Budget Time

Most embarrassing time of year for President Roosevelt is the time when his fellow citizens can have a field day quoting him against himself: budget time. Last week when he again sent a budget message to Congress, those many remembered utterances were more significant than usual. They served to document the fundamental changes which six years have wrought in Franklin Roosevelt's fiscal philosophy. Among them:

> In the 1932 campaign, in attacking the costliness of Herbert Hoover's government, he declared that "You cannot go very far with any real Federal economy without a complete change of concept of what are the proper functions and limits of the Federal Government itself." Last week he told Congress practically the same thing--that a third of the Government's activities would have to be cut out to balance the budget. But last week he used the statement as a conclusive argument against reducing expenditures.

> As late as 1937 he talked of balancing the budget. Last week in his budget message, he talked only of letting the budget balance itself: in offering a nine billion dollar budget for fiscal 1940, he calculated that if the national income (now 60 billions) rises to 70 billions the Government's revenues will reach six billions; if the national income reaches 80 billions (as in 1929), revenues will reach eight billions; if the national income reaches 90 billions, revenues will reach 10.6 billions.

Another new thought was on the President's lips last week: "Despite our Federal Government expenditures the entire debt of our national economic system, public and private together, is no larger today than it was in 1929, and the interest thereon is far less than it was in 1929."

The increase in Government debt which practically offsets the decrease in private debt since 1929 has not however restored 1929's 80 billion dollar national income. Nor does the President expect 1929's income to be approached until idle private capital is put to work. To be put to work much of it must be lent, increasing to new heights the entire debt of the national economic system. In short, Franklin Roosevelt's vision of prosperity is that it will be achieved only when U. S. debt (public and private) far exceeds that of 1929.

This turnabout in the President's philosophy was crystallized in the new budget in a proposed method of bookkeeping. Government expenditures have for several years been in effect divided into two types --ordinary (Government operating expenses, national defense, interest on public debt, etc.) and extraordinary (relief, highways, Civilian Conservation Corps, flood control, public buildings, etc.). The former he would have remain fairly constant from year to year; but extraordinary expenses would chart (in reverse) the country's ups and downs, and he suggested that these expenses be treated as national investments.

This resembles the successful double budget by which Sweden governs itself. However, Sweden's extraordinary expenditures are for business "investments"--electric power production, mining, communications, liquor, tobacco, even lotteries--which are better than self-supporting and which return income to the Government. Most U. S. extraordinary expenditures (which include billions for WPA) bring little or no cash return.

Implicit in the President's fiscal philosophy of 1939 is therefore a tacit acknowledgment of an idea that political realists long have harbored: expenditures cannot be reduced for reasons both political and social; the U. S. economic system is going to support a larger and larger debt; the U. S. budget is not likely to be balanced by the New Deal or by a successor administration for a long time to come. Corollary of this (not of course believed by the President) is that the U. S. debt will never be paid off, and that until some drastic event--such as wild inflation--changes public opinion, the U. S. will not again attempt to live within its means.

With these major changes in the President's fiscal philosophy as a background, the President's budget supplied details for the immediate future:

Income. The President based his estimates on the assumption that Congress will renew excise taxes which expire in June and July. Income taxes, which last year accounted for 42% of all revenue, are expected to suffer from a Recession hangover, but payroll taxes and miscellaneous internal revenues are expected to increase appreciably, so fiscal 1940's $5,669,000,000 income should be $149,250,000 better than this year's.

Outgo. In fiscal 1940 the Government hopes to spend nearly half a billion less than this year--$8,995,000,000. With the world becoming unsafe for democracy again, biggest increase will be in national defense, and a real beanstalk in Franklin's garden is now interest on the national debt, which in 1940 will be $1,050,000,000.

Rearmament. National defense expenditures averaged $782,000,000 in the last five years, came to $1,017,000,000 for fiscal 1939. For purely military uses. Franklin Roosevelt's regular budget last week included only $510,000,000 for the Army, but upped Navy $161,000,000 (mostly for starting two new battleships, two cruisers, eight destroyers, etc.) to a whopping $720,000,000. His big news on Rearmament was that he would this week ask Congress in a supplementary message for some $500,000,000 more. Biggest item: $300,000,000 for 3,500 to 4,000 new Army planes, jumping the total in prospect by 1941 to around 6,000 (as against the 10,000 predicted during recent Rearmament hullabaloo).

Taxes. "It would be unwise . . . to impose drastic new taxes. . . . I think we might safely consider moderate tax increases which would approximately meet the increased expenditures on [national defense and AAA]."

Relief. Following the budget message the President asked Congress for an $875,000,000 deficiency appropriation to carry WPA through next June. This will bring fiscal 1939's WPA cost to about $2,300,000,000. For fiscal 1940 the budget calls for $2,019,000,000 to be allocated between WPA and other relief agencies.

Public Debt. Back in 1917, when the national debt was a measly three billion dollars, Congress set what then seemed the fantastic figure of 45 billions as the debt's legal maximum. Two years of war shot the debt up to 25 billions. Then, in eleven years of pruning and prosperity, it dropped to a 1930 ledge of 16 billions. Congress' limit still looked skyhigh. But in the last eight years there has been such a sharp rise that with the $3,326,000,000 deficit expected in 1940 the debt should come to $44,458,000,000--in shooting distance of the debt limit. Fairly soon the President will have to ask Congress to raise the statutory limit on the national debt. If they should refuse, the problem will be both insoluble and Mr. Roosevelt's.

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