READING THE BUDGET FOR FUN & PROFIT
STANDING somewhere between Nostradamus and a Wall Street broker, the President of the U.S. each year draws up a federal budget-essentially a forecast of events as they are expected to occur as much as 18 months hence. The law requires him to perform this task, but there is no law that says he has to stick to his budget. This extraordinary leverage over the public purse has been gradually wrested from Congress, which over the years has ceded its once jealously held fiscal powers to the White House. Today, the President does not consider the budget just a report on spending or an accounting of his stewardship, as it once was, but a powerful tool for controlling the whole Government and a potent instrument for manipulating the economy. Lyndon Johnson, who delights in making use of every available lever of power, has used the budget to further his own ends more than any of his predecessors. This--and the fact that the figures are bigger than ever--makes the budget for fiscal 1967 as fascinating as it is formidable.
Of Milk & the Moon
The budget is not exactly a bestseller; the Government disposes of only about 3,300 copies, at $1.50 each. The 1967 budget's 449-page bulk, backed up by an imposing appendix of 1,308 pages, is a thick forest of charts, tables and almost totally unrelieved print. Few Americans bother to penetrate this forest--and that is something of a shame. For those who do venture into it, the budget is rich in impressive landmarks, bizarre growths, hidden surprises, hints of the future and enough tantalizing trivia to dine out on for a year. "Budgets," says George Mahon, chairman of the House Appropriations Committee, "set goals, chart courses of action, outline expectations and embody anticipations." They are large slices of the nation's life in all its wonderful variety.
An invaluable harbinger whose projections vitally affect the entire U.S., the budget tells businessmen how much the Government may be expected to buy from them, taxpayers how much it will take from them to do the buying with. Within its labyrinth are enough booby traps to bedevil an army of certified public accountants, enough opportunities for sleight of hand to exhaust a prestidigitator. The budget gives the impression of disclosing what everything costs, right down to the last G51 clerk ($3,507), but it carefully conceals such strategic particulars as the spending of the Central Intelligence Agency (estimated to be about $500 million, though there is no exact way of telling), the real cost of running the President's office and the price of such defense items as the U-2 spy planes and the SR-71 jets.
The 1967 budget reaches into every national nook and cranny. It concerns itself with appropriations for a nuclear aircraft carrier, for cancer research and free school milk, for the cost of shoveling snow in Washington. It takes up the building of hydrogen bombs, Christmas vacations for Job Corps enrollees, postmen's rounds. It sets out the figures for developing a vaccine against syphilis and paying the pensions of 10,500 surviving veterans of the Spanish-American War. From the smallest single project ($5,000 for the Potomac River Basin Commission) to the largest ($3.6 billion to put a man on the moon), the budget bristles with insights into the nation's mood. In fiscal 1967, the U.S. will spend $820,000 on training, counseling, and other projects to improve the estate of the 26.5 million women in the labor force, $5,000 for indexing and microfilming the records of the Russian Orthodox Church in Alaska, $15 million for removing and relocating junkyards as part of the national beautification campaign and $7,100,000 to ship back foreign stowaways who desperately want to get into the country. Jacqueline Kennedy's $3,000 special secretarial allowance will be eliminated because she is drawing less mail than before.
The U.S. imported the institution of government budgeting from Europe, where it took its name from the French bougette, or small leather pouch that was used for carrying estimates of official funds and receipts. The importation was surprisingly recent. A formal budget was introduced only 45 years ago by Warren Harding, a man with an eye for figures. He set up a Budget Bureau and named as its first director Chicago Banker Charles Gates Dawes, a frugal fellow who came to deplore "the dirty demagogues of both parties who get the report and besmear and befog it in the minds of the public." Dawes (who became Coolidge's Vice President) had ingenious ways of calling free-spending military officers onto the carpet. On one occasion, he summoned some of them to his office, vigorously swept his rug with two brooms, then demanded of the stunned officers why the Navy spent 32-c- more than the Army for its brooms, since both brooms did the job equally well.
Dawes's biggest budget was $3.2 billion; Lyndon Johnson's 1967 budget, at $112.8 billion, is the biggest and most ambitious in history. Even his admirers admit that Johnson knew next to nothing about the budget when he took over the presidency. But he learned quickly, set out right away to cut the budget back as much as he could, both because he thought it was in the nation's interest and because he realized that it would be a dramatic indication to businessmen that he was going to run a tight ship--and that they were all welcome aboard. Partly because of its size, his present budget has aroused more curiosity and controversy than any of its predecessors. More Americans are interested in the 1967 budget because it contains more figures of direct relevance to more people than ever before as a result of Washington's increasingly expansive Great Society programs, from medicare to urban rebuilding. The Johnson budget is controversial because there is a widespread feeling that the uncertainties of the war in Viet Nam have made it even more tentative and inexact than budgets customarily are--and that the President has had to use every trick of ledgerdemain to hold down the deficit to $1.8 billion. Budget Director Charles Schultze defends his handiwork as "a highly responsible budget," but criticism, like the budget itself, seems to keep on growing. Says Joseph D. Ardleigh, executive vice president of the Research Institute of America: "The budget counts on savings that won't be made and receipts that won't be gotten."
$1 Billion for Each Man
Since federal spending is increasingly shaped and controlled by the White House, the Budget Director is one of Washington's most powerful men. He is the President's man, the only high official not confirmed by the Senate. Tennessee Senator Albert Gore charges that the Budget Bureau operates like "a czar or dictator," and Texas Senator Ralph Yarborough says: "It's really dangerous--it's not safe for the country." But Congress can hardly fault the bureau for being profligate when it comes to its own staff. Budget Director Schultze, a former University of Maryland economist, has as his official limousine a 1963 Pontiac that the Internal Revenue Service seized from a Southern bootlegger; it still has a bullet hole in a rear hubcap. The bureau is so economically staffed that it has only 50 men working on the Defense Department's $60 billion budget--or more than $1 billion for each man to handle.
The printed budget produced by Schultze and his men makes up in impact for what it lacks in sales. The biggest users are libraries, universities, newspapers, corporations, the A.F.L.-C.I.O. and the U.S. Chamber of Commerce (which once caught the Government in the error of using billions for millions on one budget item). Even the Soviet embassy picks up several copies. While top U.S. business executives do not pretend to suffer through all that black type, they either have underlings do it or hire so-called budget hounds to comb the book for intelligence on projects that affect their companies' fortunes. Major companies scout particularly for insignificant-looking items that appear in the budget for the first time-a tip-off that a staff is being assembled for a new project that may blossom into a multi-billion-dollar venture. One such item in the 1967 budget: the initial allocation of $5,000,000 for a study of how cities can best renovate slum neighborhoods.
The Bureau of the Budget now controls the disposition of more money than is spent for all purposes by the 25 largest U.S. corporations combined. A century ago, the Government got 90% of its money from customs duties, but today it collects 60% of it from personal and corporate income taxes (the average American family pays $1,000 a year in taxes). Out of every dollar of income, defense takes 440, Social Security and other trust funds 260, debt interest 70, space exploration 40, veterans' benefits 40, agriculture 20, and all other programs 130.
These outlays are totted up not in one budget but in a trinity of budgets-one reason that the budget is often so confusing. The best known and most widely quoted is the Administrative Budget ($112.8 billion for 1967), but economists consider it imperfect and incomplete because it excludes the fast-growing trust funds for Social Security, federal employees' retirement and highway building, thus does not give an accurate picture of what the Government pours into and takes out of the economy. Most economists prefer either the National Income Accounts Budget ($142.7 billion), which includes the trust funds and counts all debts as they are incurred, or the Cash Budget ($145 billion), which takes in practically everything, including loans made by the Government and its purchases and sales of land.
Opium for Sale
A nimble politician can maneuver these three budgets to his best advantage much as if they were three shells-and nobody knows how to play that game better than Lyndon Johnson. Fiscal sleight of hand is nothing new, of course; corporations commonly use it to dress up their books, and all postwar Presidents have tried a bit of it. Dwight Eisenhower introduced some of the most imaginative fiscal tricRs. Lyndon Johnson applies more gimmickry, pressagentry and political showmanship to the budget than any of his predecessors; in the middle of his State of the Union address, for example, he quickly switched from one budget to another, predicting that the Administrative Budget would run a modest deficit of $1.8 billion while the Cash Budget would actually show a surplus of $500 million. Says Manhattan Economist Lawrence R. Kahn: "If the budgeteers have forgotten any method of using mirrors, I haven't found it."
Johnson "saved" $68 million by shifting Lady Bird's highway beautification program out of the Administrative Budget and into the highway trust fund, which is kept separately; he also maneuvered his forest and public-road expenses from the general budget to the highway trust fund, thereby chopping another $42 million from the budget normally seen by the public. Food for Peace spending was cut $162 million, on the pure hunch that wheat and cotton prices will be lower next year. The President also said that he will reduce farm price supports by $145 million and space research by $300 million-even though in this year's budget those items ranged above estimates by $450 million and $500 million.
The President used the old device of calling for cutbacks in popular programs that he knows Congress is highly unlikely to slash. Among them: cuts of $150 million in agricultural conservation, $85 million in aid for depressed-area schools and $52 million in the school milk program. Any plan to take milk away from the kiddies is not going to get very far in Congress. Johnson also trimmed his allowances for emergency disaster relief by $100 million on the theory that there will be fewer disasters in 1967, a kind of Parkinsonian precept that the number and gravity of disasters depend upon how much money will be available for alleviating them.
These are modest money savers as budget totals go.
Johnson has used several major devices to substantially increase the Government's income. One was a speedup in income tax payments, which obliges corporations to pay earlier in the year and raises the withholding rates for high-income individuals. This will add $3.6 billion to Government revenues for fiscal 1967, but absolutely nothing in future years. The budget also profited from the great coin shuffle, though the shuffle was not primarily intended to aid the budget. By putting less silver in its coins to alleviate the silver shortage, the Government expects to collect a windfall of $1.6 billion from seigniorage, which is the difference between the face value of coins and the cost of making them. Example: the old silver quarters contained 240 worth of metal, but the new copper-core quarters have only 10 worth-which gives the Government a "profit" of 240.
The Administration will make its budget look better by accelerating the practice, begun by Dwight Eisenhower, of selling off federal assets. It intends to market to private bankers billions of dollars worth of "paper assets," notably Government-backed mortgages held by the Federal National Mortgage Association. Expected income: $4.7 billion. It also will continue emptying out the federal stockpiles. In fiscal 1967, in addition to selling off copper and aluminum, the Government plans to dump onto the private market such fascinating commodities as 3,866,178 Ibs. of duck feathers, 129 million Ibs. of castor oil, 12 million carats of industrial diamonds, and 39,851 Ibs. of opium (used, respectively, for sleeping bags, paints, cutting tools and medical morphine). Expected income: $2 billion.
A Problem Next Year
Most of these devices produce strictly one-shot, temporary gains. Without them most economists figure that the deficit in the 1967 Administrative Budget would not be $1.8 billion but nearer $9 billion. Even with those temporary gains, the deficit may rise well beyond the expected figure. The Ad ministration has consistently underestimated the cost of the Viet Nam war; if that war continues to escalate, the President will either have to make more realistic cuts or raise taxes, or both. He will not be able to play the game of nonrecurring gains so actively next year, when keeping the budget down is apt to be much more of a problem.
Almost invariably, the Government spends far more and takes in far less than it budgets for. Since 1947, budgets have erred by an average 6% on expenditures and 9% on receipts, and 14 of the last 18 have run deficits. The Government is operating right now at a loss of $20 million a day, and the federal debt towers at a record $317 billion.
Interest charges on that amount during fiscal 1967 will be $12.8 billion, more than the Government's total spending on health, education, welfare and labor. Yet the public atti tude toward deficits has changed from one of outright dis approval to resignation. So long as the deficit grows no faster than the nation's wealth or population, few people complain nowadays that the Government is going to hell in a hand basket. In fact, the national debt has declined in a real sense:
since 1946 it has dropped from 134% of the gross national product to 46% , and from $1,900 per capita to $1,600.
The U.S. budget is by far the most comprehensive one that any government in the world has ever known. But it is necessarily inexact, since it is a sweeping forecast made in January of what the world will be like in the fiscal year that begins in July and ends 18 months after the budget is presented. Is the new budget sound or foolhardy? In the view of many economists, it is apt to aggravate inflation by pumping more money into the economy than it takes out at a time when production is running so high that shortages of manpower, material and machines are becoming acute. The budget is obviously trying to do too much too soon, and Lyndon Johnson will ultimately have to face up to the hard choice of raising taxes or cutting spending. He cannot be faulted for making assumptions--only for making unrealistic ones. Whatever tricks may be played with the budget, whatever changes may occur in the public attitude toward deficits, the budget in the long run must reflect the reality of the nation's financial state.
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