The Annual Budget Message.

To the Congress:

The Budget of the United States Government for the fiscal year ending June 30, 1936, of which this message is definitely a part, is transmitted herewith for your consideration. It deals principally with the moneys carried in the general and special accounts of the Government, which constitute the great bulk of the general fund, as this fund is shown on the first page of the daily Treasury statement. The remainder of the general fund consists mainly of moneys carried in trust accounts, which are not strictly Government moneys, and therefore enter only incidentally into the financial picture presented by the General Budget Summary.

REVIEW OF THE FISCAL YEAR 1934

The total expenditures of the Government for the fiscal year ended June 30, 1934, as shown in the General Budget Summary and supporting schedules, amounted to $7,105,000,000 in round figures. Of this amount, the sum of $1,086,000,000 was spent for the operation and maintenance of the regular departments and establishments of the Government, $556,000,000 to meet veterans' pensions and benefits, $757,000,000 for interest on the national debt, $360,000,000 for statutory debt retirements, and $63,000,000 for tax refunds, making in the aggregate $2,822,000,000. The remainder of the total expenditures for that year, amounting to $4,283,000,000, was spent for recovery and relief. The general purposes to which this amount was applied are set forth in detail in Supporting Schedule No. 3. It will be seen that this amount was expended approximately as follows:

In millions of dollars

Agricultural aid 847.0

Relief 1,844.4

Public works 653.5

Aid to home owners 194.9

Reconstruction Finance Corporation 584.6

Miscellaneous 158.6

Total 4,283.0

A part of this expenditure of $4,283,000,000 for recovery and relief is repayable; indeed, substantial repayments have already been made to the Government. Loans amounted to $732,000,000, and subscriptions to capital stock and preferred shares to $826,000,000, making a total of $1,558,000,000 which may be regarded as repayable expenditures made during the fiscal year 1934. The part regarded as nonrepayable totals $2,725,000,000. This sum has been spent mainly for grants, aids, public-works projects, and administrative expenses.

The total receipts of the Government for the fiscal year 1934 reached in the aggregate $3,115,500,000. Of this amount $2,640,600,000 came from internal revenue, $313,400,000 from customs, $152,600,000 from miscellaneous revenues, and $8,900,000 from receipts due to the realization upon assets. Income tax supplied $818,000,000 of internal revenues; miscellaneous taxes (e.g., estate, capital stock, liquor, tobacco, stamp, and excise taxes), $1,469,600,000, and processing taxes, $353,000,000. Since the processing taxes are appropriated for the use of the Agricultural Adjustment Administration, their total should be subtracted from the aggregate receipts shown above in order to arrive at the general receipts of the Government.

The general receipts of $2,762,500,000, excluding processing taxes, approximately equaled the regular expenditures for the year, a fact which should be duly recognized.

The deficit at the end of the fiscal year 1934, as shown in the General Budget Summary, was $3,989,500,000 in round figures. After deducting $359,900,000 for statutory debt retirements during 1934, the resulting net deficit financed from borrowings was $3,629,600,000. The gross increase in the national debt amounted to $4,514,400,000, making a total debt of $27,053,000,000, as indicated in Supporting Schedule No. 6. This addition to the debt during 1934 included the financing of the net deficit of $3,629,600,000 and an increase of $884,800,000 in the cash balance of the general and special accounts, as shown in Supporting Schedule No. 4.

THE ECONOMIC SITUATION

Because of its profound influence on the Federal Budget, the economic situation may be briefly summarized at this point. Business was substantially more active during the fiscal year 1934 than in either of the two preceding fiscal years. At the opening of the year, in July, 1933, producers were increasing their operations sharply reflecting in part larger orders placed in anticipation of code regulations. There was a temporary decline in output in the autumn and early winter, in response to an overaccumulation of inventories during this period, but production again advanced during the last half of the fiscal year. Industrial output for the period as a whole, when measured by the Federal Reserve Board index, was 25 percent greater than in the fiscal year 1933 and only slightly below the level of the fiscal year 1931. The degree of recovery varied in the different industries. Production of nondurable goods, which had declined only moderately during the depression, approached within 1 percent of its 1923-1925 average, while output in the durable-goods group, where prices showed relatively small declines since 1929, was 38 percent below its average in those years. Construction activity financed by private individuals continued to be restricted in amount, although public construction increased. This result was in no way surprising in view of the enormous sums spent on permanent structures, in many cases in excess of actual requirements, during the period 1925-1929.

The average volume of industrial employment expanded in proportion to production, and the total number of unemployed at the end of the fiscal year 1934, although still very large, decreased by about 2 millions, as compared with June, 1933, and 4 millions, as compared with the worst point of the depression, which fell in March, 1933. Reflecting higher wage rates and an expansion in total hours worked, industrial payrolls averaged sharply higher over the year. Distribution of commodities at retail to consumers increased, but in smaller proportion than output, with the result that inventories of manufactured goods showed a net growth over the year ended June 30, 1934.

At the end of the fiscal year 1934 the Bureau of Labor Statistics index of wholesale commodity prices stood at 74.8 percent of its 1926 average, as compared with 66.3 percent on June 30, 1933, and 59.6 percent early in March, 1933. The sharpest rise in prices took place in farm products which were affected by anticipation of smaller crops during the summer of 1934. The rise in agricultural prices more than offset the decrease in farm output, and farmers' cash income, including governmental rental and benefit payments, was 34 percent higher than in the fiscal year 1933. Corporate profits, aided by larger volume as well as by inventory appreciation, also increased considerably.

Following the close of the fiscal year 1934, output in basic industries fell sharply through September, reflecting particularly an overaccumulation of inventories in steel and textile products and the delay in the placing of orders for autumn merchandise because of uncertainty as to the effect of the drought. Industrial prices, however, remained relatively stable and prices of farm products and foods moved into closer alignment with prices of nonagricultural commodities. In retail markets, goods continued to move in sustained volume with the result that inventories were reduced to lower levels and output was again increasing in the final quarter of the calendar year 1934.

CONDITION OF THE FISCAL YEAR 1935

The total expenditure requirements for the fiscal year ending June 30, 1935, are estimated at approximately $8,581,000,000, as shown in the General Budget Summary. Of this amount, the sum of $3,321,000,000 is for regular expenditures, and $5,260,000,000 for recovery and relief. The regular expenditures aref or the following general purposes:

In millions

of dollars

Of the total expenditures for recovery and relief, $788,000,000 are for the Agricultural Adjustment Administration and the refunding of processing taxes, while $4,472,000,000 are devoted to other purposes in the recovery and relief program. During the first 5 months of the current fiscal year the Government expended for recovery and relief $1,712,000,000, or at the rate of about $350,000,000 per month.

A summary of the aggregate amounts expended for recovery and relief from February 1, 1932, to November 30, 1934, shows a total figure of $8,164,900,000. This expenditure has been distributed approximately as follows:

In millions

of dollars

Appropriations for emergency relief purposes will be completely exhausted early in February. Hence it is vitally necessary that unobligated balances of moneys already appropriated be made immediately available to care for the unemployed during the remainder of the fiscal year 1935 and the transition period. Through such action no new appropriation will be required to carry our relief needs for the current fiscal year.

The total receipts for the fiscal year 1935 are estimated at $3,711,000,000. After deducting from this amount the processing taxes, estimated at $589,000,000, there remains $3,122,000,000 to be applied against other expenditures of the Government.

The income tax for 1935 is estimated to yield $234,000,000 more than in 1934, or a total of $1,051,000,000. The receipts from miscellaneous internal-revenue taxes, exclusive of processing taxes, are expected to produce $60,000,000 more in 1935 than in 1934, thus bringing the total yield up to $1,543,000,000. It is estimated that customs will show a decrease for 1935 under 1934 of about $26,000,000, due to the Cuban sugar agreement and to the foreign-trade situation in general. Miscellaneous revenues and other receipts from the realization of certain assets are expected to yield for 1935 about $227,000,000, an increase of $66,000,000 over 1934.

The deficit for the fiscal year 1935 is estimated at $4,869,000,000, including $573,000,000 for statutory debt retirements. On December 26, 1934, the gross national debt stood at $28,484,000,000. It is estimated that the gross debt on June 30, 1935, will amount to about $31,000,000,000· In the Budget message of last year it was estimated that the national debt on June 30, 1935, would amount to $31,800,000,000. According to the latest estimates, the debt will not reach this amount by $800,000,000.

THE FISCAL YEAR 1936

In the Budget message of last year I said, speaking of the fiscal year 1936, that we should plan to have a definitely balanced Budget for the third year of recovery and from that time on to seek a continued reduction of the national debt.

Despite the substantial measure of recovery achieved since that statement was made, unemployment is still large. The States and local units now provide a smaller proportionate share of relief than a year ago and the Federal Government is therefore called upon to continue to aid in this necessary work.

For this reason it is evident that we have not yet reached a point at which a complete balance of the Budget can be obtained. I am, however, submitting to the Congress a Budget for the fiscal year 1936, which balances except for expenditures to give work to the unemployed. If this Budget receives the approval of the Congress, the country will henceforth have the assurance that, with the single exception of this item, every current expenditure of whatever nature will be fully covered by our estimates of current receipts. Such deficit as occurs will be due solely to this cause, and it may be expected to decline as rapidly as private industry is able to reemploy those who now are without work.

A resume of the financial plan which the General Budget Summary shows for 1936, as compared with 1934 and 1935, is presented on page 34.

The estimated expenditures for the fiscal year 1936, as shown in the General Budget Summary, total in round figures $8,520,000,000, including statutory debt retirements. Of this amount, $3,938,000,000 are for regular purposes, and the remainder for recovery and relief. The regular expenditures consist of $1,622,000,000 for the operation and maintenance of the regular departments and establishments of the Government, which includes $200,000,000 to be expended from an annual appropriation of $300,000,000 for public works, as requested in the Budget and as explained below. The other items of regular expenditures are $740,000,000 for veterans' pensions and benefits, $875,000,000 for interest on the national debt, $636,000,000 for statutory debt retirements, and $65,000,000 for tax refunds (excluding processing tax refunds).

Another increase in the estimated expenditures is $200,000,000 from an appropriation of $300,000,000 which I am requesting for public works. This appropriation is intended to take care of the normal public-works requirements of the Government usually included in the annual supply bills, such as Federal highways, river and harbor improvements, and general public works, including the construction program of the Tennessee Valley Authority. This requested appropriation may therefore be regarded as regular instead of emergency. The debt charges for interest and retirements have increased considerably, due to the growth of the national debt, but the decrease in the average annual interest rate has served to keep these charges down.

The estimated expenditures for recovery and relief during 1936 are placed at $4,110,000,000, excluding $472,000,000 for the Agricultural Adjustment Administration. I recommend that $4,000,000,000 be appropriated by the Congress in one sum, subject to allocation by the Executive, principally for giving work to those unemployed on the relief rolls. An estimate of expenditure covering this amount is included in the Budget.

The total receipts for the fiscal year 1936 are estimated at approximately $3,992,000,000. When $570,000,000 of estimated processing taxes are deducted from this amount, there will remain for general purposes, $3,422,000,000.

The detailed estimates of revenues and receipts for 1936, shown in Statement No. I, indicate a gain of $137,000,000 in the collections from income tax over those for 1935. This gain is due to anticipated improvement in business and to the upward revision of rates in the Revenue Act of 1934. The miscellaneous internal-revenue taxes for 1936 are estimated to increase some $143,000,000 over the collections for 1935. This increase is predicted on the assumption that the taxes terminating on June 30 and July 31, 1935, will be extended by the Congress, and also that the tax rates which would be reduced on June 30, 1935, will be continued. Otherwise there will be a reduction in the total estimate of miscellaneous internal-revenue taxes of $378,000,000, thus bringing the total estimate down to $1,308,000,000, excluding processing taxes. Customs are estimated to yield $198,000,000 for 1936, representing a small increase of $11,000,000 over 1935. Miscellaneous revenues and other receipts are estimated to produce $250,000,000, a gain of about $23,000,000 over 1935.

While I do not consider it advisable at this time to propose any new or additional taxes for the fiscal year 1936, I do recommend that the Congress take steps by suitable legislation to extend the miscellaneous internal-revenue taxes which under existing law will expire next June or July, and also to maintain the current rates of these taxes which will be reduced next June. I consider that such taxes are necessary to the financing of the Budget for 1936.

In this connection, may I say, too, that the postal revenues, as estimated in detail in the annexed budget of the Post Office Department, are based on the continuation of the 3-cent postage rate for nonlocal first-class mail. Unless this rate is continued, the postal expenses for 1936, which include steamship and aircraft subsidies and free carriage of Government mail, will be increased by about $75,000,000, all of which will become an added burden on the general revenues of the Treasury. I, therefore, recommend the extension of the 3-cent rate.

If the estimates submitted in this Budget are approved, and if the expenditures for which authorization is asked are made in full, the deficit, including statutory debt retirements, will amount to $4,528,000,000 for the fiscal year 1936. The national debt will be increased during this year by approximately $3,152,000,000, thus bringing the total debt up to $34,239,000,000. But this increase, as I have pointed out, will be due solely to continued relief of unemployment.

CONTINUATION OF EMERGENCY AGENCIES

A number of the emergency agencies now authorized by law will terminate during the present fiscal year. Most of these agencies fill important present needs and should be continued. As rapidly as seems practicable, I am bringing the administrative expenses of these agencies under the supervision of the Director of the Budget.

ECONOMY LEGISLATION

Many of the estimates of appropriations contained in the Budget are based upon the continuation of certain legislative provisions with reference to economy which are now in force. They are appended hereto and should be reenacted if the estimates are to be sustained. Among those continued is the provision for certain special salary reductions, the suspension of the reenlistment bonus to men of the military and naval services, the reduction in travel allowances of certain postal employees, permitting temporary reassignment of duties of certain postal employees, reduction in fees of jurors and witnesses, permitting transfers between appropriations, and the involuntary retirement of Federal employees having 30 years' service. Specific provision is also made for service credits to certain personnel affected by the suspension of increases in pay during the fiscal years 1933 to 1935, in the determination of compensation accruing subsequent to June 30, 1935, but without authorizing the payment of the amount that would have been paid during these years. Among the economy provisions which now obtain and which it is not proposed to continue is the 5-percent reduction in compensation of Government employees after July 1, 1935. I see no reason, however, for the restoration of this reduction prior to that date. The index figure of the cost of living, on the basis of which salary restorations are provided by Section 3, Title II, of the Economy Act of 1933, now indicates that such restorations in all probability would not even be justified on next July 1, or for some time thereafter.

IMPROVEMENTS IN THE FORM OF THE BUDGET

Several important changes have been made in the form of the Budget document for 1936. The purpose of these changes has been twofold: (1) To improve the usefulness of the document from the citizens' standpoint, and (2) to provide more adequate treatment of the financial requirements of certain governmental units, such as the Post Office Department and the District of Columbia.

The General Budget Summary, following this message, is designed to present on one page a comprehensive picture of the financial requirements of the Government. It exhibits the anticipated receipts from all sources and the estimated expenditures for all purposes. It also shows the deficit and indicates the proposed means of financing this deficit. Since the figures presented in the summary are necessarily in aggregate amounts, the details of these amounts are shown in six supporting schedules. Both in the summary and in these schedules appropriate columns are carried to provide direct comparisons between the Budget figures for 1936 and the estimated and actual figures for 1935 and 1934.

The revenue estimates are emphasized in this Budget for the first time. These estimates are set forth in Statement No. 1 in sufficient detail to show all the principal sources from which the Government gets its income. Accompanying this statement is a supporting text, which analyzes and gives the reasons for the 1936 estimates, and compares them with those for 1935 and with the actual collections for 1934.

Annexed budgets are set up for the major self-supporting or serf-contained units of the Government, namely, the Post Office Department, the Reconstruction Finance Corporation, the Tennessee Valley Authority, and the District of Columbia. The use of such budgets permits the receipts and expenditures of each of these units to be clearly and completely presented in gross figures and in balanced form, as has not hitherto been done. By following this method, the net figures for each unit, which may be either appropriation needs or surplus receipts, are calculated and then carried to the General Budget Summary. Thus the financial requirements of these units are definitely tied into the general budgetary plan. The annexed budgets are therefore not in any sense independent or multiple budgets but simply integral parts of the Government's general Budget.

BETTER METHODS OF FISCAL CONTROL

In order to promote more satisfactory methods of budgetary control in the Government, I propose this year to inaugurate the policy of having a Summation of the Budget prepared for publication immediately after the Congress has acted on all financial matters. This summation will be ready on or before July, unless the Congress is still in session. It will be presented along the lines of the General Budget Summary and supporting schedules, including Statements Nos. 1 and 2, as shown in this Budget. It will exhibit the revenue estimates so revised by the Treasury as to reflect any changes in the economic situation during the preceding six or seven months and also any revisions made by the Congress in the tax laws. It will provide a complete summary of all appropriations and expenditure authorizations made by the Congress and related estimates of expenditures. Lastly, it will indicate the need for executive or administrative measures in controlling the execution of the Budget during the fiscal year 1936.

A substantial reduction in the number of appropriation items would facilitate the exercise of budgetary control over expenditures and at the same time make for departmental economy. I, therefore, recommend that the Congress establish a special joint committee to make a detailed study of the appropriation items in each regular appropriation bill with a view to greatly reducing the number of them, consistent with proper budgetary and accounting requirements.

It is my belief that substantial adherence to the general recommendations and total figures presented in this Budget will accomplish three major objectives: (1) The normal functions of the United States Government can be carried on with economy and a high standard of efficiency, (2) the broad obligation of the Government to use all proper efforts to prevent destitution can be maintained under more practical methods than we are using at present, and (3) the excellent credit of the Government will be maintained for the common good.

I believe that the Congress will sustain these objectives.