To the Congress:
The Budget transmitted herewith covers the period ending June 30, 1945. This is a period which I am certain will be crucial in the history of the United States and of mankind, a period which will see decisive action in this global war. While we move toward complete defeat of our enemies, we must lay the groundwork to return the Nation to peaceful pursuits. This double task is the essence of the Government's program and must be reflected in the Budget.
The Budget for the fiscal year 1945 anticipates a total of Federal expenditures (in general and special accounts and net outlays of Government corporations, excluding debt retirement) of 100 billion dollars—slightly more than the revised estimates for the fiscal year now under way.
In substantial measure these expenditures will be made under appropriations already enacted. I am transmitting herewith specific recommendations for appropriations of 17 billion dollars, of which 7 billion dollars are for war purposes. For most of the war appropriations I shall submit detailed recommendations in the spring. I estimate that these recommendations will amount to 53 billion dollars. The estimated total of 70 billion dollars of appropriations in the general and special accounts for the fiscal year 1945 compares with a total of 100 billion dollars of actual appropriations for the fiscal year 1944. Reappropriations, additional to the above totals for recommended new appropriations, are estimated to be 38 billion dollars for the fiscal year 1945 and 15 billion dollars for the fiscal year 1944. Since there is always—and particularly for war procurement—a lag between appropriations and the related obligations and subsequent expenditures, a large part of the recommended appropriations will not be translated into expenditures until later fiscal periods. We shall continue to adjust our war program promptly to changing strategic necessities, and I shall use all the authority available to the executive branch to prevent needless expenditures.
THE WAR PROGRAM
FOUR PHASES IN THE WAR PROGRAM. AS we win the battle of producing the instruments of modern war, we enter the period of decisive action on many battlefields throughout the world. We have attained superiority in war production. Production alone, however, does not assure victory. We must fight and fight hard.
In June, 1940 when France fell, we recognized that we were in mortal danger and that only by building our strength to the utmost would we have a chance to maintain peace or to attain victory if we were attacked. We then embarked on a program of preparedness, converting our factories and constructing a new munitions industry of gigantic size. At the time of Pearl Harbor, we were in the first stages of training the Army, strengthening the Navy, and developing a munitions industry.
In the period of defensive war, we had to be satisfied with fighting a delaying action and with delivering munitions to our allies while we gained precious time.
The anxious year of defensive warfare came to an end with the attack on Guadalcanal and the invasion of Africa in late 1942. Thus began the period of aggressive deployment of our forces. During that time we had to build up and fill up the pipe lines for military supplies of all kinds as well as establish material reserves for future aggressive operations. The munitions program was then limited only by our productive resources and shipping facilities.
With pride in the over—all achievements of American management and labor, I can say that we are now well equipped; with pride in the military leadership of the Allied forces, I can say that we are now in a strategic position to make full use of our equipment for decisive blows by land, by sea, and by air.
The size and composition of our war expenditures reflect these various phases of the preparedness and war program, as the following table indicates:
WAR EXPENDITURES
Including net outlays of Government corporations
|
Estimated percent of total Average Preparedness: July, 1940- January, 1944-June, 1944 2............ 97.0 64 30 6 1 Including also agricultural lend-lease and other civilian war activities. 2 On basis of 92 billion dollars for fiscal year 1944. The rapid increase in war expenditures mirrors a gigantic effort. We have converted and diverted approximately half of our resources to war purposes. In the production of munitions we now almost equal the rest of the world combined. Expenditures for industrial facilities and other war construction, which reached their peak in the fall of 1942, have declined since then and will decline further. The total 22-billion-dollar public and private expansion of industrial plant and equipment should suffice by and large for the foreseeable needs of the far-flung battle fronts, and in addition provide capacity for unexpected contingencies. Expenditures for pay and subsistence of the armed forces are still increasing because of the continuing growth of our military forces and increased allowances to the wives, children, and other dependents of our fighting men. Expenditures for subsistence and other purposes would have to be higher were it not for the fact that our field forces stationed abroad are receiving considerable supplies and services from our allies under reciprocal lend-lease arrangements. |
THE MUNITIONS PROGRAM. At the present time it is extremely difficult to estimate necessary expenditures for munitions. In the past, such estimates were based on maximum output in the light of available facilities, raw materials, and manpower. This maximum was always less than enough to fill the requirements established by our military leaders.
The situation is quite different now. We have excess supplies in some types of munitions, deficiencies in others. Whether at any time we have an excess or a deficiency depends on rapidly changing strategic conditions. Every effort is made to adapt production to these changing conditions as promptly as possible. A special committee under the Joint Chiefs of Staff is scrutinizing the military requirements item by item and cutting out or cutting back programs no longer justified in view of strategic developments. The lend-lease requirements of our allies are subject to similar scrutiny by other agencies.
In most cases in which contracts have been canceled, the same contractor has received other more urgent orders; plants, raw materials, and labor could not be released for production for civilian use in these cases. We have canceled, for instance, orders for many escort vessels in order to push construction of landing vessels. In a number of cases, however, labor and material have been released for urgent domestic needs of indirect war importance. We shall release for civilian production any facilities, manpower, or raw material that are no longer needed for war production, but only when we are sure that by doing so we will not impair the war effort. I know that none of us wants any cut in the production of munitions needed at the battle fronts simply to permit an increased production for civilian comforts.
RELIEF AND REHABILITATION IN LIBERATED AREAS. As we close in on the enemy we are confronted with the necessity of initiating the restoration of civilian life and productivity in the liberated areas. Both relief and the commencement of the process of rehabilitation will be necessary requirements of military occupation.
In liberated areas relief must, of necessity, be a military problem at the outset. This job will be turned over to civilian administration as soon as feasible. For this reason the United Nations Relief and Rehabilitation Administration recently has been created. Appropriate committees of Congress are now considering enabling legislation that will permit the United States to make its proportionate contribution.
SUMMARY OF WAR PROGRAM: ESTIMATES OF EXPENDITURES AND APPROPRIATIONS. It is now expected that war expenditures (including net outlays of Government corporations for war activities) for the current fiscal year will amount to 92 billion dollars, 8 billion dollars below the 100-billion-dollar estimate submitted in my Budget message of a year ago. In certain types of munitions we have fallen short of our objectives, but by and large the cut in the estimate of expenditures is due to changes in the war program.
For the fiscal year 1945—the year ending eighteen months hence—war expenditures are estimated at 90 billion dollars. I emphasize, however, that this estimate is tentative; it is based on the assumption that the war will continue throughout the fiscal year 1945. In our military planning, in our production planning, and in our financial planning we cannot rely with safety on hopes of earlier victory. If the war should continue on all fronts throughout the fiscal year 1945 or longer, we shall be prepared. If an unfavorable turn in military events should result in an increased demand for munitions, we shall, with available facilities, pour out even more munitions than scheduled, and expenditures will be larger. If, on the other hand, victory should be achieved on one of the major fronts earlier than assumed, I assure the Congress and the Nation that war production will be promptly adjusted to the changed requirements, and war expenditures in the fiscal year 1945 may be less than estimated at the present time. Because of termination payments, mustering-out pay, and similar demobilization expenditures, however, the reduction in cash expenditures will of necessity lag considerably behind any curtailment of war production.
The total war program as measured by appropriations, contract authorizations, and Government corporation commitments from June, 1940 through December, 1943 totals 344 billion dollars. Of this amount, 264 billion dollars have been obligated already, and it is estimated that 307 billion dollars will have been obligated by the end of the current fiscal year. Unobligated balances total 80 billion dollars now and will be reduced to about 38 billion dollars by June 30, 1944, assuming that additional supplemental appropriations of 1.5 billion dollars will be provided before the end of the current fiscal year.
Through December, 1943, we have spent 153 billion dollars for war and it is estimated that 202 billion dollars will have been spent by the end of the current fiscal year, leaving 105 billion dollars in outstanding obligations to be liquidated in later fiscal years.
It will be necessary to request additional appropriations for obligations to be incurred in the fiscal year 1945. Detailed recommendations for most of the war appropriations will be made in the spring, as last year. The tentative estimate for the fiscal year 1945 is 60 billion dollars of new war appropriations and 10 billion dollars of new contract authorizations. I also intend to recommend that an estimated 38 billion dollars of unobligated appropriations be reappropriated for the coming fiscal year. The new appropriations include 18 billion dollars to liquidate prior contract authorizations. The additions to the war program therefore will amount to 42 billion dollars new appropriations (excluding appropriations for the liquidation of prior contract authorizations), 10 billion dollars new contract authorizations, and 1.5 billion dollars estimated supplementals for this year. These additions will bring the total war program to 397 billion dollars for the fiscal year 1945.
Enactment of these requests will permit the Government to incur new obligations totaling 90 billion dollars in the fiscal year 1945. This., together with the unliquidated obligations on June 30, 1944, would permit the expenditure of 195 billion dollars in the fiscal year 1945 and subsequent years, when appropriations have been made to liquidate contract authorizations. As stated earlier, it is estimated that 90 billion dollars will be spent for war purposes in the fiscal year 1945. Assuming that it will be necessary to obligate all appropriations and contract authorizations, we shall finish the fiscal year 1945 with about 105 billion dollars of unliquidated obligations—the same amount as the unliquidated obligations existing at the beginning of the fiscal year.
I hope that this total war program will never be fully obligated and spent. Congressional approval of the estimated new appropriations and contract authorizations will be necessary, however, to permit our military leaders and our procurement agencies the flexibility they must have in planning and executing the job ahead.
WARTIME READJUSTMENTS AND PREPARATION FOR PEACE
Demobilization begins long before hostilities end. While we are still expanding war production, we have already terminated more than 12 billion dollars of war contracts; while we are still increasing the size of the armed forces, we have already discharged a million men and women. If hostilities end on one major front before they end on other fronts, large-scale demobilization adjustments will be possible and necessary while we are still fighting a major war.
The problems of adjustment cover a wide range—contract termination, reconversion of war plant, disposal of Government owned property, shifting of men to peacetime employment, and many others. Our approach to these problems must be positive, not negative. Our objective must be a permanently high level of national income and a correspondingly high standard of living. To achieve this end there must be concerted efforts by industry, labor, and Government and a well-planned demobilization program. As men, materials, and facilities are released from war service and production, such resources must be channeled into civilian production on a basis that will assure a high and stable level of production, consumption, and employment. The soldier, the worker, the businessman, and the farmer must have assurance against economic chaos.
Just as economic mobilization for total war required many interrelated measures, so adequate reconversion to civilian production will require many interrelated adjustments of fiscal policy, production policy, price policy, and labor policy. At this time I shall discuss, but briefly, certain aspects of a demobilization program.
CONTRACT TERMINATION, DISPOSAL OF SURPLUS PROPERTY, AND INDUSTRIAL RECONVERSION. The problems pertaining to the termination of contracts, the disposal of war surpluses, and the reconversion of industry, already before us, will take on increased significance during the war and after.
Contract termination will become a problem of large magnitude. A considerable number of contracts has already been terminated. Should victory be achieved on one front, the volume of contract termination and related settlement problems will increase markedly even during the war. Raw materials, goods in process, and overhead costs incurred on the assumption that con~ tracts will be completed, all involve settlement problems when contracts are terminated. The timing of future contract terminations is, of course, uncertain; but it is evident that the volume of such terminations and the amount of related claims and payments will be very large.
It will be necessary to dispose of a vast amount of Government property. Our war program has required the expenditure of approximately 15 billion dollars by the Government for new industrial plant and equipment and over 13 billion dollars for nonindustrial construction and land. In addition, the Government owns scores of billions of dollars of raw materials, merchant ships, aircraft, munitions, and a wide variety of other commodities. The value of Government property that will become surplus during and after the war is as uncertain as the vicissitudes of war. There can be no doubt, however, that a very large amount of public funds will be involved.
The policies followed in contract termination and the disposal of surplus property will have a major impact on the speed and effectiveness of the reconversion of industry and of the reemployment of those released from war service and war production. Such policies will also have a major bearing on the stability and pattern of the Nation's economy for many years to come. It is, therefore, imperative to develop a unified program to deal with the interrelated problems of contract termination, surplus property disposal, and industrial reconversion. To facilitate the development of coordinated policies pertaining to these fields, a war and postwar adjustment unit has been established in the Office of War Mobilization. A Joint Contract Termination Board, including representatives of the several contracting agencies, has also been established in that Office to develop recommendations for a unified program relating to the settlement of terminated war contracts. Recommendations pertaining to contract termination and disposition of surplus war properties are now in preparation.
The disposition of war surpluses should be closely coordinated with the permanent management of Government property. To provide a foundation for such coordination, I hope that machinery for the permanent management of Government property can be established in the very near future.
MANPOWER DEMOBILIZATION AND REEMPLOYMENT. Demobilization of war workers and members of the armed forces also starts long before the war ends. Since January 1, 1942, we have discharged a million men and women from active military duty because of age, physical and mental disabilities, and other reasons.
Both servicemen and war workers will need active help in finding their way back into gainful and productive peacetime employment. Many have gained exceptional skills and shown managerial ability in wartime; they should have an opportunity to contribute these skills and aptitudes to civilian activities. Certain reemployment rights in private and Government employment have been assured to members of the armed forces and, in limited instances, to those who transferred to war jobs. Many of these will be able to resume their prewar employment. This war, however, is causing substantial changes in the geographic, technological, and market structures of industry. Many employers will be recruiting employees in excess of their prewar labor force. Many employees and ex-servicemen will be looking for new employment opportunities because they had no employment before the war or because their previous jobs no longer exist.
It is imperative that we be on guard against any weakening of the administrative agencies which have been established for the purpose of job placement, counseling, and training. To master this great task of reemployment we must maintain and strengthen during the demobilization period a unified national employment and counseling service. Adequate provisions for job retraining, education, and rehabilitation must supplement the placement service. Special measures are needed to increase the opportunities for the employment of ex-servicemen, particularly those disabled in war service.
PUBLIC WORKS PLANNING. Our reconversion policy should have as a major aim the stimulation of private investment and employment. There will, however, be an urgent need for certain public works in the postwar period. As a result of the war the normal construction work of Federal, State, and local governments has been curtailed. Many new facilities will be needed. Careful advance planning and evaluation are essential to assure that priority will be given those projects that fill the greatest need relative to their cost, as well as to assure that their construction will be timed in accordance with employment requirements.
It is my hope that adequate machinery for the general planning and evaluation of public works in relation to broader economic activities can be established at all levels of government and that there can be close coordination both in planning and in completing essential projects. Thus, public works activities of the various communities and areas would be effectively coordinated with broad national programs and interests.
I have directed the various Federal agencies to submit estimates of appropriations for making detailed plans for Federal public works and improvements. I have asked the Bureau of the Budget to assume a continuing responsibility for coordinating the advance preparation of Federal public works and improvement programs to be undertaken when the war is over.
VETERANS' LEGISLATION AND SOCIAL SECURITY. Last July I recommended to the Congress a minimum program to assist service-men and servicewomen in meeting some of the problems they will face when discharged. This included mustering-out pay for every member of the armed forces sufficient to provide for a reasonable period after discharge. I also urged an educational and training program to enable those demobilized from the armed forces to further their education and training and to prepare for peacetime employment. I am confident that the Congress will take early action along these lines.
The permanent program of social security initially adopted in 1935 provides a framework within which many of the problems of demobilization can be met. This framework of unemployment insurance and retirement benefits must be reinforced and extended so that we shall be better equipped for readjustment of the labor force and for the demobilization of the armed forces and civilian war workers.
Pressing economic need has forced many workers to continue in employment or seek work even when disability, old age, or care of young children would have made retirement from the labor force preferable. Extension at the present time of the coverage of the Federal old-age and survivors insurance system to many groups now denied protection, and expansion of the scope of the system to include disability benefits, would permit these workers to retire after the war. The old-age and survivors insurance system should also be amended to give those in the armed forces credit for the period of their military service.
The proposed changes in the social security law would provide the necessary minimum protection for nearly all individuals and their families, including veterans of the present war. They would provide benefits additional to veterans' pensions, veterans' compensation, and national service life insurance in case of death or disability attributable to military service.
I repeat my recommendation that the present unemployment insurance system be strengthened so that we shall be able to provide the necessary protection to the millions of workers who may be affected by reconversion of industry. I prefer an extension of coverage and liberalization of unemployment benefits to any special legislation, such as that providing for dismissal payments through war contractors. I also recommend the adoption of a program of Federal unemployment allowances for members of the armed forces. Furthermore, I suggest Congress consider the establishment of unemployment insurance for maritime employees and a temporary system of unemployment allowances for those in Federal service who, because of their wartime employment, have been unable to build up rights under the existing system.
INTERNATIONAL PROBLEMS OF READJUSTMENT. In the international field, as in the domestic field, there is no sharp distinction between war and postwar policies. For example, the program under lend-lease and reciprocal lend-lease arrangements is designed to facilitate the effective prosecution of the war and at the same time to help lay the foundation for postwar settlement and international prosperity.
We are now engaged in discussion with other members of the United Nations to work out plans to expedite the international flow of capital into worth-while long-term investments, to remove obstacles to international trade, and to stabilize currencies. The United Nations are working toward a permanent international organization for food and agriculture. We are also considering cooperative arrangements to facilitate maritime and air transportation.
The success of these international policies depends to a considerable extent on the success of our domestic demobilization policy, and vice versa. The more prosperous the United States, the more it will demand the products of other countries, both in the form of raw materials for its industries and in the form of manufactured goods to meet consumers' demands. Our purchases will, in turn, provide other countries with the means to buy more of our exports. More and more, our prosperity and world prosperity become interdependent.
THE FARM AND FOOD PROGRAM
Farm output in 1943 has been the largest in our Nation's history. This bountiful production has enabled us to maintain the best-fed Army in the world, to send much needed food to our allies, and to eat better ourselves than civilians in any other country. Although some of us at home did not have all the particular foods we wanted, more of us were nutritionally well fed than ever before. Our farmers have accomplished this through hard work and intelligent use of their resources.
The year 1944 will be more critical on the food front in view of increasing food requirements for our armed forces, our allies, and the starving populations in territories formerly occupied by the enemy. To meet these needs, farm production must be larger than in 1943. Barring unfavorable weather conditions, I believe this objective can and will be achieved through even better use of our farm labor, land, machinery, and other resources.
Farmers, spurred on by their desire to make the utmost contribution to the war effort, will do their level best to get the job done. It is the Government's responsibility to facilitate their efforts. The major emphasis of our 1944 program will be to develop and encourage balanced production, efficient farming practices, and the full use of all our agricultural resources.
Much of the Government's assistance to agriculture in the past ten years has been intended to reestablish farmers' purchasing power. This has been achieved—and more. Farm prices in 1943 were 115 percent of parity, and farm income in 1943 is estimated at 150 percent of parity. On the price side, the problem of the Government is no longer to increase farm prices generally, but rather to adjust relationships among prices of the various farm products in harmony with relative production needs. To this end the War Food Administrator, in cooperation with the Price Administrator and with the approval of the Director of Economic Stabilization, has prepared a full schedule of support prices for war crops and other critical commodities with the objective of encouraging 1944 production of each crop in the quantity desired without increasing the general level of farm prices. This schedule should be announced well in advance of planting time. The carrying out of these support prices, however, will depend upon Congressional action on the Commodity Credit Corporation bill. The schedule of support prices must be implemented by appropriate measures such as loans, purchase and sale programs, ceilings, and related production aids.
A stable farm price level is basic if we are to prevent inflation. I have often declared my belief that the judicious use of subsidies is necessary if consumer prices are to be kept from rising. I repeat it again. Only if we succeed in preventing an appreciable rise in the general level of both farm prices and wages, however, can we continue to hold the cost of living stable with a moderate use of subsidies. The cost-of-living index was 124.1 in November 1943—the same as in April.
In order that the Federal Government may fulfill its responsibility in the 1944 farm and food program, I am recommending appropriations of 659 million dollars for the Department of Agriculture including the War Food Administration. This is approximately 314 million dollars less than the current appropriations for these agencies. The recommendation includes provision for conservation and use of agricultural land resources, the Soil Conservation Service, the Farm Security Administration, the exportation and domestic consumption of agricultural commodities, the administration of the Sugar Act, and research and other longe established functions of the Department of Agriculture. It does not include provision for potential losses of the Commodity Credit Corporation. The over-all decrease of 314 million dollars results largely from the omission of a recommendation for parity payments and a reduction in the recommended appropriation for conservation and use of agricultural land resources.
TOTAL FEDERAL EXPENDITURES
The estimates of Federal expenditures are intimately related to the stabilization program. If we permit general increases in wages in the war industries, in farm prices, or in profits on war contracts, Federal expenditures will increase correspondingly. The estimates presented in this Budget are based on the assumption that the wage and price line will be held and I am convinced that the line can be held. Wages, farm prices, and profits have reached levels which should be exceeded only in rare cases of special war requirements and not by attempts of pressure groups to promote their special interests. If we take the point of view that our efforts to secure stabilization can be relaxed just because production is nearing its peak, we shall be sacrificing one of the main objectives of the stabilization program—to reduce the dangers of economic disorganization in the demobilization period.
The following figures summarize Federal expenditures in recent years for the war program, for interest on the public debt, and for all other activities.
As I have pointed out repeatedly, there is not much realism in the customary distinction between war expenditures and other expenditures, often called "non-war" expenditures. Practically all Government activities under present conditions are related directly or indirectly to the war. War expenditures, as identified for budgetary purposes, include only those made under appropriations which the Congress has designated "defense" or "war"or obviously enacted for war purposes.
TOTAL EXPENDITURES FOR FISCAL YEARS 1942-1945
Excluding debt retirement and trust funds
[in millions]
1945 1944 1943 1942
Classification estimated estimated actual actual
|
War activities: Another group of expenditures is emerging as a result of the present war. Already large, this aftermath-of-war category will become a dominant factor in future budgets. For the fiscal year 1945 it includes, for example, about three-fourths of the interest on the public debt; more than half of the expenditures for insurance, pensions, and other benefits for veterans; and a large amount for refunds of war taxes. |
Expenditures for contract termination, now included in war procurement, also belong in this group. Expenditures for veterans' pensions and benefits and for tax refunds are expected to rise sharply during the fiscal year 1945. Tax refunds include 1 billion dollars for issuance of postwar bonds for the refundable portion of corporate excess-profits taxes. The issuance of refund bonds is, of course, not a cash expenditure.
Excluding expenditures for veterans and refunds, the total for "other" activities is expected to continue next year the steady decline which has been maintained since 1939. The estimate for the fiscal year 1945 is 2,953 million dollars —barely half the comparable total of 5,897 million dollars expended in 1939. It is 571 million dollars below the revised estimates for the current fiscal year.
This latter decrease will occur despite some increases in so-called "non-war" expenditures. Among the increases are 129 million dollars in some subdivisions of the Treasury, Justice, State, and Agriculture Departments, the General Accounting Office, the National Advisory Committee for Aeronautics, and the social security program. For the most part, these increases reflect war-necessitated expansions of workloads under "non-war" appropriations. Major reductions are expected in aids to agriculture, general public works, work relief, the Department of Commerce, War Department civil functions, and the Federal Works Agency. These items total 553 million dollars less than the corresponding items for the present fiscal year. The Post Office expects to have no deficit but rather a surplus of 11 million dollars.
For all purposes other than direct war activities, I am recommending appropriations, in general and special accounts, of 10,- 115 million dollars, including 3,750 million dollars for interest on the public debt and 590 million dollars for statutory debt retirement under permanent appropriation. The total of 5,775 million dollars for other purposes is an increase of 1,321 million dollars over the amount enacted by the Congress for the current fiscal year including anticipated supplemental appropriations. This increase, like the expenditure estimates, reflects primarily the large volume of veterans' benefits and tax refunds occasioned by the present war, and if these items are excluded there is a decrease of 434 million dollars.
The estimated expenditures and recommended appropriations assume application of the Overtime Pay Act with present coverage throughout the fiscal year 1945. Current provisions for overtime pay for most Federal Government employees have been operative only since May 1, 1943; they will expire June 30, 1945, unless terminated earlier by the Congress.
The overtime pay law provides for quarterly determinations by the Director of the Bureau of the Budget of the number of employees required for the proper and efficient exercise of the functions of each department or agency. Although nearly half the civilian personnel of the Government are not covered by the act, I believe the determinations have effectively supplemented other budgetary controls. Other factors contributing to savings in Government use of manpower have been the legislation authorizing overtime work and pay, suggestions made by Congressional committees, general manpower controls, curtailment and consolidation of activities, and the unremitting efforts of the Civil Service Commission and the heads of operating agencies to use personnel more effectively.
More than a year ago I notified the heads of all departments and agencies that I expected them to eliminate every non-vital service, to seize every opportunity for improving the speed and efficiency of operations, and to conserve manpower, materials, and money. Each of these officials is now being asked to take stock of what his agency has accomplished and to continue aggressive efforts for improvement in the management and economical functioning of his organization.
One result of all these efforts has been a material reduction in Government personnel. The latest reported total of paid civilian employees of the executive branch in continental United States was 2,798,000 in October, 1943; there were 154,500 additional in Alaska, the Panama Canal Zone, and overseas. Nearly threefourths were in the War and Navy Departments and other war agencies. The total number employed in the continental United States in October was 205,000 below the peak of June, 1943. The bulk of the reduction was in the war agencies; they reduced personnel by 167,000 from June to October, while the so-called non-war agencies reduced personnel by 38,000. The earlier rise was in the war agencies. Other agencies as a group have been reducing personnel steadily for eighteen months or more, although during all that time they have been devoting more and more of their efforts directly to war activities.
There has been, during the past year, too much unfounded disparagement of Government employment. No one can estimate what this has cost in impaired morale, employee turnover, recruitment difficulties, and retardation of essential war work. Thousands of Americans entered the Government service or have remained in it with single-hearted determination to contribute to victory. Yet Government employees frequently have had to bear an unjustified stigma, somehow associated with the mistaken assumption that nearly all of them occupy armchair jobs. Of course, it is true that thousands of Government employees work at desks. In Government, as elsewhere, the manual workers are not the only producers. Modern armies cannot operate without quartermasters, paymasters, communication systems; ships and planes cannot be built without drafting, procurement, accounting; indeed, no organized activity in our complex society can succeed without writing and record-keeping. Even so, the large majority of employees in the war agencies are engaged in mechanical operations. Among the so-called non-war agencies, the Postal Service alone accounts for more than two-fifths of all the personnel. These facts are too frequently disregarded by critics who fail to look behind personnel statistics to the work the employees do.
THE REVENUE AND BORROWING PROGRAM
SUMMARY OF FEDERAL FINANCES. Net receipts under present legislation are estimated at a little more than 41 billion dollars for the current fiscal year and at somewhat less than 41 billion dollars for the fiscal year 1945. Receipts in these years will be about 19 billion dollars above those of the fiscal year 1943. This rise reflects increased tax rates in the Revenue Act of 1942, the Current Tax Payment Act of 1943, and the higher level of incomes and profits. Net receipts from all sources in the fiscal year 1945 are expected to be somewhat lower than in the current fiscal year, despite the fact that some items, notably corporation taxes, will increase further. Substantial collections in the present fiscal year, mainly in connection with transition to a current basis for individual income taxes, will not recur in 1945 and later years. Estimates of receipts in this Budget are subject to modification if the pending revenue bill is enacted.
Total expenditures for the fiscal year 1945 are estimated to exceed net receipts by 59 billion dollars. Without further legislation the deficit will amount to 59 percent of total expenditures, approximately the same as the comparable ratio for the current fiscal year.
SUMMARY OF FEDERAL FINANCES
Excluding debt retirement and trust funds
[In millions]
1945 1944 1943 1942
Classification estimated estimated actual actual
Total expenditures $99,769 $99,276 $79,679 $34,211
Total receipts 43,425 40,578 23,385 13,668
Deduct: Net appropriations
for Federal oldage and
survivors insurance
trust fund 2,656 1,392 1,103 869
Net receipts 40,769 41,186 22,282 12,799
Excess of expenditures
over receipts 59,000 58,090 57,397 21,412
In view of these prospective deficits, I recommend the earliest possible enactment of additional fiscal legislation.
The amount which the Federal trust funds, especially the oldage and survivors insurance fund, can invest in Treasury bonds has been estimated under the assumption that the increased Federal insurance contribution rates which were scheduled for January 1, 1944, will become effective on March 1, 1944. The Congress decided to postpone the effective date of the increase sixty days in order to gain time for further consideration of the increase in social security rates. I earnestly urge the Congress to retain at this time the scheduled increase in rates. High employment and low rates of retirement during the war have added to social insurance reserves. However, liabilities for future benefits based on the increased wartime employment and wages have risen concurrently. The increase in contributions provided by existing law should now become effective so that the contributions will be more nearly in accord with the value of the insurance provided and so that reserves may be built up to aid in financing future benefit payments.
THE NEED FOR ADDITIONAL TAXES. In my Budget message last year I recommended legislation to collect 16 billion dollars in additional taxes, savings, or both. I also pointed out the importance of simplifying taxation and of putting taxes, as far as feasible, on a pay-as-you-go basis. I repeated previous recommendations for making our tax laws more fair and equitable.
Provision for collection of individual income taxes on a pay-as-you-go basis was made in 1943 by the passage of the Current Tax Payment Act.
In October, 1943, the Administration's revenue program was presented calling for additional wartime taxes in the amount of 10.5 billion dollars. Those recommendations are still under consideration by the Congress, and I wish at this time to stress the need for additional wartime taxes in at least the amount requested in October.
The developments of the past year have not lessened the needs for additional revenue and nothing has occurred to indicate that the Administration's tax program is more than a minimum. Indeed, the necessity for additional revenue becomes increasingly acute as the war continues. The debt has risen at a record rate, and the prospect is for a continued rise with little or no diminution in rate during the months to come. Let us face the fact—the failure thus far to enact an adequate fiscal program has aggravated the difficulties of maintaining economic stabilization. Increases in income should be limited to reasonable rewards for additional effort. A wartime tax policy directed to that objective is a necessary support to wage and price stabilization. It is, furthermore, an important wartime contribution to postwar fiscal planning.
The time to impose high taxes is now when incomes are high and goods are scarce. In this situation, if we do not now pay in taxes all that we can, we shall be treating unfairly those who must face the accumulated bill after the war. Individual incomes will be approximately 40 percent higher in the calendar year 1944 than in 1941, after payment of all taxes, Federal, State, and local. Corporate profits after taxes are running at an all-time high. The time to relax some wartime taxes will come when goods are again plentiful, after reconversion of industry to peacetime production.
In view of these facts, I must urge upon the Congress the need for additional revenue beyond that provided in the bill now pending before the Senate. I also recommend tax simplification to reduce the burdens of compliance of the many millions of taxpayers by elimination of returns where feasible and by other measures- provided such changes do not result in substantial impairment of receipts for the Treasury or of equity for taxpayers.
RENEGOTIATION OF WAR CONTRACTS. The American people are united in their resolution to prevent war profiteering. Taxation alone is not enough. One of the most constructive attempts ever made to reduce profiteering at the expense of the Government in wartime was the renegotiation law, enacted by the Congress in April, 1942. That statute gives to the major procurement agencies the right and charges them with the duty to reexamine their war contracts and subcontracts and to recover excessive amounts paid under them, as well as to reduce inordinately high prices being charged for goods still to be delivered.
The record of performance under that statute has been good. The cost of our procurement program has already been reduced by over 5 billion dollars by contractors' agreements to refund money already paid them by the Government for war materiel and by price reductions granted the Government on goods still to be delivered. A considerable part of this amount would have escaped even wartime taxes. Many wartime profits are not subject to excess-profits taxation; moreover, even taxes paid may be refunded under various provisions of the present excess-profits tax law. The recapture of exorbitant war profits, in my judgment, should be definitely assured by renegotiation. To measure the benefits of the renegotiation statute in terms of dollars recovered from war contractors is to understate its beneficial effect. The statute is enabling us to combine speed of procurement with fair prices for the goods the Government must buy. Without it the war procurement program would be handicapped.
Of late I have been disturbed by proposals, apparently being seriously considered in the Congress, which will, if adopted, greatly restrict the operation of the statute if not destroy its effectiveness. I believe adoption of such proposals would be a serious mistake. In spite of criticism leveled at the statute by highly articulate special pleaders, I think it can fairly be said that the statute has proved to be very helpful in preventing or reducing excessive profits, and that renegotiation has been carried out with fairness and equity.
THE PUBLIC DEBT
Wartime spending leaves its legacy of postwar debt. By June 30, 1944, the public debt is expected to reach 198 billion dollars, and a year later, 258 billion dollars. Even higher totals will be reached if advance financing builds up cash balances. In any case it will soon be necessary to request legislation authorizing a further increase in the debt limit from the present level of 210 billion dollars. In view of these huge totals, administration of the public debt and of related fiscal policies must receive double care and scrutiny.
The primary achievement of our debt policy has been the maintenance of low and stable rates of interest. Average interest rates payable on the public debt now are less than 2 percent. Interest received from all new issues is fully taxable. As a result, the net cost per dollar borrowed since Pearl Harbor has been about a third the cost of borrowing in the first World War.
A debt of 258 billion dollars will require gross interest payments of 5 billion dollars annually at the present average rate. With a national income of 125 billion dollars or more, these payments need not prove oppressive. I am confident that we can devise a tax structure and other appropriate economic policies which will permit both payment of interest, and gradual repayment of principal during years of prosperity, without impairing the stability and growth of the national income.
We have sought to secure the broadest possible distribution of our debt, not only to fight against inflation, but also to assure a wide distribution of income from the debt. For these two reasons it has been our deliberate policy to offer the highest rates of interest on those bonds which are sold to individual purchasers in limited amounts.
Over 50 million subscribers to war bonds now own a direct financial stake in the United States. More than a third of all the resources of life insurance companies and mutual savings banks and half of all the assets of commercial banks consist of Government bonds. These individual investors, as well as bank depositors and insurance policy holders, can count upon the soundness of these assets.
Every dollar accumulated by individuals, corporations, or other non-financial institutions adds to rainy-day reserves of these bondholders. Businesses with heavy costs of reconversion will be able to defray such costs in part through liquidation of bonds. State and local governments will be able to finance some public works programs without levying additional taxes or borrowing additional funds. Individuals who are temporarily unemployed will be able to redeem war bonds, besides relying upon unemployment compensation and other provisions.
An increase in wartime debt is unavoidable. War expenditures must continue at high levels until our enemies are defeated; a bare minimum of regular Government activity must be preserved; interest must be paid regularly on the outstanding debt. The executive departments are using their best efforts to hold down all these outlays, wherever reductions are consistent with maximum war effort. The only effective way now to control the volume of the debt and to minimize postwar adjustments is to adopt a truly stiff fiscal program.
This war was inevitable because peaceful Nations cannot live in the same world with Nations that have become tools in the hands of irresponsible cliques bent on conquest. That obstacle to peace will be removed by destruction of the German and Japanese war machines and by establishing lasting cooperation among the Nations united in the fight for freedom. In this Budget I have outlined the financial requirements for victory. I have also outlined some of the measures required to aid in the reconversion of our war economy and to help discharged soldiers and dismissed war workers find their way back into civilian life and peacetime employment.
Military victory is not enough. We shall not have completed the defense of our way of life until we also solve the second task, the reconstruction of an economy in which everyone willing to work can find for himself a place in productive employment. The enemy, though beaten on the battlefields, may still arise in our midst if we fail in the task of reconstruction.
Victory will be not only a cause for joy over an accomplishment but at the same time a challenge to another great undertaking. You and I have the responsibility to prepare for victory and for peace. Let us make sure that the Budget, the Government's work plan, serves both ends.
Franklin D. Roosevelt, Annual Budget Message Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/210768