35 Billion 26 Million

Smart, sharp-nosed Lewis Deschler, official Parliamentarian of the House--who ever since he came of age ten years ago has been advising the Speakers of the House on the abstruse technicalities of House procedure--had the eyes of the House upon him one afternoon last week as he marched up to Reading Clerk Alney Chaffee. Taking a large leatherbound volume from beneath his arm, the Parliamentarian laid it on the edge of the Clerk's desk and turned away. As he did so the volume began to slip. Alney Chaffee made a lunge for it but it escaped him, with a resounding clank fell into a large brass cuspidor. The House guffawed. The first fall had been taken out of the U. S. Budget for fiscal 1938.

Clerk Chaffee, doubling his official dignity, retrieved the book and began to read Franklin Roosevelt's budget message. Before the minds of Representatives became completely swamped in a sea of figures they had apprehended some points that the President was making:

P: If Relief expenditures for fiscal 1938 can be held down to about one and a half billions, that year would see the Government's revenues and expenses brought into balance for the first time since fiscal 1930.

P: . "If improvement in economic conditions continues at the present rate," the President expects in fiscal 1939 to bring the budget completely into balance by beginning to pay off some of the national debt as required by law.

P: The President will ask Congress for a 1938 Relief appropriation later in the session and hopes to keep it within one and one half billions provided industry will really try to hire away the Government's Relief workers. He would also ask (and did this week) for $790,000,000 extra to carry Relief through next June bringing the total of Relief and Recovery expenditures for fiscal 1937 up to $2,956,000,000 --the Relief bill to a new high.

When Clerk Chaffee finished reading no Congressman who remained in the House needed to be told that this was the dullest budget message which Franklin Roosevelt had yet written, and no Congressman without studying the attached pages of exhibits--a volume the size of a small telephone book--could be expected to realize that the dullest message accompanied Franklin Roosevelt's most significant budget to date.

Portentous was his budget in 1933 cutting Government expenses by $360,000,000, his budget in 1934 proposing to spend $10,000,000,000 for priming the pump, his budget in 1935 asking a lump sum of $4,000,000,000 for him to spend as he wished on Relief, his budget in 1936 when he proclaimed, "Our policy is succeeding.

... It is the deficit of today which is making possible the surplus of tomorrow." His budget last week was the thing of which all the others had been portents, a picture of U. S. finances not in process of change but as changed, of the new fiscal situation brought about by four years of the New Deal.

Expenditures-- "The normal growth of the country naturally reflects itself in increased costs of government. . . . The cost of new functions and duties can be substantially reduced only by curtailing the function or the duty." So wrote the President last week. Before Depression the War and Navy Departments together spent in a typical year about $700,000,000. The 1938 budget provided $981,000,000 for national defense.

This is an increase of about 60% if one adds to the 1938 estimate $35,000,000 to be spent by the War Department for non-military purposes and $105,000,000 for rivers and harbors; both formerly were included as part of the War Department's expenditures. Another item of increased cost is interest on the public debt. From about $700,000,000 before Depression this has risen in the 1938 budget to $860,000,000, an increase of 23%. Now, however, interest rates are abnormally low. Since by 1938 the public debt will have increased over 100%, the interest on the debt can be expected gradually to mount in the post-Recovery era as interest rates return to normal, adding perhaps another $500,000,000 to annual interest charges.

Major costs among new functions and duties which the Government has undertaken include something under $500,000,000 a year for AAA, something under $400,000,000 for CCC, an estimate of $451,000,000 in fiscal 1938 for "General Public Works" (capital expenditures including $130,000,000 for the Army's Rivers & Harbors and Flood Control and other sums for other departments), $836,000 for Social Security.

The comparative expenditures for fiscal 1936, 1937 and 1938 as shown by the budget (exclusive of the veterans' bonus and of amounts theoretically spent in retiring the debt) are:

1936 $6,803,000,000

1937 7,513,000,000

1938 7,294,000,000 *;

These figures however do not show the real cost of running the Government on a post-Recovery basis because they include large Relief expenditures. Eliminating Relief costs, charging the Government with only the net cost of Social Security (see below) and allowing for no debt retirement, the expenses of the Government for fiscal 1938 come to about $5,000,000,000.

The typical post-Recovery budget after interest rates again rise, would probably be about $5,500,000,000. The typical pre-Depression budget was $3,500,000,000.

Thus under the New Deal "growth of the country" and "new functions" have added about 57% to the ordinary cost of government.

Revenues-- To balance the budget on this new scale of governmental living requires a bigger income. The Government's receipts for 1936, 1937 and 1938 as estimated in the budget are:

1936 $4,116,000,000

1937 5,828,000,000

1938 7,294,000,000

Of the 1938 revenue, however, $775,000,000 will be raised by Social Security taxes. Subtracting this sum the Government's net income for the post-Recovery era will be $6,519,000,000 compared to a typical $4,000,000,000 in pre-Depression times. This increase of 62% is not due to customs collections which remain below pre-Depression levels. As Depression brought new functions of government it also brought new taxes. Biggest of them are liquor taxes, $644,000,000; manufacturers' excises $449,000,000; miscellaneous nuisance taxes, $83,000,000. But the biggest increase expected is in the collection of income taxes.

In fiscal 1936 income tax collections were $1,427,000,000. In fiscal 1938 they are expected to be $3,365,000,000, up 135% or a dollar increase of a billion a year. Part of this huge collection will be due to better times, part to higher rates on big incomes, a big part to the taxes paid by individuals on the large dividends which corporations have been obliged to distribute by the tax on undivided income. Thus in the post-Recovery fiscal picture the 3% of the population who pay income taxes will pay considerably more a year to the Government than the $2,000,000,000 addition to the ordinary cost of government. Not all of this money will come out of individuals' pockets. A good part of it will come out of the savings which in former years industry salted back into its businesses.

Social Security. Franklin Roosevelt's 1938 budget added Social Security taxes to the Government's revenues, added to its costs not only anticipated Social Security payments but also a reserve of $540.000,000 for future old age pensions.

The Social Security Plan is virtually a separate business, like the Post Office. In the budget the revenues of the Post Office do not appear, and of its expenditures only $30,000,000, its net deficit. On the same basis Social Security taxes are not really Government revenues, and the only real Social Security expense is the system's net deficit, $61,174,000 for 1938. However there is one big difference between selling annuities and letter-carrying: Social Security payments will be far smaller than its tax collections for many years. In 1938 collections will exceed actual payments by $480,000,000. This money will be invested in Government bonds and if a $40,000,000,000 reserve should be built up as anticipated, the Government might eventually owe its whole public debt to its prospective pensioners. It was this that Alf Landon last fall called a "cruel hoax" on the workers of America.

Last week, not in his budget message but in a press conference held before he sent it to Congress, President Roosevelt intimated that he thought it would be foolish to build up such a huge reserve. For the time being he would be content to let the reserve pile up, but after it has got a start, adopt a "pay-as-you-go" policy, presumably reducing Social Security taxes so as to collect no more than was paid out in pensions.

Debt. Biggest news in the President's budget was a figure hidden halfway through his message: the sum which he expects the public debt to reach next June at the close of fiscal 1937, the sum at which he hopes it will stay during fiscal 1938, the sum from which he hopes it will decline thereafter, the ultimate pinnacle to which the New Deal plans to carry the U. S. Government. This mystic number: $35,026,000,000.

*Including $1,537,000,000--the amount to which the President hopes the Relief bill can be held.

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