The Boom's Balance

Three times during the week U.S. Budget Director Rowland Hughes, a thick folder tucked under his arm, hurried out of Washington to meet with the President of the U.S. In the folder was a sheaf of legal-sized paper covered with the typewritten words and figures of the Government's budgetmaking. At the end of one set of papers there was a historic estimate: the U.S. budget, for the current fiscal year ending June 30, will balance.

Only three times in the last 26 years has the Federal Government spent no more than it took in.* A balance this year would fulfill one of the Republican Party's most cherished campaign promises.

More than that, it would be another sign that the U.S., after a quarter of a century of depression and war, is moving back onto sounder fiscal footing.

The Key Reason. The year's fiscal realities will exceed the hopes. Last January, when the 1955-56 budget was sent to Congress, expenditures were estimated at $62.4 billion and receipts at $60 billion, leaving a deficit of $2.4 billion. Both estimates were too low. Defense expenditures for the year (at $34.5 billion) will be some $500 million above the estimate; some other expenses, e.g., the cost of supporting farm prices, have gone up. Anticipated expenditures now stand at $64 billion. But revenue has gone up even more, now is expected to hit approximately the same figure. If the year's income for Social Security funds is included, the ledgers next June 30 are expected to show an actual cash surplus of some $2 billion.

Behind the figures, it is not hard to find the reason for the balance: it is the flourishing U.S. economy. In January the budgeteers were betting on a U.S. personal income of $298,500,000,000 and corporation profits of $38.5 billion during 1955.

Now the estimates have gone up to $303 billion in personal income and $43.5 billion in corporation profits, and consequently higher income for the Treasury.

A Bigger Keystone. After disposing of these pleasant figures last week, Dwight Eisenhower and his budgetmakers turned to the future. What is the outlook for fiscal 1957, beginning next July 1? Defense spending, keystone of the whole budget structure, is expected to go up about $500 million. Despite some demands for an increase to counteract the Soviet Union's new economic warfare, foreign aid is expected to cost about the same ($2.7 billion), with some shifts in emphasis to meet the new Russian activity. Support for the farmer, expected to include an expensive new soil-bank plan, will cost more than it does in this fiscal year. But almost every Government department has devised or been prodded to devise economies. As a result, the 1957 budget is expected to go no higher than this year's $64 billion.

Every sign now indicates that Government income in fiscal 1957 will be at least equal to this fiscal year's total.

One important indicator was outlined last week by Secretary of Commerce Sinclair Weeks, who told the National Association of Manufacturers' meeting in Manhattan (see BUSINESS) that business activity in the first half of 1956 will rise to new heights. Weeks's forecast was based on a Commerce Department survey indicating that private capital expenditures for new plants and equipment for the first three months of the year will run at the highest rate in history, 12% above this year. If business activity and employment make only a moderate rise, total U.S. revenue will go up substantially. Each dollar over $64 billion will be entered as a big, black addition to a surplus.

An Inevitable Cut. With a surplus in sight and elections in the offing, a tax cut will be all but inevitable in 1956. The arguments will be about who should get what kind of tax cut when. Last week the new A.F.L.-C.I.O. union called for a reduction in individual income taxes at lower levels, and an increase in taxes on corporations and their stockholders. On the other hand, the Committee for Economic Development said: "It is the committee's view that all income-tax rates should be reduced, but that a relatively greater percentage reduction in tax should be made in the middle and upper brackets, where extremely high rates are seriously interfering with the incentive to take risks and with the supply and mobility of investment funds." On Capitol Hill, from the day Congress reconvenes next month, Democrats will push for an increase in the personal exemption from $600 to $700. But President Eisenhower's budget message is not likely to contain any specific recommendation for a tax cut. Administration policy, hammered out and approved last week at Gettysburg and Camp David, calls for caution. The Administration will wait to take another look at the situation after April 15, when 1955 tax returns will be in and the first quarter of 1956 business experience can be examined.

The outlook is that in May, the Administration will find prospects for a surplus of from $1 billion to $3 billion, and will recommend a tax cut.

* In the post-World War II fiscal years of 1947 and 1948, when deep cuts in the Truman defense budget resulted in surpluses, and in fiscal 1951, when the Korean war tax increase outpaced defense spending. The last previous year in which the budget balanced was Hoover's fiscal 1930.

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