Fiscal year 1974 outlays

June 1 estimate..

Billions of dollars 268. 7

Completed congressional actions:

Food stamp liberalization and repeal of wheat processing charges_.
Veterans programs, including inactions on proposed savings_.
Advance of Federal pay raise_.

1.1

0.4

0.3

Interest received and other offsets (i.e., payments to Government accounts)

-0.7

Outer Continental Shelf rents and royalties (offset against outlays).
Other changes (net)-.

-2.3

-0.2

Subtotal, other changes____

-1.1

Current estimate_____

270.0

Mr. ASH. The relentless upward pressure on Federal spending will not cease with the publication of this revised estimate. For one thing, the uncontrollable outlays of the Federal Government are not immune to the effects of inflation.

If we have underestimated these effects, uncontrollable outlays will be even higher than we now anticipate. Should these outlays be higher, offsetting reductions will have to be made elsewhere if the objective of a balanced budget is to be realized.

The main threat to a balance comes not from uncontrollable outlays, however; it comes from legislation currently pending before the Congress and from inaction by the Congress on savings proposed by the administration in the budget submitted in January.

Unavoidably, therefore, the main burden of the responsibility for achieving a balanced budget this year rests on the Congress.

Bills that are currently being considered by the Congress, together with congressional inaction on savings proposed by the President, could easily add $5 billion in 1974 spending.

These bills and inactions include:

A proposed social security benefit increase, $1.4 billion.

Inaction on proposed savings in HEW and veterans programs, $1 billion.

Labor-HEW appropriations, $0.9 billion.

Emergency employment, $0.8 billion.

Urban mass transit operating subsidies, $0.3 billion.

Federal employees' benefits, $0.3 billion.

Loss of planned Postal Service payment to Civil Service Commission, $0.3 billion.

The statutory limitation on the debt requested by the President assumes that a balanced budget will be realized this fiscal year.

It assumes, therefore, that the Congress will not take actions that increase Federal spending beyond about $270 billion, or that if increases

were voted, offsetting decreases will be enacted, too-but not in national defense programs.

This last point is crucial. The President has said time and again that it would be a fatal mistake to attempt to balance the budget by adding to domestic programs and then taking that amount out of defense.

In constant dollars, the defense budget-which is a price we pay for freedom, and the price we pay to enjoy all our benefits-is already $10 billion less than in 1964, before the Vietnam war began. Further cuts would risk weakening our national security.

BUDGET TOTALS

The following table compares the current estimates with the estimates used in June.

Mr. Asн. As was noted earlier, in June the deficit for the 2-year period, fiscal years 1973 and 1974, was estimated at $201 billion. Our current estimates contemplate a $1412 billion deficit for the 2-year period.

We must not be lulled into complacency by the upward revisions in estimated receipts, which account for the improvement in the budget outlook since June. Because these higher receipts result from higher than anticipated price increases, the need for spending restraint is greater, not less.

FEDERAL FUNDS TOTALS

The Federal funds part of the budget, which is the basis on which estimates of the public debt and the debt limit are calculated, also shows an improved position since June. The 1973 deficit proved to about $3 billion below the June estimate, and the currently estimated deficit for 1974 is more than $312 billion below the earlier estimate. Additional information on the budget by funds groups is shown in the attached tables 1 and 2.

TABLE 1.-CHANGE IN BUDGET RECEIPTS AND OUTLAYS, BY FUND GROUP

TABLE 2.-CHANGE IN BUDGET SURPLUS OR DEFICIT (-) BY FUND GROUP

Mr. ASH. The proposed statutory debt limit is calculated on the assumption that the fiscal year 1974 budget will be balanced at approximately $270 billion. While both the receipts and the outlay estimates are tentative and subject to change, the balance that they show is achievable if the Congress does not vote the spending increases that it is currently considering.

It is imperative that we not allow 1974 spending to rise further. The months that have passed since June have confirmed the wisdom of the policy of fiscal restraint and the urgency of the need for the

Congress and the administration to join in a concerted effort to assure that restraint is achieved.

To repeat, we must not be lulled into complacency by the upward revisions in estimated receipts. These revisions result from higher than anticipated price increases and thus make the need for spending restraint more urgent, not less.

We are confident that the Congress will join us in making spending restraint in 1974 a matter of the highest priority.

Passage of the requested statutory limitation on the Federal debt will be a clear sign of concurrency by the Congress in the objective of holding spending to around $270 billion.

Thank you, Mr. Chairman.

Mr. ULLMAN. Thank you, Mr. Director.

Does that complete your testimony, Mr. Secretary?

Secretary SHULTZ. Yes, sir.

Mr. ULLMAN. Mr. Secretary, would you run through the tables for us very quickly so that we know exactly where we are? On table I, you have the public debt subject to limitation, for fiscal 1974, and you have the actual debt on June 30 with a $12 billion operating balance. You have $459 billion on July 31, with a smaller cash operating balance, $7.2 billion. You have $462 billion in August and $462 billion in September.

Now, the estimated debt for the rest of this year will be $465 billion October 31, $467 billion on November 30, and $467 billion on December 31.

What are the assumptions on which you base your estimate of a $6 billion cash balance that will be the actual public debt?

In 1974, with a $6 billion operating cash balance, you go to $467 billion; $468 billion in April; $475 billion in May; and $468 billion on June 30. You are asking for a $3 billion contingency amount. That would make the maxmum $478 billion.

What are you asking for, Mr. Secretary, in the way of an increase, both timewise and amountwise?

Secretary SHULTZ. We are asking for an increase from $465 to $480 billion. In other words, a $15 billion increase to take us through to the end of the fiscal year.

Mr. ULLMAN. To June 30.

Now, the actual debt subject to limitation, the peak would be $475 billion, would it not?

Secretary SHULTZ. $478 billion we would say. I think the margin here is very narrow. This is sort of the traditional margin, the 6 and 3, and it has been there for quite some time.

A point that I wanted to make as strongly as I could is that the larger the budget is, the less in percentage terms this margin really gives you. In other words, we are talking here about estimates; we are trying to make them as accurate as we can. We have put forward round numbers here, and we think the budget can be balanced in the vicinity of $270 billion.

But it only takes a 1-percent change. If we are 1-percent high on the revenues and 1-percent low on the outlays-and those are not big errors in this business-then that amounts to over $5 billion right there. So this margin for contingencies is actually looking smaller and smaller as these numbers mount.

23-030-73-2

Mr. ULLMAN. Although, Mr. Secretary, the unified budget should be in balance this year, if there are traditional expenditures-and that is a rather big "if" what do you anticipate that additional expenditures, because of the Mideast situation, might run?

Secretary SHULTZ. I think I had better defer to Director Ash on that. I don't think we can give you a precise estimate at this point. Mr. Asн. It is, of course, too early to know what actually will be involved, but if we were to make a very rough estimate based on the limited amount of knowledge that is even now available, we are talking about an outlay effect in this fiscal year of probably under, and maybe even considerably under, $1 billion. That is an outlay figure, which of course, is what we are dealing with here. I am talking only about outlays which run through this fiscal year. I must say this is a very tentative number. We will only know as further facts unfold.

If you will, put in your minds that $500 or $700 million would be a reasonable estimate at this moment.

Mr. ULLMAN. Mr. Secretary, with a unified budget in balance, we still have the Federal funds budget out of balance to the tune of about $15 billion. Is that right?

Secretary SHULTZ. Yes, sir. I think it is interesting to keep reminding ourselves that in transactions with the public-Federal receipts from the public, Federal payments to the public-the Federal funds are in surplus. But it is the large payment from Federal funds to the trust funds that in effect puts the trust funds in surplus and the Federal funds in deficit. But that is just a side point worth noting. The Federal funds budget is in deficit by about $15 billion, and the unified budget is in balance for fiscal 1974.

Mr. ULLMAN. Mr. Secretary, if we exclude the Federal trust funds as we always did prior to the beginning of the unified budget about 5 years ago, is it true that there would be a Federal budget deficit of $15 billion?

Secretary SHULTZ. That is a close approximation.

Mr. ULLMAN. Why is that, Mr. Secretary? Is this Federal funding budget giving us incentives for deficit operation, taking advantage of trust fund surpluses to continue to outspend revenues in our Federal operation?

Secretary SHULTZ. I believe that it is important to look at the budget in various ways, including the impact of the budget on the economy. From the standpoint of the impact of the budget on the economy, the unified budget-which is more or less a measure of what the cash inflows and outflows amount to-is a better measure than the Federal funds budget. That was what came out of the study made back in the late 1960's during the Johnson administration, chaired by former Secretary of the Treasury Kennedy.

For that reason, I think the unified budget is a proper one to look at when we are talking about fiscal policy as related to the economy. Of course when it comes to the debt limit, we have to look at the Federal funds budget.

Mr. ULLMAN. That is the only meaningful budget when we are talking about a debt ceiling?

Secretary SHULTZ. That is right.

Mr. ULLMAN. I want to get back to you later on, Mr. Secretary. Now I recognize Mr. Schneebeli.