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PLANNED DEFICIT IN BUDGET
We are to discuss here in a general way the administration's new budget.
Congress is being asked by the administration this year to support a spending program ranging at about $229 billion for fiscal year 1972. This is a rise of $16 billion over the current fiscal year and would, if it turned out exactly as now projected in the President's budget, result in a whopping deficit totaling $23 billion in Federal funds.
Previously all administrations, including this one, have looked with skepticism and disfavor on big deficits and have requested deficit spending with some degree of reluctance.
Pages 8 through 10 of the budget message discusses the rationale for the deficit in this budget. I shall insert these pages in the record at this point.
(The information follows:)
TOWARD A GROWING NONINFLATIONARY ECONOMY
Economic setting. When I took office 2 years ago, rampant inflation was the Nation's principal economic problem.
This inflation was a direct result of the economic policies of the period 1966 to 1968, when we were mired in war in Vietnam, and when Federal spending rose sharply. Federal outlays were allowed to exceed full-employment revenues by $6 billion in 1966, $10 billion in 1967, and $25 billion in 1968. Expansive monetary policy in the summer of 1968 helped upset the hoped-for stabilizing impact of an income tax surcharge. The effect of these actions was to turn the thermostat up in an economy that was already hot enough.
My administration acted promptly to move us out of that war and cool the superheated economy.
We controlled Federal spending in 1969 and achieved a budget surplus. Spending was restrained again in 1970. Independently, the Federal Reserve System maintained a monetary policy of restraint which increased in severity throughout calendar year 1969 and continued into early 1970.
The forces of inflation have been durable and persistent—and they remain strong. But their momentum was slowed in calendar year 1969 and early 1970. Excessive demand was eliminated as a source of inflationary pressure during this period. The turnaround of this inflationary trend permitted us to enter the second phase of our plan: to follow more expansive economic policies without losing ground in the battle against inflation.
Budget policy.—Last July, I set forth the budget policy of this administration:
“At times the economic situation permits even calls for—a budget deficit. There is one basic guideline for the budget, however, which we should never violate : except in emergency conditions, expenditures must never be allowed to outrun the revenues that the tax system would produce at reasonably full employment. When the Federal government's spending actions over an extended period push outlays sharply higher, increased tax rates or inflation inevitably follow.”
The principle of holding outlays to revenues at full employment serves three necessary purposes : • It imposes the discipline of an upper limit on spending, a disci
pline that is essential because the upward pressures on outlays are
relentless. • It permits Federal tax and spending programs to be planned and
conducted in an orderly manner consistent with steady growth in
the economy's productive capacity. • It helps achieve economic stability by automatically imposing
restraint during periods of boom and providing stimulus during
periods of slack. The budget policy of this administration is to keep firm control over Federal spending. The outlay total of $229.2 billion in 1972 is the sum of spending for programs that were scrutinized carefully to make certain that they would be managed effectively and efficiently, and that they are essential to carry out present laws or to achieve desirable changes in our national priorities.
If this careful scrutiny were not maintained—if we weaken in our resolve to control spending—we would risk permitting outlays to build up a momentum that will carry them beyond full employment receipts in the longer run, and we would risk losing the ability to restrain spending in times when a deficit is undesirable.
If a $23 billion deficit for the forthcoming fiscal year in Federal funds is presented as good for the economy and good for the country, some will be advocating a bigger deficit as being even better for the country. We are really confronted, I would say to our friends from the executive branch and to my colleagues, we are really confronted with a very, very serious fiscal situation, a dangerous situation, as I see it.
Many innovative and far-reaching proposals were transmitted to us in the President's budget message in addition to the planned deficit. Of course, we have had deficits before in all administrations. Our concern about whopping deficits does not relate only to this administration but has related to administrations in the past.
You may be sure these proposals which you will present and discuss with us this year will receive our very best attention.
GUIDELINE FOR OVERALL BUDGET HEARING IN NEW HOUSE RULE
For the first time we have an explicit set of guidelines for the conduct of this overview hearing set forth in clause 27(g) of rule XI of the House of Representatives. These were initially enacted in the Legislative Reorganization Act of 1970. I will at this point insert the new House rule into the record.
(The information follows:) Clause 27(g) of Rule XI of the Rules of the House of Representative is amended to read as follows: "(g) (1) The Committee on Appropriations shall, within thirty days after the transmittal of the budget to the Congress each year, hold hearings on the budget as a whole with particular reference to
“(A) the basic recommendations and budgetary policies of the President in the presentation of the budget; and
"(B) the fiscal, financial, and economic assumptions used as bases in arriving at total estimated expenditures and receipts. "(2) In holding hearings pursuant to subparagraph (1) of this paragraph, the committee shall receive testimony from the Secretary of the Treasury, the Director of the Office of Management and Budget, the chairman of the Council of Economic Advisers, and such other persons as the committee may desire.
"(3) Hearings pursuant to subparagraph (1) of this paragraph shall be held in open session, except when the committee determines that the testimony to be taken at that hearing may relate to a matter of national security. A transcript of all such hearings shall be printed and a copy thereof furnished to each Member and the Resident Commissioner from Puerto Rico.
"(4) Hearings pursuant to subparagraph (1) of this paragraph, or any part thereof, may be held before joint meetings of the committe and the Committee on Appropriations of the Senate in accordance with such procedures as the two committees jointly may determine.".
(2) Clause 27(f) of rule XI of the Rules of the House of Representatives, as amended by this act, is further amended by adding at the end thereof the following new subparagraph :
“(6) The preceding provisions of this paragraph do not apply to hearings on the budget by the Committee on Appropriations under paragraph (g) of this clause.".
This is the type of overall look which we expect to have in this hearing. To help us, we are going to have testimony from the first team of the executive branch, men of outstanding ability and stature and integrity and good will for the country,
We have Secretary Connally, the Secretary of the Treasury, and we have before us Director George Shultz of the Office of Management and Budget. No one is closer to the administration than George Schultz
and Chairman Paul McCracken, Chairman of the Council of Economic Advisers.
This is a high-level meeting. We have high-level officials to testify and we hope that the questions will be pertinent to the problems which confront our country at this time.
Secretary Connally, how would you like to proceed?
Secretary CONNALLY. Mr. Chairman, we obviously wish to proceed in accordance with the wishes of this committee. When we previously appeared, each of us had made our statements before the questioning occurred and then all of us were available for questioning. We are obviously here at your disposal, sir.
Mr. Mahon. I think we should say for the record that we recognize the fact, Mr. Secretary, that you did not have a part in the formulation of this budget. Any criticism or blame due as to this proposed budget would be upon the shoulders of your colleagues.
We do not expect you to be as familiar with this budget as you would have been had you been in the Cabinet for a longer period of time. We welcome your mature judgment, Secretary Connally. If you would proceed, I would like to say that we will hear the three of you without interruption and then we will have a question period. Please proceed.
GENERAL STATEMENT OF THE SECRETARY OF THE TREASURY Secretary CONNALLY. All right.
Mr. Chairman, first let me express my personal appreciation to you and this committee for the opportunity to appear before you, particularly on such an historic occasion. If I may be permitted one moment of levity, I am proud to appear on a day in which the distinguished Chairman has followed the sage advice of the poet when he said, “Be not the first on whom the new is tried nor the last to lay the old aside."
We are proud to be a part of this first televised hearing before this committee that has been in existence for well over 100 years.
May I also, Mr. Chairman, take this occasion to express to you and in front of this distinguished committee, my personal long, deep and abiding admiration as well as respect for you as an individual and as a Member of Congress.
Mr. Mahon. That is very appropriate from the gentleman.
Secretary CONNALLY. Mr. Chairman and members of the committee, I am pleased to appear before you today to discuss Treasury operations as related to the budget, with particular reference to our revenue estimates.
The table appended to my statement presents the revenue side of the Federal Budget in considerable detail, but I will touch on a few of the highlights. Unified budget receipts in fiscal 1972 are estimated at $217.6 billion, an increase of $23.4 billion over fiscal 1971. (Federal fund receipts—excluding trust fund operations—are estimated at $153.7 billion in fiscal 1972, an increase of $14.6 billion over 1971). These estimates are based on the expectation that the GNP in calendar 1971 will total $1,065 billion, an increase of $88 billion over calendar 1970. This contrasts with a GNP increase of $45 billion in calendar 1970 over 1969. Corporate profits before tax in 1971 are estimated to be $98 billion-an increase of $16 billion over 1970.
The rise in budget receipts from fiscal year 1971 to 1972 will result mainly from the growth in economic activity expected in the next year