First Facts

The New Deal has made many promises. Until last week three important questions-- What will it cost? How will it be paid for? What will be the profit? --have been answered only by more or less careful estimates, more or less outrageous guesses. Last week the U. S. got its first noteworthy answers in hard facts. As yet the answers were like the returns at 8 p.m. on the night of a national election, incomplete and inconclusive. But they were facts, not guesses.

Outlay-- First complete guess at the cost of the New Deal was Franklin Roosevelt's Budget message to Congress (TIME, Jan. 15). He estimated that the Government would spend $10,569,000,000 in fiscal 1934 of which $7,523,000,000 was for emergency expenses exclusive of subsidies to cut farm production. Last week it became apparent that the Administration had not been able to toss out dollars as fast as it had planned. With nine months of the fiscal year past, it had spent a total of $4,848,000,000--only about $4 for every $3 spent by Herbert Hoover in the corresponding nine months of the previous year. The Roosevelt Administration's emergency expenses for nine months amounted to $2,860,000,000 or about 40% of what had been planned for the entire year. Even assuming that with practice the Administration will get better and better at spending money fast, it can hardly help falling two or two and one-half billions short of its goal.

Reason No. 1 for this shortcoming is that the estimate of emergency outlay included $3,970,000,000 for RFC. Actually RFC has been paid back over 25% of the $5,000,000.000 it has lent in two years. A quarter-billion dollars has been repaid since Jan.1 and Jesse Jones intimated last week that repayments would take care of the additional amounts to be lent until next July. Consequently RFC's net drain on the Treasury is likely to fall one to one and a half billion below the President's estimate. Big repayers to RFC have been banks, who have turned back 57% of the $1,533,000,000 lent to them.

Reason No. 2 for the slow outlay is that PWA has spent only $803,000,000 of the $3,300,000,000 appropriated. The rest of the expenditure is postponed, but for the time being delay eases the strain on government finances.

Income. When the President estimated expenses for 1935 he also estimated the Government's revenues--at $3,260,000,000. Last week the Treasury footed up collections for nine months, found they totaled $2,306,000,000, indicating that the President is probably going to be about right. March tax collections were $420,000,000, higher than any month since June 1931. The Treasury had hoped to collect $250,000,000 in March income taxes and last week it found that it had got $230,000,000--not quite as much as expected but one-third again as much as last-year. So all was well along the tax front.

Borrowing. Big problem of the New Deal was to make up the difference between income and outlay. With revenue coming in about as expected and outlay much less than expected the size of the borrowing problem was considerably reduced. Last week the Treasury got reassurance regarding not only the size but the difficulty of the job. In October the Treasury called $1,880,000,000 of the Fourth Liberty Loan for payment April 15 and at that time offered to exchange for the Liberties (bearing 4 1/4% interest) new bonds bearing 4 1/4% interest for one year and 3 1/4% for eleven years more. Just then business began to slump and the President gave the country a shot of inflation, started RFC's gold buying. Result was a panic among investors. Only $875,000,000 of the called Fourth Liberties (including several hundred million dollars worth held by the Government itself in trust funds) were exchanged. It was a serious blow to Treasury prestige, meant that $1,005,000,000 of called bonds had either to be paid in cash by April 15 or exchanged for another issue of new bonds.

Soon-thereafter Earle Bailie of J. & W. Seligman was called in as special adviser and the Treasury began a six-month course of nursing back to health the market for its long-term bonds. Last week it put that market to the trial. It made a new exchange offer--3 1/4% twelve-year bonds, callable after ten years--identical with its October offer except that the extra 1% interest offered for the first year was not included. Holders of $1,005,000,000 of uncalled 4th Liberties and of $244,000,000 of Treasury notes falling due May 2 were invited to exchange. Last week Mr. Morgenthau was delighted. Investors liked the new offer, the new bonds were traded, "when issued," at a premium of 1 1/2 points. After six months the Treasury "had regained its fiscal prestige.

Profits. While the Government was last week getting its first important facts to show that the New Deal could be successfully financed, it also got its first good indication of what profit the expensive New Deal was yielding U. S. citizens. March income tax collections, finally footed up by the Treasury, showed the incomes of individuals and corporations during the calendar year of 1933--three months of Hoover and nine months of Roosevelt. Except by limiting deductions for capital losses, the income tax law remained-practically unchanged. So returns were a fair measure of income changes. Collections:

March 1934 March 1933 (000,000's omitted )

Back taxes $ 15 $11

Corporation taxes 92 63

Individuals over $5,000 109 88

Individuals under $5,000 13 15

Much distressed were members of the Administration by the apparent results. Salaries of the lower salaried group had been raised either not enough or too late in the year to offset cuts in the early part of 1933. Most of the profits of the New Deal were going to the higher salaried groups and to corporations. The returns gave considerable ground for the contention that NRA operates for the benefit of the big fellow, to the detriment of the little fellow.

Partly the apparent profits of corporations and large salaried men were due to the fact that they, had "used up" as tax deductions their losses in previous years and were legally stopped from using losses they still had left. But the figures also showed what many an economist has long contended: that rising prices tend to give profits to holders of large inventories (such as corporations) and to individuals rich enough to speculate; that in inflation or reflation the little fellow tends to be the goat.

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