
11,275
15,832
24,857
27,122
22,998
29,546
83,654
75,225
71,109
63,163
61,554
61,170
56,193
44,485
39,687
40,126
43,860
40,638
31,008
25,651
20,779
$149,462
102,605
94,839
94,861
97,201
97,321
109,788
110,037
100,088
81,252
108,007
243,598
220,306
150,410
104, 271
79,990
59,283
94,982
90,563
80,118
69,560
60,795
90.852
79,977
134.057
155,528
110,753
139,296
378,434
342,872
316,553
277,951
261,248
252,694
252,548
228,800
205, 277
201,967
336,274
314,541
245,181
203,425
161,861
$77,732
61,697
53,588
52,292
59,198
61,631
68,952
67,135
59, £62
43,781
47,0c6
89,650
96,616
76,727
49,373
30,855
20,748
53,761
49,392
42,167
36,381
23,155
14,100
26,657
50,231
63,912
49,666
48.040
109,783
98,942
98.041
92,720
98,048
104,736
111, 138
102,645
91,709
92,112
107,048
105,624
82,069
67,983
68,358
$112,322
69,924
61,126
59,619
73,121
77,695
97,165
95,443
82,609
58,113
67,243
139,2C6
123, 705
85,745
56,133
37,641
25,561
83,335
79, 401
65,338
49,510
25,179
13,159
24,077
70,847
99,763
58,105
79,450
267,421
239,434
229,371
207,298
206,560
206,428
201,503
185,336
164,004
173,162
239,637
213,770
159,787
149,816
126,377
$58,239
47,604
49,241
53,095
57,231
60,223
71,053
73,069
72,574
58,498
53,397
81,981
79.645
65,569
53,859
51,589
38,138
40,528
34,405
42,023
39,997
33,135
43,416
33,190
50,987
62,871
49,451
52,349
128,578
117,459
110,037
100,269
107,028
106,377
99,887
82.646
74,778
81,341
82,627
76,868
59,774
46,031
41,734
$63,318
36,205
34,485
34,659
36,078
37,989
45,102
49,635
43,584
31,101
42,849
111,981
94,679
64,141
40,008
31,179
21,914
30,484
24,315
24,143
25,151
14,311
8,579
15,302
46,002
68,854
40,460
39,828
126,972
114.869
107,376
94,604
92,537
95,648
90,993
76,415
64,984
86,930
93,047
82,318
60,714
52,967
48,285
$16,229
14,376
13,723
14,116
15,674
16,914
21,615
22,412
20,940
1,649
17,144
22,150
21,395
18,704
18,250
16,684
11,256
11,681
10,014
12,234
11,804
8,047
5,595
8,352
13,009
13,525
12,045
13,206
25,991
23,977
22,833
21,970
24,155
24,942
24,019
19,950
19,821
21,067
23,181
24,030
19,566
16,084
12,924
$39,341
23,851
20,376
20,681
26,648
27,999
32,293
31,071
26,599
18,268
21,228
47, 772
45,049
31,292
18,859
11,454
8,477
25,992
22,672
27,429
26, 651
18,704
27,032
20,819
44,927
41,605
23,138
69,311
214,199
193,471
179,116
154,903
137,490
128, 853
118,167
103,502
97,121
85,114
83,767
81,117
59, 702
53,981
45,699
$61,773
45, 512
39,692
38,806
43,455
45,866
51,309
49.671
43,488
32,061
35,184
65,506
58,350
42,307
29,813
21,106
14,309
22.377
19,691
20,718
17,535
10,576
6,012
12, 749
29,962
38,409
25,871
39,558
137, 657
124,200
117,213
103,153
96,965
100, 425
103, 559
88,737
77,635
75,001
74,689
68,320
51, 485
37,736
29.672
Nov.
4
10
18
24
Dec.
2i
9
16
23
30
1954.
Jan.
6
13
20
27
3
Feb.
10
17
24
Mar. 3
10
17
24
31
Apr. 7
14
21
May
28
5
12
June
19
26
2
16
July
23
30
7
14
21
Aug.
28
4
11
18
Sept.
25
1
8
6,771
19, 735
28,486
25, 694
19, 496
34, 393
54, 750
53, 655
151,439
168, 788
207, 475
195, 267
77, 384
87, 737
103, 270
96,411
46,239
58, 746
74,850
73,217
12,609
15,054
21, 218
21, 945
48,138
63,429
81,330
73,472
31,716
45, 672
64, 237
60, 700
155,440
191,289
244,679
223, 978
13,579
8, 582
8, 056
8, 263
32,
24,
27,
27,
512
478
472
888
145, 541
115, 253
115, 650
120, 833
65, 228
48, 988
50, 726
51, 610
52,488
37,555
42, 664
44,208
16.051
14,159
16.242
17, 814
43, 501
29,888
29, 732
29,414
37, 650
29,117
31,344
32,198
144, 057
104, 411
104, 793
107,070
7,438
4, 784
4,642
4, 570
5,184
5,648
6,561
7, 364
6,196
4,170
5,430
8,962
10,445
9,903
6, 874
5,779
8,941
12,695
8,112
20,388
28,014
23,637
15,889
9,469
7,087
9,121
10,277
8, 516
6, 903
5, 588
10, 545
13, 594
14,084
13,106
11,260
9,233
24, 662
16,829
16,865
17,081
18.273
23,945
26,878
24,330
17,218
21, 751
34,110
38, 727
39,778
28.274
22,850
19,180
14,932
9,416
29,837
41,385
37,000
26,931
20,356
23,643
33,434
35, 721
30,050
24, 776
20,148
29,650
34,157
37,627
37, 858
34, 674
29,905
125,234
96,953
95,798
95,904
103,658
97,176
107,186
112,382
117,011
93,644
100,678
157,923
167,856
173,073
119,824
101,841
92, 532
94, 780
79,827
128, 502
158,283
158,625
132,202
106,683
123,619
196,364
216, 451
170,060
133, 547
115, 647
166, 454
196,174
197, 377
182,044
168,168
154, 499
50, 800
35,066
34,842
34,748
46,383
46, 596
55,307
57,124
60,457
46,364
54,545
78,193
87,942
91,855
66,481
53,995
76, 581
112,394
73,713
92, 754
99,306
89,875
67,215
47,917
51,381
86,029
94, 891
72,274
54, 477
44, 562
74, 805
86, 731
88, 853
83, 442
76, 815
68,340
41,821
29,251
30,042
31,9T
32,969
32,030
38,189
44,712
43,214
33,492
36,894
92,040
96,362
86,210
47,01
38,812
35,145
33,091
24,224
42,302
54,892
51,878
39,390
26,163
57,874
90,924
93, 826
64,853
48, 358
41, 293
53, 950
59,949
61, 507
62,160
58, 342
54,173
16.295
11,858
12,513
13,037
13,121
12,981
16,546
18,320
21.296
17,870
19.243
25,132
24,952
24, 718
19,712
16,503
14,570
16,129
13,153
20,823
23,477
21,140
16,352
13,040
12,940
17,318
20,365
19,073
17,222
14, 516
15, 991
15,368
19,435
21,082
20,458
18,124
26,303
16,597
16,363
17,067
22,898
24,377
28, 745
29,979
28,224
19,096
21,183
36,812
35,974
34,545
21, 586
16,153
42,986
86,725
58, 731
66,085
69,556
59,840
41,931
26, 720
34,131
47,831
50,885
37,022
26, 742
22, 894
47,150
58,080
56, 478
51, 647
45,402
38, 477
37,456
27,872
27,915
27,821
35,035
34,685
40,645
42,032
38,506
27,191
32,227
53,399
55,521
50,985
31,592
24,694
22,732
26, 584
20,116
45,664
58,827
58,138
45,348
33,340
32,949
50,454
54,998
43, 333
34,490
28,274
51,425
61, 878
64,008
59, 456
55, 982
52, 214
100,899
68,557
67,442
68,806
88,858
88,226
107,015
112,667
104,876
74, 749
88,199
171, 701
187,053
178,727
108,866
83,886
77,307
85, 719
59,377
96,167
175,581
160, 712
118,863
83,028
111,683
197,077
208,387
145, 476
100, 495
82,211
167, 507
212, 691
210, 760
193, 582
172, 016
147, 853
6,900
7, 946
7, 978
22,221
30,470
27, 986
24, 807
23,342
25, 877
26, 729
61,350
79, 668
70, 731
62,277
128, 282
128, 537
132, 760
247, 408
288,163
261, 580
236,888
52, 542
58, 759
58, 816
119,322
142,or"
148, 638
131,237
38,9,
43, 559
44, 705
78,985
92,144
82,851
75,193
15, 417
17, 691
19,027
26,042
27, 957
82, 779
72, 468
28, 572
29,964
29, 405
73, 781
95, 683
72, 413
63, 467
40,683
40,806
41,103
72,145
53, 847
216, 573
192, 697
110,108
110,906
113. 679
210, 449
248, 021
167, 805
146, 580
18,628
1953
15
22
29
Oct,.
6
13
20
27
$ee footnotes at end of tabje.
3
O
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H
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Ui
H
*
H
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W
w
h3
H
>
O
3
Weekly statistics
on United States deposits in selected New York banks, January
1053 to August,
1055—Continued
[In thousands]
$21,822
20,275
27, 343
29,124
26, 232
21, 673
17, 078
13, 970
11,812
9, 028
6, 096
4,960
8, 789
8, 693
7,992
8,130
8,497
7, 368
5, 365
4,491
' 6,640
5,282
12, 551
12, 380
10, 378
9, 850
11,361
10, 840
13,329
17, 536
15, 098
10, 924
6, 276
5, 953
7, 867
8, 040
5,393
8.317
14,032
11,871
8,852
1
3
$58,113
55,444
58, 773
57, 096
52, 768
45, 844
38,490
36,151
31,969
$225, 601
212, 470
238, 404
229, 230
214, 208
193, 649
166, 450
146, 209
136,125
$131,311
128, 723
134, 442
126,883
122.009
110,386
94, 881
88, 008
77,907
$172,277
166,133
179,174
165,048
150,051
129, 575
105,013
88,441
74, 339
$72,845
70, 731
79,132
78,959
77,010
71, 743
63, 248
69,450
54,433
$69,381
67,269
66,310
64,992
62,165
65, 618
44, 765
45, 317
41,807
26, 721
18, 037
13, 703
14, 458
17, 790
132, 091
103,070
86, 393
95, 012
111,819
115,839
123,174
126,184
128, 696
119,467
114, 501
157, 674
154,059
325,107
314, 838
261, 624
246,127
262, 786
248,825
232, 058
213, 807
198,317
174,017
134, 855
151,084
198, 804
223, 660
160, 504
227. 773
293,095
268, 798
222, 503
75, 524
54,395
39, 083
42, 336
52,018
55,905
62, 436
71, 690
72, 329
66,878
61, 249
80, 332
69,931
142, 665
130, 551
105, 838
101,066
113. 952
109, 458
104, 096
100,432
95, 465
80, 779
60,639
72, 421
82, 571
98,840
76, 765
86, 736
105, 874
107,108
93,070
67,806
47,134
33, 025
60,264
78,985
82, 863
83, 311
80, 277
78,672
64, 272
56, 318
74, 676
63, 387
199, 439
197, 743
157, 660
144, 631
163,623
155,929
155,909
158, 875
139, 040
106, 941
67,051
75, 998
104, 514
116,158
78,125
122, 415
164. 017
155, 373
130, 289
49, 926
36, 896
29, 369
34,839
37, 709
38, 571
44, 296
49, 024
51, 456
47, 990
46, 697
58, 346
48,921
84, 811
77, 635
• 64,184
61,490
67,215
65,446
68, 370
67,114
66,360
59,156
45, 752
51,999
38, 202
66, 685
53, 207
63,233
70, 787
58, 202
52,887
42,345
30, 446
23,848
27,112
32, 539
35,006
35, 663
42, 657
42, 679
35,159
29,674
48, 945
42, 986
88, 630
82, 866
70, 339
69, 330
79, 975
78, 783
75, 628
67,700
60,005
56, 618
34, 594
41,177
61,321
65, 574
43,156
50, 866
101, 910
90, 545
75,629
18, 221
21, 863
25,590
24, 515
19, 597
19, 200
31, 053
27, 330
(3)
N o listing was made for the week due to newspaper strike.
Merged with bank D .
3 Merged with bank K.
* Merged with bank C.
(2)
$72, 242
70,660
82,679
78,806
7J, 038
60, 363
48, 310
40,560
33,800
$60,786
68,711
68,252
66,417
64, 725
61,142
61,830
46,456
40,774
27, 841
18,197
12,189
22,991
29,688
31,404
32, 848
30, 713
29,349
24,700
22, 714
30, 013
39, 563
88,690
85, 089
(<)
34, 638
23, 419
16,865
26,694
32, 214
33,160
35,680
37, 548
40,056
35, 614
34, 743
46,313
113, 268
138, 610
153, 024
68, 420
64,154
71, 542
67,867
57, 667
44,264
44, 765
41, 418
31, 682
35,583
45,407
55, 602
39, 563
49,180
58, 593
54, 512
45.404
Source: N e w York Times.
OS
Weekly statistics
on United States deposits
in selected New York banks, Aug. 17, 1955, through Sept. 5, 1956
[In thousands!
Total
M
$8, 798
8, 558
8, 259
6, 937
4, 876
4,053
4, 393
4,286
7, 663
13, 414
11, 562
$203,322
186, 584
180, 910
174, 489
133, 452
112,026
130,042
152, 699
167, 616
259,348
222, 682
$92, 222
90,008
88, 792
81, 805
59, 281
55,068
67,164
84, 558
83,017
114, 781
96,152
$120, 242
107,297
103,127
94, 554
64, 419
51, 507
64,247
72,129
80, 770
147, 542
124, 284
$56, 574
57, 869
59, 415
57, 687
44, 829
41, 264
50,994
57, 386
54,106
71,213
59, 312
$66, 581
63,165
61, 659
59,210
40, 916
33, 742
45,061
53,116
57, 656
94, 733
81.289
$45, 623
43, 486
44, 538
47,390
36,180
30, 717
37, 649
40,144
38, 372
55, 765
46, 785
$225,177
210,197
202,180
180,015
126, 677
101, 521
130, 477
146, 469
146, 602
230, 475
195,284
$102, 999
96, 291
92, 907
80, 966
56,188
48, 439
60,271
66, 500
74, 855
134, 715
113, 534
$17, 532
16, 877
17, 670
16, 329
12, 455
12,273
12, 583
13,213
14,179
25,114
21,607
$35, 614
36,056
34, 283
28,117
18, 614
17, 629
21, 609
22,135
24, 878
49, 962
45, 675
$71,227
57, 540
54,370
50, 797
35, 003
17, 462
22, 562
. 29,469
45,014
100, 758
85, 322
$4,858
3, 789
3, 568
2, 814
1,788
1,213
1,202
1,105
3, 569
11, 469
9, 863
$5, 303
4, 606
4, 389
3, 488
2, 679
2,375
2, 445
2,253
3, 396
8, 227
7,094
$3, 834
2, 982
2, 957
2,508
1, 652
872
855
857
2, 571
8,128
6,989
$1,059,906
985,305
959,024
887,106
639,009
530.161
651, 554
746, 319
804,264
1, 325, 644
1,127, 434
9, 927
7,866
7, 441
8,582
7, 785
5, 521
3, 410
33,199
31,050
209, 751
185,882
184,428
186,954
172, 306
152,818
114, 882
159, 411
150, 806
92, 667
84, 205
83, 515
88, 261
81, 844
75, 259
54, 352
52, 586
53, 679
121, 685
109, 276
104,829
104, 466
92, 227
69,058
40, 756
165, 833
154,894
57, 457
50, 340
55, 466
60, 797
58,044
51,950
39, 721
42, 922
43,304
72,136
60, 415
53, 869
58, 853
54, 419
45,127
26, 904
46, 834
41,180
41, 945
44, 229
42,007
39, 674
27, 666
36,881
36,005
183, 520
159, 267
161, 943
168,074
153, 840
129, 783
85, 493
86,106
87, 355
107, 908
94, 769
92, 373
94,125
84, 251
63,156
37, 869
31, 518
33,073
19, 634
16,046
16, 547
17,326
16,005
7, 767
23, 766
22,113
41, 321
33, 669
33, 531
34, 613
30, 745
24, 505
15, 591
15, 858
15, 767
77,358
64,424
58, 206
54, 675
47,109
35, 511
19, 528
50, 786
46, 870
7,998
5, 771
4, 467
4,103
3,540
2, 234
1,049
995
5, 859
4, 454
4,359
4, 271
3, 873
3,164
2,309
4, 466
4,168
5, 664
4,063
3,243
2,838
2,407
1, 480
635
3, 268
2,948
1, 059, 710
921, 627
906.162
932,167
850,402
711, 282
477,932
729, 816
708,320
22, 713
12, 231
3, 278
1,941
2, 597
2, 952
2, 523
3,996
3, 881
2,985
3, 783
8, 602
10, 692
9, 433
6, 289
5,585
6,050
156,116
113, 659
78, 923
- 62,845
73, 719
86, 439
81,090
101,344
114, 949
123, 295
90,022
89, 768
275, 236
263, 848
194,415
168,113
166,357
63, 427
46, 389
28,538
23, 620
35,088
42,874
40, 756
60,582
67, 791
69,290
45, 731
88,949
121, 762
116, 514
83,839
71,910
73,316
147,143
75,378
32, 361
21, 444
33, 212
46,178
40,343
52, 659
57,948
57, 572
32, 554
89, 560
138, 917
126, 492
87,030
72,117
73,551
44, 315
28, 447
20, 417
17,580
31, 363
23, 792
17.290
17,040
21, 562
24, 386
17, 911
31, 807
36, 617
35, 316
19, 375
58, 676
92, 685
73, 064
36, 859
21, 414
12,104
9, 715
15, 273
19,370
17, 524
27, 555
32,153
37,616
26, 278
58, 358
85, 868
74, 827
50,938
44,080
43, 772
95, 915
64, 236
42, 908
36, 538
57, 427
70, 301
68,994
101, 817
112, 292
108,150
69, 477
165,168
264, 696
250, 689
170, 92t>
142,220
144,415
38, 532
26, 662
16, 968
9, 695
3, 550
2, 679
4,073
5,165
6,165
9,122
9,082
8, 209
6,088
14, 869
19, 521
19,035
12,983
11,135
11,591
14, 956
7,200
3, 534
2, 637
4,316
6, 906
9, 641
17, 808
19, 696
18, 928
12,000
34, 201
50, 884
44, 909
28, 528
22, 647
.22,728
45, 579
26, 815
12, 998
8,194
13, 526
19,941
650
410
169
119
544
1,209
1,026
687
598
461
229
446
632
560
414
345
346
3, 205
1,787
505
295
586
1,078
1,807
2,341
2,193
1,840
1,755
3,037
3,460
3, 753
2,652
2,159
2,572
2,141
1,133
238
96172
257
180
110
400
536
283
232
201
321
285
239
239
719,882
459, 248
274, 419
217,953v
306,012
382,446
365,062
524,070
585,191
596, 455
397, 461
910,161
1,361,049
1, 266,674
885, 507
749, 834
758,626
21, 668
25, 268
29,159
45, 374
51,078
51. 392
38, 751
68,009
85, 977
87, 572
50, 458
43, 764
44,996
22, 221
25, 400
61, 861
53,007
57; 600
17, 606
13, 210
22, 249
30,122
32, 237
50, 530
54, 870
56,124
36, 337
96,013
152, 383
134,173
;
89, 379
74, 516
73,938
12,022
15, 706
18, 338
21, 643
24, 741
14, 798
34, 273
58,135
61, 484
45, 510
37, 997
37,155
Weekly statistics
on United States deposits in selected New York banks, Aug. 17, 1955, through Sept. 5,
1956—Continued
[In thousandsl
M
K
Date
May
2
9
16
23
29
June 6
13
20
27
July 3
11
18
25
Aug. 1
8
15
22
29
Sept. 5
$7,204
7,146
37,490
8, 570
7, 995
8,168
6, 770
6,889
7,917
10, 724
8,602
7, 588
6,362
6,139
5, 829
7, 910
23,209
21,243
17, 583
$211, 848
211, 294
203,094
206, 321
207, 349
180, 388
128,071
120, 607
201, 316
236,989
190, 865
155,342
128, 259
123, 232
111,421
146,-816
286,716
258, 593
233, 303
$99,153
100, 860
104, 211
115,909
116, 518
98,781
66, 861
68, 744
92, 350
106,906
87, 071
69, 361
55, 291
58,441
58,435
75, 563
161, 845
145, 795
134,116
$109, 888
114, 211
113, 642
120, 624
119, 627
93,456
58, 886
58,130
105,265
122,041
96, 338
75, 901
58, 298
55, 526
55, 994
73,641
166, 797
147, 887
134,137
$56, 640
56,933
64, 015
73,041
74, 607
63,606
46,169
47, 740
61,007
69, 568
55,033
46, 559
37, 344
34,432
30, 603
47, 076
103, 963
94, 845
86, 956
$75, 034
75,763
71,099
78,471
78,833
59, 686
36, 536
42, 372
97, 284
102, 008
72, 908
58,942
49,361
42, 643
33, 260
35, 070
83, 405
75, 470
70,473
$59, 772
60,125
59, 523
62, 511
62,041
54,076
36, 560
36,403
62, 777
73, 534
56, 337
43, 649
34,150
33, 023
29, 513
36, 944
74, 835
66, 202
66,503
$194, 246
197, 276
204,163
218, 948
220,463
175, 610
113, 646
116,417
200, 326
221, 850
170, 335
135, 209
105,930
101, 723
95, 259
136,484
319,142
285, 691
251, 077
$96, 953
97, 787
97, 997
105, 442
107, 361
85.480
56, 826
57, 941
93, 750
108, 566
82, 876
63, 850
52, 393
48,334
41.481
57, 851
140,098
125,029
110,894
$16, 435
17, 894
19,455
20, 706
19, 208
18, 210
13, 756
14, 617
15, 582
16, 692
12, 099
10, 358
8, 736
8,544
8,005
11, 391
27,101
25, 035
24,266
Total
$30,489
30, 318
32, 770
37, 624
37, 375
27, 286
16, 676
19,159
33, 893
37, 240
28,095
21,402
16, 446
16, 516
14, 758
22, 624
57,460
51, 314
44,172
$54, Oil
57,162
51, 815
48,409
47, 498
40,844
26, 065
18, 455
32, 506
44, 514
42, 349
32,464
24, 235
24, 369
24, 692
33, 481
83, 025
72, 892
65, 811
$356
337
319
298
268
248
227
533
1, 369
2,003
1, 717
1,440
1,129
1, 313
1, 610
3, 825
13,485
12, 074
9, 771
$3, 285
3,285
3,948
4, 306
3, 966
3, 364
2, 673
3, 062
2,947
2,807
1,981
1,576
1,278
1,314
1, 425
3, 325
8, 649
7, 813
6, 376
$252
209
184
167
149
121
75
55
38
34
23
17
14
70
130
547
2,371
2,127
1, 720
$1, 015, 566
1, 030, 600
1, 033, 725
1,101, 347
1,103, 258
909, 324
609, 797
611,124
1, 008, 327
1,155,476
906,629
723, 658
579,226
555,629
512,415
692, 548
1, 552,101
1, 392, 010
1, 257,158
Source: New York Times.
>
i—i
O
3
Or
Oi
Weekly statistics
on United States deposits
00
in selected New York banks, Sept. 5, 1956, through May 1, 1957
[In thousands]
D
$17, 583
10,494
8,912
9, 389
8, 950
6, 305
9,027
22, 866
17, 348
13, 825
9, 813
15, 774
15, 698
10,695
4, 437
30,064
48, 826
39,308
19,626
3,448
1,211
1,175
2,079
2,102
3, 239
3,423
3,422
2, 522
5, 756
7,356
18,224
12,983
9, 428
8,091
8,010
1
$251,077
167, 275
145,134
171,917
195, 223
144, 241
100, 986
65, 772
64, 800
72, 999
63, 705
97,500
90, 360
93, 481
64,106
71,339
86,695
$233, 303
166, 614
145, 577
163, 659
185, 042
144, 966
108, 924
76, 436
78, 323
90,622
82, 526
96, 338
83.124
88,098
69, 614
149, 027
214, 364
$134,116
90, 939
79, 411
95, 262
79,388
53,038
30,071
20,691
25,813
54,868
27, 721
62,620
69,243
76,454
49,127
122,477
163,181
233,124
151,269
111,486
104,275
127,492
186, 778
124, 568
68,842
51, 203
50,063
76, 771
55.125
71,223
71,048
89,808
68,570
123, 738
162,671
234,991
168,363
131,587
117,119
135,143
As reported in source.
M
$86, 956
62, 514
61, 607
70, 869
76, 783
56, 816
41, 206
27, 965
26, 967
27, 412
26, 594
56, 961
58, 872
51,199
32, 285
34, 271
39, 361
$70, 473
49, 424
41,172
51, 837
S3, 838
86, 923
114,149
127, 772
105, 594
74,102
130, 629
134, 367
111,579
63, 735
47, 366
52. 544
$134,137
90, 306
72, 308
85, 486
95. 375
70,093
47, 820
30, 558
32, 871
47,007
38, 417
50,098
42, 528
43,007
25, 911
88, 771
142, 235
53,908
42,778
24,851
12,371
14,522
24.011
18,775
41, 732
45,458
51,376
32,396
75,383
93,678
175,339
119, 280
86,671
76.012
85,200
116,322
63,442
21,649
11,600
10,690
"37,488
16,306
32,033
35, 745
41,408
23,957
62,898
89, 572
173,612
122,887
88,951
75,779
87,725
36, 740
24,834
14,652
10,718
12, 764
19,030
14,287
31,671
33,364
32,491
23,384
45,878
50,371
102,708
76,071
58,144
51,968
55,466
112, 628
Detail does not add to total.
49, 460
46, 378
62, 899
55,123
44, 252
29, 230
38, 441
39,434
37,005
22,186
18. 814
24, 796
$66, 503
50, 753
45, 354
52, 467
57, 947
42, 854
65, 925
148,071
126,396
95,333
01, 309
163, 387
176, 308
128, 504
55,141
25,146
23, 754
$110, 894
73, 242
63, 555
74, 927
83, 977
62, 700
42,603
27, 877
28, 336
38, 354
35,685
114, 531
125, 315
92,092
41, 387
30,327
35, 940
$24, 266
16, 624
16, 684
17, 710
17, 728
13, 255
10, 922
9, 539
7, 815
9, 944
9, 988
36, 487
40, 224
27, 944
11, 200
18, 757
25, 494
$44,172
27, 913
27,087
32, 357
36,123
25, 298
26, 489
43, 649
37, 706
31,170
21, 851
62, 419
66, 383
49, 340
21,186
57, 715
94, 706
$65, 811
43, 891
28, 639
31,261
37, 802
29, 687
26, 834
36, 729
31, 815
31,001
22, 015
60, 925
66,168
48, 648
20, 821
7, 473
6, 992
23, 748
16,401
8,801
9,828
8,387
15,984
6,702
15,403
21,84Q
27,715
15,862
59,427
92,798
129,647
84,287
62,678
59,068
60,739
24,736
17,117
8,801
5,241
6,396
27, 723
13,200
21, 288
21,223
30,754
20,433
46,281
63,876
95,515
65,235
47,611
40, 790
49,273
37,187
27,009
14,358
8,838
7,319
23,353
13,633
32,439
37.039
36,689
20,599
52,908
69,871
146,259
103, 795
74.040
64,389
70,934
21,962
11,694
2, 757
1,916
1,919
6,262
6,465
8,799
8,021
6,375
3,382
11,604
13,540
21,776
14,059
10,515
9,426
11,477
74,466
33,900
6,700
5,362
6,335
10,494
4,271
15,038
15,894
11,546
5,178
24.938
34,038
58.939
38,256
26,974
23,253
27,205
10,668
12,321
8,278
3,689
.3,031
17,067
7,239
6,955
6,898
15,921
11,335
13,859
23,007
43,298
31,875
23,214
19,586
26,323
62, 621
Source: N e w York Times,
Total
Q
N
$9, 771
5, 724
3, 789
3, 536
3, 329
2, 284
6, 581
30,104
14, 568
9, 894
6,209
4, 058
2, 580
1,511
564
122
65
99
102
130
2,629
2,401
2, 574
2,291
1,346
325
518
607
628
441
365
328
327
$6,376
4,240
4, 425
4, 828
4, 569
3,136
2, 209
1,473
1,628
2, 935
3,118
3, 612
2, 958
2,098
1,082
1,574
1,842
1,742
1,079
381
378
813
1,793
1,442
2,613
2,307
1,403
632
3,625
4,445
5, 564
3,692
2,606
2,208
2,599
$1, 720
999
662
639
601
407
282
186
115
76
47
30
20
12
15
13
12
10
7
2
81
8,050
7,012
5,172
4,402
4,429
$1, 257.158
860, 952
744, 316
866,144
978, 698
735, 340
623.109
i 718, 273
651, 583
620, 418
484,609
931,190
944,339
785, 213
433,670
580, 779
797, 629
707,032
447,830
213,690
143,149
149, 358
329, 553
189,670
347,628
373,795
426,709
277, 703
649,291
869,092
1,447,674
999, 505
739,442
656,694
752,342
59 INCREASE IN PERMANENT DEBT LIMITATION
United States deposits in New York banks, January 1953 to May i, 1957;
smallest amount of United States deposit in individual bank during period
for which information is listed
Bank
Smallest
amount
United States
had on deposit in period
for which information is
listed
A
B
$1,175,000
9,416,000
C
59, 283,000
D
14,100,000
E
F
G
H
10,690,000
10, 718,000
6, 702,000
1, 649,000
X
8,477,0C0
Comment
Before merger with bank
K.
Before merger with bank
Before merger with bank
H.
Before merger with bank
D.
Before merger with bank
C.
Bank
Smallest
amount
United States
had on deposit in period
for which information is
listed
J
K
L
M
N
O
P
Q
R
B and K .
H and D_
C and
$5,241,000
43,633,000
7,319,000
1,916,000
2, 637,000
3,031,000
65,000
295,000
1,000
20, 691,000
12,371,000
50,063,000
TotaL._
269, 473,000
Comment
Before merger with bank
B.
Postmerger.
Do.
Do.
Senator DOUGLAS. I went through the Philadelphia situation. I
have it in my files, the Philadelphia figure. I am ready, though I have
no private resources, to compile clearinghouse figures for every major
city in the country, but I beg of you to help me do it, and I would ask
that you submit clearinghouse figures of Government deposits in the
major cities of the country, of individual banks in the major cities of
the country, over a period of the last 8 years. Do you think that can be
done?
Secretary A N D E R S O N . Frankly, I do not know what the problem involved would be. I would like to consult with the staff on this.
Senator DOUGLAS. May I ask some more questions.
I agree that in view of the military situation, the financial problem
of the Government is going to be very difficult. Do you not think
that before we start increasing taxes we should try to plug loopholes
in the existing tax system ?
Secretary A N D E R S O N . I think, sir, that the simplification and equity
of the tax systems
Senator DOUGLAS. Well, the plugging of loopholes such as this:
Do you not think it is a condition of injustice when people wTith equal
incomes pay unequal amounts of taxes ?
Secretary A N D E R S O N . Well, I think, Senator, one would have to
qualify that by inquiring why the unequal amount is paid.
Senator DOUGLAS. I know; but as a general principle, people with
equal amounts of income should pay equal amounts of taxes. I am not
going into progressive proportional or regressive taxation, but generally there should not be discrimination between people of a given
income class.
Secretary A N D E R S O N . Yes.
Senator DOUGLAS. All right.
I have been studying this matter of loopholes in the Federal tax
structure for several years, and I must say that I am disappointed in
the attitude of the Treasury.
•
For instance, take the oil and gas depletion allowance which, on
top of permitting intangible drilling and development costs to be
60
INCREASE I N PERMANENT DEBT LIMITATION
charged off in the first year—the first year—which is a 100 percent
depreciation also permits a 27% percent deduction of gross income
up to 50 percent of net.
Now this results, as studies before our Joint Economic Committee
have shown, in an average tax rate to oil and gas companies of approximately 17 percent of their profits as compared to a normal tax
rate of 52 percent. And it results in great loss of revenue to the
Federal Government.
Some of us have been trying to plug that gap. In the Truman
administration the Treasury was on our side. Since then, the Treasury
has been opposed to us. We passed an amendment the other night on
the floor of the Senate and got 31 votes, but it was opposed in committee by the Treasury.
Do you not think that change should be made ?
Secretary ANDERSON. I know how the Senator feels about the depletion issue. I must very frankly say that my own studies over the
vekrs have led me to conclude that if we are going to have and develop an adequate amount of petroleum resources in a nation in which
the very nature of the business is as hazardous as it is, that the depletion allowance has in practice worked out fairly well.
Senator DOUGLAS. Even though it has resulted in great tax favors
to a particular group ?
Secretary ANDERSON. Well, I think, sir, that one must estimate the
other side, to point out that over a number of years the total amount of
new reserves that were discovered in the country as compared to the
increase in our utilization of them, indicates that there were slight
additions.
Senator DOUGLAS. I am very glad that fact was brought out for the
record, because again and again we hear that discovery is running behind use.
As a matter of fact, the ratio has been approximately constant, and
except for the last few months
Secretary ANDERSON. A S I recall, sir, for about the last 2 years or 3
years, I am not sure whether it is 2 or 3, the rate of discovery has been
less.
Senator DOUGLAS. That is merely one. I will say that figures drawn
from statistics of income illustrate that the total depletion allowances amount to $2.9 billion.
Now the Senator from Illinois is not proposing that the allowance
be completely eliminated; certainly not. He is proposing, however,
that some of the excrescences be reduced, because he believes—I notonly believe, but estimates have been made by the Treasury itself—
that we could save $300 million to $325 million a year in this way.
What does the Secretary of the Treasury believe about the failure
of our tax system to withhold taxes at the source on dividends and interest, although there is withholding at the source on wages and
salaries ?
These are roughly the facts: that, as you know, the recipient of
dividends and interest makes his return and pays his tax. There is
no withholding by the corporations, or bodies that distribute the interest and dividends, and the figures show that the amount of dividends and interest reported is very much less than the amount of
dividends and interest paid.
61 INCREASE I N P E R M A N E N T
DEBT
LIMITATION
The last figures I have seen on dividends is that there was a gap
of about $114 billion.
Even if we assume that $ 2 5 0 million of this consists of dividends
received by people in lower income groups who would be exempt, and
so forth, which I think is a most liberal estimate because you do not
get great holdings of stock by low-income people, that would leave a
billion dollars income evasion on which the taxes would be at least
$ 2 0 0 million a year, and probably more than that, because the evaders
would tend to be in the upper-income brackets. So I think the loss
from this source is around $ 3 0 0 million a year.
Do you not think that should be allowed ?
Secretary ANDERSON. Senator Douglas, I would think—and I would
stand corrected if I am in error—I think we have not taken an adverse
position. I think I simply want to point out that it is a difficult and
complex allowance to be made, because some of the dividends and interest would be paid to persons wTho have no incomes, and you would
sort of base it on the law of averages, but I think what we have done
is to point out the difficulty of not taking such a step.
Senator DOUGLAS. There is a loss of money here by the Government.
Secretary ANDERSON. Yes.
Senator DOUGLAS. Instead of multiplying difficulties, why do you not
solve the problem ?
Secretary ANDERSON. I think this is worthy of study.
Senator DOUGLAS. I know while the withholding of interest is more
difficult because of the coupon problem, I wish you would also apply
yourself to that problem.
Senator CARLSON. Does this $ 3 0 0 million or $ 4 0 0 million he mentions include these coupons or interest ?
Senator DOUGLAS. I was speaking purely of dividends.
Senator CARLSON. Well, the dividends, then, assuming that a nonprofit organization receives dividends and other groups which are
exempt from taxes, would the Senator include all those in his idea?
I just ask.
Senator DOUGLAS. Some income of the nonprofit corporations should
certainly be taxed. They may be exempt from general property taxes,
but are they exempt from taxation on income from all investments ?
Senator CARLSON. Some schools are, are they not, and some
churches ?
Senator DOUGLAS. A few, perhaps.
I wish the Treasury would work on this, because we have got to
deal with these things. I presented evidence like this the other night
and was shouted down.
I know there is a difference between the Treasury and the Senator
from Illinois on the question of the so-called dividend credit, which
was sponsored and indeed enacted at the behest of your predecessor,
George M. Humphrey, This provides that the first $50 per year of
income from dividends is to be excluded from gross income, and therefore is not taxable.
It also provides that 4 percent of dividends received by an individual
are to be deducted directly from taxes, not from taxable income, b ^
directly fromtaxe^.
In other words, that income from ownership of stock is taxed at a
lower rate than income from effort.
62
INCREASE I N PERMANENT DEBT LIMITATION
Let me say I think this is morally unjustifiable. Even if you waive
the question of whether dividends earned and other unearned income
and say those should be taxed at an equal or greater note rate, I see
nothing to justify a lower rate of taxation on ownership than on effort.
And this costs the Government between $300 million and $400 million
a year.
I know it is humiliating to have to go back on Mr. Humphrey's
baby, but these three things that I have mentioned come to a billion
dollars a year, and there are others, Mr. Secretary.
Have you examined the abuses of capital gains or charging off what
is in reality income to capital gains and thereby paying a maximum
tax rate of 25 percent instead of a higher note ? Have you considered
the question of business expenses ?
I am told the night clubs of New York are largely supported by the
tax-free deductions of their entertainment; that the high, speculative
prices for "My Fair Lady," which I am told went up to $80 a seat,
occurred because business firms can invite guests and customers in, pay
for the seats, and charge them off as tax-free expenses; that the suites
of rooms which executives retain on a permanent basis down here
in Washington can be charged as a business expense.
I know a man who I think has an apartment in New York, an apartment in London, an apartment in Paris, which are all, I am quite sure,
deducted as business expenses.
Now, have you really considered those questions? Are you really
ready to act on those issues, Mr. Secretary ?
Secretary ANDERSON. Well, certainly, Senator, so far as the abuses
of charging off business expenses, that is something, I think, all of us
do the best efforts we can to find how we can eliminate it from the
standpoint of corporate tax. As to what the Senator has had to say
about the dividend exclusion and credit, I am sure he will appreciate
that the corporations are first subject to tax before dividends and the
individuals receiving dividends are again subject to a graduated tax.
Senator DOUGLAS. I do not want to keep the Secretary too long.
I will merely ask him to study abuses in corporate spin-offs and splitoffs and stock options, and so forth, and if we are going in for a period of austerity, which we may have to go in for in view of the threat,
from the Communist world, we can only do so if special privileges
are abolished.
If we have great special privileges for some at a time others are
heavily taxed, then we will have a system of injustice which will rankle
and which will make it very difficult for us to carry on.
Mr. Secretary, I apologize for taking such a great length of time,
but we have seldom had so amiable a Secretary of the Treasury before
us, and so I thought perhaps I should take advantage of your kindness.
I hope you will not resent the time that I have taken.
Secretary ANDERSON. Senator, I will always be glad to consider
any problem you have in mind.
The C H A I R M A N . Any further questions ?
Senator B E N N E T T . None, Mr. Chairman. I would just say I realize it is 1 o'clock, and I am not one of those who feels that because
everybody else questions at length, I should question at length. I have
no questions.
63 INCREASE I N P E R M A N E N T
DEBT
LIMITATION
The C H A I R M A N . I would like to say to the Secretary he has given
his usual frank and splendid testimony. Thank you very much.
Secretary ANDERSON. Thank you, Mr. Chairman.
The C H A I R M A N . Mr. Budget Director, I have a few questions, not
many, to ask you.
M r . STANS. Y e s , s i r .
The C H A I R M A N . I sent
you a memorandum showing the budget submitted in January for this fiscal year and asking for current estimates.
If you can read those we would like to get the revised estimates on the
J anuary budget for spending.
On national security, what is the budget picture there ?
Mr. S T A N S . Senator, the January budget showed expenditures of
$ 4 2 . 8 billion; and the present revised estimate that is comparable to
that is a range between $ 4 3 . 3 billion and $ 4 3 . 5 billion.
The C H A I R M A N . Some of this information has been given, but this
is in more detail.
Then it was approximately $4 billion more for the military functions ?
M r . STANS. NO, s i r .
The C H A I R M A N . What is it?
Mr. S T A N S . $ 5 0 0 million to $ 7 0 0 million more.
The C H A I R M A N . I see. Your figure now is w7hat ?
Mr. S T A N S . The figures are $ 4 3 . 3 billion to $ 4 3 . 5
billion, somewhere
in that range.
The C H A I R M A N . That is the total. I was speaking of the first item.
Mr. S T A N S . I am sorry, sir. I do not have it broken down into the
three individual components, because the figures that I have just
cannot be precise enough at this point.
The C H A I R M A N . All right. The total, then, for national security
is what ?
Mr. S T A N S . $ 4 3 . 3 billion to $ 4 3 . 5 billion, somewhere within that
range.
The C H A I R M A N . Foreign aid ?
Mr. S T A N S . Well, again, taking the two categories together, where
you show $4.1 billion as the January estimate we now estimate $3.8
billion.
The C H A I R M A N . International affairs.
Mr. S T A N S . N O change.
The C H A I R M A N . No change.
Veterans' services and benefits.
Mr. S T A N S . N O W , Senator, again I have to deal with the whole group
of domestic civilian programs as a single figure, for the reason there
are now so many variable that have to be approximated.
Where you show total domestic civilian programs of $26.8 billion,
I now show an estimate of approximately $31.6 billion.
The C H A I R M A N . $ 3 1 . 6 billion. That is approximately a $ 5 billion
increase in that.
Mr. S T A N S . I little less than $ 5 billion increase, that is right.
' The C H A I R M A N . Your total budget expenditure.
Mr. S T A N S . Total budget expenditure, I have rounded out at $t9
billion.
The C H A I R M A N . $79 billion.
There are some other questions I want to ask you.
64
INCREASE IN PERMANENT DEBT LIMITATION
Senator M A R T I N . Mr. Chairman, I am sorry I did not have this
sheet when you started. Wait a minute, I can get it here. Senator
Williams has it.
Mr. STANS. I want to point out one factor, Senator, because of the
way the figures show on this sheet. The military, actually the estimate for military expenditures is $ 5 0 0 million more than the figure
of $ 4 3 . 3 billion to $ 4 3 . 5 billion. The reason for that is that $ 5 0 0 million was in the budget in the allowance for contingencies, which is
under civilian programs in the work sheet the chairman gave me.
That $ 5 0 0 million will be expended, and is in addition to the figure
I mentioned previously for military.
The C H A I R M A N . Actually, there is an increase of nearly $ 5 billion
in domestic civilian.
Mr. STANS. Yes; if you offset some reduction in mutual security
against defense, then practically the total increase is in domestic.
The C H A I R M A N . The public has the impression that the military
functions are considerably increased, but these figures you have presented here show, of the $6 billion, approximately $6 billion increase,
about $5 billion of it is in the domestic civilian.
Mr. STANS. That is right. To avoid any misunderstanding, I would
like to point out that military expenditures will be substantially
higher than the previous year, but we are now talking about increases
over the budget for this year.
The C H A I R M A N . In other words, these increases you have given us
are over the J anuary budget.
Mr. STANS. That is correct.
The C H A I R M A N . There are some other questions I asked there.
Have you the answers ? Perhaps we could insert that in the record. I
see—did you get a second sheet ?
Mr. STANS. I have no second sheet. I have some matters
The C H A I R M A N . I would like this for the purpose of the record,
if you could answer the questions I hand to you. Will you read them ?
Mr. STANS. I think we can insert these figures. The Secretary of
the Treasury has already given some of them.
How much was estimated in revenue from personal income taxes in
estimating receipts at $ 7 4 . 4 billion? The figure was $38.5 billion.
For corporate income taxes, the figure was $ 2 0 . 4 billion. And from
all other sources was $15.5 billion. As they are revised, the personal
income-tax figure is $36 billion.
Senator W I L L I A M S . I t was what before ? I did not get the figure.
Mr. STANS. I t was $ 3 8 . 5 billion. The corporate figure is now $ 1 6 . 7
billion. And all other is $14.3 billion.
The C H A I R M A N . That is a reduction of how much ?
Mr. STANS. That is a total reduction of $ 7 . 4 billion.
The C H A I R M A N . $ 7 . 4 billion in the estimate ?
Mr. STANS. In the estimate of revenues from the level in the budget.
That is correct.
The C H A I R M A N . Next?
Mr. STANS. The next question is';. In the budget last January, what
national income and gross national product level was used as a basis
for the estimates, and what are these levels as now revised ?
These figures are provided by the Treasury Department, and I will
quote them as they have given them to us.
65 INCREASE IN PERMANENT
DEBT
LIMITATION
The personal-income figure originally estimated was $357 billion.
That has now been revised to $352 billion.
The corporate profit figure was originally $44 billion, and has now
been revised to $36 billion.
Senator WILLIAMS. When did you make that revision ?
M r . SMITH. AS of n o w .
Secretary ANDERSON. After the June figures came in, in July, so
we say as of now.
Mr. STANS. I think we should explain for the record that the $ 3 5 7
billion figure for personal income is consistent with the revision made
recently by the Commerce Department in connection with its revision
of the national income figures of the last several years. (Prior to the
Commerce Department revision, the January assumptions were $ 3 5 2
billions for personal income and $42 billion for corporate profits, these
figures, as adjusted for consistency, are $ 3 5 7 billion and $ 4 4 billion,
respectively.)
Now the question was asked for gross national product, and I do
not have figures for that, and that was not directly used as a basis in
estimating revenues in any specific sense.
The next question is: Do you think the spending budget for fiscal
year 1960 will exceed $80 billion ?
Honestly, I do not. I hope it will not. But it is entirely possible
that it will. It depends, to a considerable extent, upon the size of
the military programs that become necessary. Our military programs have a considerable number of built-in growth factors which
are very hard to control and very hard to reduce.
I believe the Secretary of Defense is working diligently on the consolidation of programs and on other activities to hold the level of
defense spending without endangering in any way the national security, but, until we have a fairly definite estimate of our expense
requirements, I cannot be sure whether the budget for fiscal 1960 will
require expenditures above $80 billion or under. I think it will be
slightly under, but I cannot be sure.
The next question is: Do you anticipate further inflation ?
Again, all I can do is to express a hope that we can move against
the budget-deficit problem; that the resumption of the economy's upward movement will produce added revenues; that, with the help of
the Congress, the administration can reduce expenditures or, at least,
prevent them from increasing; and that the $12 billion deficit will
be a onetime experience and not a continuing thing.
If that is the case, the danger that deficits would contribute to inflation would be substantially reduced.
Senator WILLIAMS. We are in complete agreement, Mr. Director,
with the hope. What is your opinion as to the possibility of achieving any 1 of those 3, or the 3 in combination ?
Mr. STANS. I think the economy is recovering. I am sure we all
agree on that. I think we can expect an increase in revenues as a
result. The extent of that increase in revenues is a very difficult thing
to estimate.
I feel confident that our deficit in fiscal 1960 will be less than in
fiscal 1959. I just canno^ predict, at this time, how much.
66
INCREASE I N PERMANENT DEBT LIMITATION
For one thing, I do not know until we have reviewed the estimates
of the agencies and have gone through the budget process of the next
3 months, what the necessary expenditure level will be.
Senator W I L L I A M S . Y O U follow, naturally, in your position, the
actions of Congress in the appropriations and authorizations.
M r . STANS. Y e s , s i r .
Senator W I L L I A M S . Taking
those into consideration, w7hat-is.^Qjir
opinion on that third phase of your problem as to the expenditures ?
Do you think we are bringing them under control, or are they getting
out of control ?
Mr. S T A N S . Well, I feel, Senator, that expenditures are going too
high, and it is necessary that the Congress help us in taking steps to
reduce the level of expenditures within the next few years.
I should say this: There are some factors in the budget in 1959 that
may not recur in 1960. One of them is the Federal program to augment State unemployment insurance.
Another is the purchase of a billion dollars worth of mortgages on
new housing.
If those programs do not recur, we have factors which will tend to
reduce the level of expenditures in 1960, and may offset the factors
that would otherwise tend to increase the level of expenditures within
the Department of Defense and Atomic Energy and other places like
that.
The next question asked me on this sheet: To what degree do you
think inflation will increase the costs of goods and services to be purchased by the Federal Government ?
Again, I must say I do not know. I hope that we will control inflation, prevent it from happening. If we do have substantial deficits,
if other factors in the economy cause us to go into an inflationary
spiral, obviously all of these costs will increase.
I have no basis for any projection at this time.
The last question is: Can you foresee a balanced budget?
Yes, I can foresee a balanced budget if two conditions prevail:
If the economy continues its return to a normal growth pattern, with
the Federal revenues thus increased, and if at the same time we can
hold the line of expenditures or even reduce expenditures somewhat,
I think we could have a balanced budget in a matter of a few years'
time.
I do not foresee a balanced budget for 1960. That is about all I
can say on that.
The C H A I R M A N . What do you mean by a "few years"? Are you
assuming there will not be an inflation ?
Mr. STANS. I am assuming that there will not be inflation which
will increase our costs more than it will increase our revenues.
The C H A I R M A N . If the increased costs are equal to the increased
revenue, you would still continue this present deficit unless you reduced expenditures.
Mr. STANS. What I meant by that previous answer, Senator, was
that I am assuming there will not be an inflation which will increase
the costs of the things we buy more than it will increase the individual
and corporate incomes that contribute to our revenues.
The C H A I R M A N . I thought you were depending upon the increase
in income to balance the budget.
67 INCREASE IN PERMANENT DEBT LIMITATION
Mr. STANS. I am depending upon the resumption of the economy
to increase incomes, and thereby
The CHAIRMAN. If that is accompanied by inflation, then you lose
certainly a part of that benefit, because you would have to pay more
in dollars for the things you buy.
Mr. STANS. Well, I think there are two ways in w^hich our revenues
can increase other than as the result of increase in rates: One is the
normal resumption of the economy without inflation. The other
would be the fact that inflation of the economy would produce an increase in our revenues simply by means of putting more money into
circulation.
I am hoping that the second will not take place.
The CHAIRMAN. If we do have more inflation, then the balancing of
the budget will be in the lon<? future, will it not ?
Mr. STANS. If we have inflation
Teh CHAIRMAN. Inflation which increases the dollar costs which the
Government has got to have in the way of buying military supplies,
and so forth.
Mr. STANS. I think. Senator, it depends upon the degree of inflation, and it depends upon the extent to which inflation of itself increases the dollar incomes of people and corporations and thereby increases the dollar collections of taxes.
The CHAIRMAN. We have been having an inflation of approximately
3 percent a year lately, have we not?
Mr. STANS. I think it has averaged about that, yes, for the last
couple of years.
The CHAIRMAN. And we are losing 3 percent, or 3 cents of the purchasing power of the dollar now.
Mr. STANS. That is correct.
The CHAIRMAN. If we lose 7 or 8 cents of the purchasing power of
the dollar, that would certainly considerably increase the dollars which
you have to expend for purchases.
You think by reason of that you would get more income.
Mr. STANS. I think there is a relationship that we have to consider, not only what the Government spends but on the income of all
the people in the economy.
The CHAIRMAN. That is a very dangerous situation, though, I should
think.
Mr. STANS. I do not approve of it by any means, Senator.
The CHAIRMAN. I know vou do not.
Senator MARTIN. Mr. Chairman, I wTould like to make a comment
that there is another way to balance the budget, even if our revenues
remain the same as they are now, and that is to cut across the board,
outside of the interest on the debt, 15 percent. That would balance
the budget.
I mean if you cut right across the board the way the appropriations
are now, saying for the next fiscal year, if we will cut, reduce them all
15 percent, excluding the interest on the debt, that would also balance
the budget.
The CHAIRMAN. There is no doubt about it.
Mr. STANS. Mathematically it would, there is no doubt about it.
The CHAIRMAN. There is no doubt about it, the best way to do it is
to cut your expenditures.
68
INCREASE I N PERMANENT DEBT LIMITATION
Senator M A R T I N . That will also be the greatest defense against
fe
inflation.
Mr. STANS. I would like to point out, though, Senator, in the 1959
budget there were included 17 recommendations by the administration
itself either to increase certain collections of the Government or to
decrease expenditures.
The session of Congress is almost over now, and to the best of my
recollection only one of those recommendations has been adopted.
Senator M A R T I N . Mr. Chairman, that is true, and there are three
elements to blame. It is the Executive, it is Congress, and the American people.
The American people are demanding expenditures for the things in
which they are personally interested. On all other things they want a
reduction. It has always been that way, and I suppose it always will
be in our form of government.
Mr. STANS. That is at the heart of our problem.
Senator M A R T I N . That is at the heart of our problem.
The C H A I R M A N . D O you not think, Mr. Stans, that we are now
facing the most critical situation in time of peace in regard to Government expenditures we have ever faced?
Mr. STANS. I think it is a very critical situation, and one in which we
all need to work to remedy it.
The C H A I R M A N . Because, first, the deficit is so large; and, secondly,
it is going to be very difficult to balance the budget unless we cut expenditures.
This thing of balancing the budget by increasing inflation is an awfully dangerous thing, because that becomes uncontrollable, and if you
cannot cut expenditures and we continue to have deficits of, say,
$10 billion or $12 billion a year for a period of 5 or 6 years, we would
be in a very critical situation.
Mr. STANS. I think it would be most unfortunate.
The C H A I R M A N . That would run your public debt up to $ 3 5 0 billion,
it would increase your interest charges, and it would certainly start an
inflationary spiral which would be very difficult to control.
But I have confidence in you, Mr. Stans, and I know you will do
everything you can, and I hope Congress will cooperate. I think a
great determined nationwide effort should be made next year to reduce
these expenditures. These increases compared to the budget you submitted are alarming. Practically all of it is in domestic civilian. It
is not in the military; is that correct?
Mr. STANS. That is correct.
The C H A I R M A N . It is not in military but in domestic civilian expenditures. We have got to do without things the Government is
doing. They may be very desirable, but if they are not necessary they
may have to be cut out.
Senator SMATHERS. Would not the Budget Director provide us for
the record—he only gave us the total of domestic civilian—could we
have that broken down as to what particular items
The C H A I R M A N . I would like very much to see that broken down.
Senator SMATHERS. Have gone up, so that we can satisfy ourselves
on what particular programs it is that we are overreaching ourselves.
Mr. STANS. If I may refer to my opening statement, Senator, I
think many of the figures are fairly well presented there.
69 INCREASE IN PERMANENT DEBT
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Senator SMATHERS. Are they in your opening statement ?
Mr. STANS. Not down to the point of individual programs, because,
as I said, many of the items are still on the floor of the Congress, and
T have had to give some evaluation or consideration to them.
The CHAIRMAN. Mr. Stans, there may be a vast difference between
annual Federal expenditures and new appropriations, etc. I find great
confusion in the mind of the public and in the minds of some Members
of Congress as to the distinction between the two.
Ordinarily, I try to talk in terms of expenditures because it is the
difference between annual expenditures liot appropriations—and so
forth—and annual revenue which results in deficiencies or surpluses.
Earlier this week, in preparation for this meeting, I directed a question to you relative to expenditures.
At this time, I want to ask you a short series of questions relative
to appropriations, and so forth. In the Bureau of the Budget you
have a term "NOA" that stands for new obligational authority. When
I speak of appropriations I use it as a short term for NOA.
We are coming to the end of this session of Congress and within
the next few days there will be many statements relating to budget
action taken by this Congress. I have seen as many as nine such statements at the end of a session. I might say all of them were wrong
in the totals reached. This year, as usual, these statements again
will be both incomplete and inaccurate. They will mix appropriations and expenditures. They are likely to omit permanent appropriations, authority to spend out of the debt, etc.
In order to avoid as many pitfalls as possible, for this record I
should like to ask you:
1. What is the difference between annual expenditures and new
obligational authority ?
2. What are the elements of new obligational authority ? Offhand,
for instance, I think of regular appropriations, permanent appropriations, authority to spend out of the debt and contract authority. There
are others.
3. How much new obligational authority was requested in the President's J anuary budget ? What was the total ?
Please break the total down by regular appropriations, permanent appropriations, authority to spend out of the debt, etc.
4. How much has been requested, in addition, since the January
budget was submitted ? (What is the total additional requested ?)
Please break down the additional requests into the various segments.
What is the overall total requested at this time? Will there be
additional requests ?
5. This is a difficult question for you to answer at this time, but it
will be appreciated if you make the effort to supply an answer as best
you can with whatever qualifications are necessary.
Will you give the committee the best figures you have to indicate
the amount of new obligational authority, in all of the segments,
granted by Congress to date ?
6. Will you state for the record the total of unexpended balances
remaining available at the beginning of the fiscal year July 1 ? By
total, I mean the balances remaining available in appropriations, authority to spend out of the debt, contract authority, etc.
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.7. New obligational authority enacted in the current session of Congress will be in addition to this; will it not ?
What do you estimate the total available spending authority will be
at the conclusion of this session of Congress ?
8. How much of 1959 expenditures do you estimate will be made
out of new spending authority, and how much will be made out of balances carried over from prior years ?
Would you give the answers for the record ?
Mr. STANS. I will do that.
(The questions are repeated, with the answer supplied for each, as
follows:)
1. What is the difference between annual expenditures and new obligational
authority?
Not all of the appropriations and other new obligational authority enacted by
the Congress lead to spending in the first year, since new authority allows spending over a period of years. Authorizations to pay salaries of pensions, for
example, usually lead to spending in the same year in which they are enacted.
But authorizations to buy guided missiles or to construct airfields may not
result in spending for 2 or 3 years because of the time required to prepare designs, arrange contracts, complete production or construction, and finally pay
the bills. For this reason, the amount of new obligational authority voted by
the Congress for any one year and the amount of spending that year are usually
different. Nontechnical definitions of each of the terms follow:
New obligational authority for any year is the total of authorizations enacted
by the Congress which allow Federal agencies to incur obligations for the payment of money. These authorizations must precede all budget obligations and
expenditures.
Expenditures in any one year are the amounts paid to liquidate obligations; i. e.,
pay the Government's bills. Most expenditures are made in the form of checks
and are reported for the fiscal year in which the checks are issued. Budget
expenditures exclude payments from funds held in trust and repayments of
borrowing.
2. What are the elements of new obligational authority ? Offhand, for instance,
I think of regular appropriations, permanent appropriations, authority to spend
out of the debt and contract authority. There are others.
The various types of new obligational authority are shown in the stub column
of the table presented in reply to question 3, following.
3. How much new obligational authority was requested in the President's
January budget? What was the total?
Please break the total down by regular appropriations, permanent appropriations, authority to spent out of the debt, etc.
The total amount of new obligational authority estimated for the fiscal year
1959 in the President's January budget was $72.5 billion. This figure breaks
down as follows:
Current authorizations :
In billions
Appropriations (less appropriations to liquidate contract authorizations)
$62.9
Authorizations to expend from debt receipts
.8
Contract authorizations
.2
Reappropriations
.1
Total current authorizations
Permanent authorizations:
Appropriations
Authorizations to expend from debt receipts
Contract authorizations
64.1
8. 3
O
.1
Total permanent authorizations
8. 4
Total new obligational authority
72. 5
1
Less than $50 million.
NOTE.—Detail may not add to total due to rounding.
71 INCREASE IN PERMANENT DEBT LIMITATION
4. How much has been req-uested, in addition, since the January budget was
submitted ? (What is the total additional requested ?)
Please break down the additional requests into the various segments. .
What is the overall total requested at this time? Will there be additional
requests?
Additional requests over the budget estimates to date have been transmitted
in the amount of $1,570 million. Our records show that these additional amounts
break down as follows:
Million
Authorization to expend from debt receipts
$325
Appropriations, reappropriations, and contract authorizations
1,145
Assuming that permanent authorizations will total the same as estimated in
January, a total of $74,022 million has been requested to date. There will be
additional requests; for example, substantive legislation for which no appropriations have as yet been requested include such items as the civilian pay increases and the science education program.
5. This is a difficult question for you to answer at this time, but it will be
appreciated if you make the effort to supply an answer as best you can with
whatever qualifications are necessary.
Will you give the committee the best figures you have to indicate the amount
of new obligational authority, in all of the segments, granted by Conrgess to
date?
We are maintaining records of amounts as they are enacted by the Congress,
but not in detailed breakdowns. Our records indicate the following amounts
enacted as of August 14:
Million
Current authorizations to expend from debt receipts
$594
Current appropriations, reappropriations, and contract authorizations-_ 55, 695
This total of $56,289 million enacted covers items for which 54,219 million
was requested. It includes the amounts in the independent offices appropriation
bill which was vetoed by the President.
6. Will you state for the record the total of unexpended balances remaining
available at the beginning of the fiscal year July 1? By total, I mean the balances remaining available in appropriations, authority to spend out of the debt,
contract authority, etc.
Based on a preliminary report of the Bureau of Accounts in the Treasury
Department, the total of unexpended balances as of June 30, 1958, was $71.2
billion, of which $45.1 billion represented balances of appropriations. These
figures do not take account of year-end writeoffs or withdrawals of unobligated
balances which are no longer available, since reports of such information are not
due from the respective agencies until September 30. In fiscal year 1957, the
writeoffs amounted to $2.5 billion.
7. New obligational authority enacted in the current session of Congress will
be in addition to this, will it not?
What do you estimate the total available spending authority will be at the
conclusion of this session of Congress ?
Yes. The total amount available to Government agencies for expenditures in
any particular fiscal year consists of the new obligational authority approved
by the Congress for that year plus available authority enacted for prior years
but still unspent.
In the January budget, the new and old obligational authority combined which
would be available for expenditure in the fiscal year 1959 was estimated to be
over $140 billion. It is not possible at this time to give a precise figure as to
the amount which will actually be available at the close of this congressional
session, but I believe it will be somewhat higher than the original estimate.
8. How much of 1959 expenditures do you estimate will be made out of new
spending authority, and how much will be made out of balances carried over
from prior years ?
In the January budget, it was estimated that approximately two-thirds of the
total expenditures in the fiscal year 1959 would be made out of new obligational
authority and one-third out of balances carried over from prior years. My
best judgment at this time is that these same percentages still apply.
Senator W I L L I A M S . Mr. Stans, I notice that your expenditures, estimates on expenditures, for civilian domestic has been increased by
$4.8 billion.
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IN PERMANENT
DEBT
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How much of that represents intentional increase in expenditures
as antirecession measures ?
Mr. S T A N S . That would .be very hard to determine, because I am
not sure with respect to each piece of new legislation the extent to
which antirecession motives existed in the minds of the Congress.
Senator W I L L I A M S . I am not, either, but that excuse is used very
often, both in the Congress and in the executive. But I think we
would be in agreement that perhaps some of it and perhaps a substantial part of the increase in expenditures was motivated by that
thought. Is that not correct ?
Mr. S T A N S . Certainly that is true of the housing bill, for example,
which is a billion dollars of the estimate; and that certainly is true
of the $600 million increase in unemployment insurance benefits.
Senator W I L L I A M S . And some of those increases were recommended
by the administration and approved by the Congress with that thought
in mind, as antirecession measures; is that correct ?
Mr. S T A N S . That is correct, especially in the case of the unemployment benefits.
Senator W I L L I A M S . I notice that now, yesterday I think it was, the
Federal Reserve Board has raised the discount rate again, and that
was attributed to checking the trend toward inflation.
Do you think that is what they had in mind?
Mr. S T A N S . All I know, Senator, is what I read in the papers, and
that seemed to be the explanation.
Senator W I L L I A M S . Yes.
If the recession, deflation, has been checked, where we are now
threatened with a return of inflation, would it not be more logical,
rather than to put the brakes on something, to repeal some of these
appropriations which were perhaps motivated from the point of view
of antirecession, and stop accelerating the gas ?
Are we not running at dual purposes ? You are still approaching
the time when you are ready to start spending on a lot of these antirecession measures. Why spend it if we have to put the brakes on?
Why not stop the spending? That would solve a lot of our problems.
Mr. S T A N S . I think, Senator, that has been a matter of concern to
some of us for some time, As more and more spending proposals
were being generated, not only in the Congress but in the executive
branch, some of us were concerned that since many of these programs
take time to get underway, they would come after a resumption of
recovery and would come at a time when we were acutally concerned
more with inflation. That seems to be the actual fact.
Senator W I L L I A M S . And we are actually pumping more air into the
tube at the same time we are trying to patch the little hole; is that
right?
Mr. S T A N S . That is the result of that situation.
Senator W I L L I A M S . Could you suggest—I know it is getting late,
and the closing days of this session, and we will not have much time
to act, even if there was time to do it—but could you, on behalf of the
administration, make some suggestions where we could move in,
relieve this pressure of some of these programs which perhaps have
been authorized, or can you do it by Executive order, and stop some
of these spending authorizations ?
Mr. S T A N S . Something can be done by Executive order, perhaps,
in cases where appropriations have been increased by the Congress
73 INCREASE IN PERMANENT
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beyond the administration's request. In some of these cases the program commitments have already gone to the point at which they are
beyond recall.
For example, the unemployment benefit program is fully committed.
Senator WILLIAMS. I appreciate that, but
Mr. STANS. The housing money, particularly the extra billion
dollars that was given to buy mortgages on low-cost housing, is 85
percent committed.
Senator W I L L I A M S . That is true, but we both know that those are
only two of the many, because I was checking just the other day, and
we have increased—and we take the responsibility here in Congress—
every appropriation bill for every agency and every department of
the Government has been increased above budget estimates, and your
budget estimate was increased substantially above the year before.
The two together were substantially increased, and I am wondering
if there is not something we can do somewhere in some of the departments, as well as some other programs.
Mr. STANS. I think it is too late for the Congress, perhaps, to reconsider the individual appropriations. I am sure if the Congress
had known the facts at the time the appropriations were made that
are known today, the actions might have been different.
The administration has some authority to place funds in reserve
in the case of programs which can be deferred or reduced. But that
is a limited, very limited possibility.
The CHAIRMAN. YOU could make some recommendations in the next
budget.
Mr. STANS. We certainly will make recommendations in the next
budget, not only to reduce expenditure levels for 1960, but looking
forward to the succeeding years, because really, as the processes of
government go, I think it is impossible to make sudden sharp reductions in any one year. I think you have to plan ahead for a considerable period.
Senator WILLIAMS. In making some of these reductions on programs which have been authorized and for which the funds have been
appropriated, would it help the administration to know that you had
the support of Congress back of your cut ?
Mr. STANS. It certainly would.
Senator WILLIAMS. That leads to my question I really wanted to
ask: Would you say it would be advisable for us to make a broad, as
an amendment to the final appropriations bill, cut across the board
in the overall total, with discretionary authority in the administration
as to how to apply it in various departments ?
It has been done before, you know.
Mr. STANS. A S I recall, it was done
Senator WILLIAMS. Then you would have—excuse me—you would
have an expression as to our sentiments, and if we did not vote it we
certainly could not criticize you for not doing it.
Mr. STANS. A S I recall, it was done in 1950 with respect to the
1951 budget.
If the Congress undertook to do that, I personally not only would
encourage it, but would do my best to see that it was properly applied.
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Senator W I L L I A M S . I appreciate that. And would you help some
of us who are very much interested in that, in working out the amount
in the suggestion ?
Mr. STANS. I shall be very happy to work with the Senator on that.
Senator W I L L I A M S . Thank you.
The C H A I R M A N . Are there any further questions ?
(No response.)
The C H A I R M A N . Gentlemen, we certainly appreciate your appearance, and are sorry we kept you so long.
Secretary ANDERSON. Thank you.
The C H A I R M A N . The committee will go into executive session.
(Whereupon, at 1:25 p. m., the committee adjourned, to proceed
in executive session.)
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