GENERAL BUDGETARY SITUATION

Action designed to make the postal service self-supporting and to prevent large continued postal deficits rests on the sound principle of having the users of the mails pay for the services they demand. It also is vital to the achievement of a sound overall budgetary situation. In prosperous periods like the present it is of great importance that a budgetary surplus be achieved and applied to reduction of the public debt. Such a course is required if we are to keep the debt from going ever higher and if we are to help avoid inflation and maintain confidence in the stability of our currency. A continuing postal deficit also certainly slows down any progress toward tax reform.

Last January, the President estimated that the 1960 budget would be balanced, and he recommended policies and actions which would result in a budget surplus of $4.2 billion for 1961 to be used as a payment on our debt. After providing first for our national security and for relatively inflexible budgetary requirements, the policies in the 1961 budget represent a well-balanced approach for meeting the overall needs of the Nation within a total that we can support.

Events since January indicate that the budget for 1960 is likely to be in close balance. With respect to 1961, it is too early at this time to say with any certainty what effect congressional action and other developments will have on the final budgetary results; however, actions to date on appropriations and other bills, coupled with inaction on certain revenue proposals, would substantially reduce the proposed surplus. Furthermore, if no action is taken on postage increases, and if pay increases to Government employees and other revenue and expenditure proposals which are currently being given serious consideration in the Congress were to be enacted, we could end up with a substantial deficit in 1961.

CONCLUSION

This should not be a partisan issue. The Postmaster General's proposal is the product of extensive study and consideration of alternative solutions to the Department's financial dilemma. A rate increase at this time is justified by any objective standards of good government and good business.

At this time when national fiscal responsibility is so obviously needed, the equitable solution is to place the cost of postal services on those who use the mails for their profit and convenience. This is the solution called for by the Postal Policy Act; it is the solution recommended by the President and the Postmaster General; and it is, I believe, the solution which will best advance the interests of the American people as a whole.

The CHAIRMAN. Thank you, sir.

Are there any questions? Mr. Davis.

Mr. DAVIS. You state upon page 3 of your statement, Mr. Stans, that

such course is required if we are to keep the debt from going ever higher, and if we are to help to avoid inflation and maintain confidence in the stability of our currency. The continuing postal deficit also certainly slows down any progress toward tax reform.

We have around a half million employees in the postal department. The total number of Federal civilian employees runs about 2,340,000 I believe, at the present time.

Mr. STANS. Approximately that.

Mr. DAVIS. The postal employees constitute somewhere around one-fifth of the total employment. Do you regard the pay of these other nearly 2 million employees as contributing toward inflation and as a burden on the economy of the country, and if so, what proposal, if any, do you make about taking care of that?

Mr. STANS. Mr. Davis, I think the compensation of the Government employees in the Post Office and elsewhere is a necessary cost of doing business. I don't think it is either inflationary or deflationary to pay the going rate for the services that are represented by what these people could earn in private industry.

Mr. DAVIS. But you do consider it inflationary if you don't collect all that it requires to operate the Post Office Department.

Mr. STANS. I do, sir, if the consequence of that is to make it impossible for us to reduce our national debt over a period of time and in fact to make us show deficits from year to year. The situation is very simple. Perhaps I can clear it if I explain it a little more. In 1959 we had a deficit of $12.4 billion. We have always believed, at least over the last 30 to 40 years, that we could afford a deficit in a poor year, in a year of some emergency or other, provided in years of good times we did something about repaying the obligations created during the period of emergency.

Mr. DAVIS. Which we have not been doing.

Mr. STANS. Which we have not been doing.

Mr. DAVIS. I believe in 23 of the last 28 years-maybe it is 24 of the last 29-we have operated on a deficit basis.

Mr. STANS. That is correct. We have only had five surpluses in the last 29 or 30 years. Of course, they have been extremely small in relation to the size of the deficits that we built up during the same period of time. My concern simply is, sir, that if we do not maintain a substantial surplus in years of prosperity like the present, and if we don't continue to run deficits as the economic cycle occasionally turns down, that our debt is going to go up and up all the time. With that kind of a situation, it is bound to be inflationary. Of course, this is only one of the factors that can cause inflation.

Mr. DAVIS. If we ever stop the trend toward inflation it will take a whole lot more efficiency and economy than just balancing the postal budget, will it not?

Mr. STANS. Of course, Mr. Davis. This is only one element of my concern, yes.

Mr. DAVIS. That is all.

The CHAIRMAN. Mr. Gross.

Mr. GROSS. Mr. Stans, I would still like to hear an answer to Judge Davis' question as to the contribution that the increase in salaries on the part of other than postal workers would have and how that is to be met. You propose to meet the increase for postal workers with an increase in postal rates. How is it proposed to meet the increase for other governmental workers?

Mr. STANS. I am sorry; I didn't understand that Mr. Davis used the word "increase" in his question.

Mr. DAVIS. I might not have used the word "increase," but that is what I was driving at.

Mr. STANS. Then let me make it clear that I think that any increase in the compensation of Government employees, post office and elsewhere, which is in excess of the rate of compensation which those people could earn in private industry would certainly be an unwarranted expenditure. It would add to the Government's fiscal problems and to the extent that it does, of course, it is in an inflationary direction.

Mr. GROSS. Is the administration advocating a tax increase-let us get it right down on the table-to take care of the increases that would be paid other Federal employees, other than postal workers? Mr. STANS. No, it is not advocating any tax increase. It is our expectation that we can restrain Federal spending in the aggregate to the point where our national revenues will make it possible to cover our expenses and do something about payments on the debt, but this can be done only if we restrain increases in Federal spending. Mr. GROSS. A postal-rate increase is in the nature of a tax increase,

is it not?

Mr. STANS. I don't think that is a correct characterization, Mr. Gross. It is an imposition of a responsibility on the part of the people of paying for the specific services that they ask from Government. It is no more a tax increase than it is a tax increase if the local water rates in your community are increased in order to cover the cost of delivering the water. Each of these is on a metered basis.

Mr. GROSS. Or an increase in the gasoline tax to build roads. Mr. STANS. That is a different type of tax, but that is also a user tax and in that sense applies to the people who use the highways. Mr. LESINSKI. Mr. Stans, the last pay raise was supposed to have given an increase in the national gross product of something like $40 billion and therefore the Treasury would receive a lot more taxes for that reason. When you talk about taxes, what had the Department done in suggesting to the Ways and Means Committee to eliminate some of the tax loopholes in the present tax structure?

Mr. STANS. There are some recommendations to that effect in the budget message. There are recommendations for eliminating loopholes on the sales of depreciable assets, for eliminating the loopholes in the tax for cooperatives, eliminating certain loopholes in depletion allowances on natural resources, and so on. There are half a dozen such provisions in the budget recommendations this year. Mr. LESINSKI. That would be approximately how much? Mr. STANS. It would not be very much the first year. I think a relatively small amount of perhaps $50 million the first year. But it would grow to several hundred million in subsequent years.

Mr. LESINSKI. Some people claim an estimate of $9 to $12 billion is lost to the Federal Government.

Mr. STANS. I would like the witness to the Treasury Department who is going to follow me to testify to that. I think that is an exaggerated figure by a large margin. It all depends on your definition of a loophole. What some people consider a loophole other people might consider only equity. I think it is difficult to put a price on loopholes without getting a very careful definition of what you consider to be a loophole.

Mr. LESINSKI. My approach, Mr. Stans, to the postal rate bill is not simply to raise rates, but to eliminate such loopholes. That is the way I am approaching it. If there are loopholes somebody is getting an advantage.

Mr. STANS. The Ways and Means Committee held long hearings last fall on the subject of tax reform. A great many witnesses testified, some as to the need for tax reductions and others as to closing of loopholes. The committee has the matter under consideration. I understand it does not propose to act on any of those matters until next year.

Mr. LESINSKI. For instance, you allowed teachers to deduct their summer schooling, which might amount to $300 or $400. Wouldn't they be further ahead if the exemption rate was increased by $300? Mr. STANS. Will you restate the question?

Mr. LESINSKI. I will restate it. You allowed schoolteachers to deduct their summer schooling. Would not the teachers be further ahead if the exemption was raised from $600 to $800?

Mr. STANS. Obviously the schoolteachers would be ahead if they got an increase in exemption. As to whether or not it is a desirable or proper change to make, I would not have an opinion at the moment without knowing more about the facts.

Mr. LESINSKI. That is the whole approach to this thing. A little bit here and a little bit there and so forth. If you increased the overall exemption, the public would be further ahead and various people would be further ahead.

Mr. STANS. Of course, any increase in the exemptions of the size you mentioned applied generally to taxpayers involves a very, very large amount of money.

Mr. LESINSKI. $2.4 billion.

Mr. STANS. I think that is approximately correct. To find $2.4 billion of other revenues within the framework of our tax structure would be an extremely difficult thing to do unless you went to something like a broad based sales tax or something like that.

Mr. LESINSKI. On the other hand, if the $9 billion figure of tax loopholes is correct, you would still have more money than you had allowed under the loss of exemption.

Mr. STANS. If the $9 billion figure is correct, that would be true. But I seriously question whether anyone could find $9 billion of items that would reasonably be classified as loopholes.

Mr. LESINSKI. Thank you.

Mrs. GRANAHAN. Mr. Stans, is all this automation and mechanization included in your deficit? Is that making your deficit larger? Mr. STANS. You mean the money that is being spent for equipment?

Mrs. GRANAHAN. Yes.

Mr. STANS. It is part of the deficit. It has to be financed within the operations of the Post Office Department or the Federal Treasury. Mrs. GRANAHAN. I am just thinking, is it good housekeeping to do all this modernization at one time over the country? In other words, let us be very practical. This is probably a woman's view. If you buy a house and you want to make that up to date, you are going to have to spend a great deal of money at that time. Would it not be better housekeeping to do this gradually, instead of all of a sudden come before the committee with this terrific deficit and wanting to raise the rates of various classes of mail?

Mr. STANS. I would like to say two things about that. One, we would have a very large deficit of probably $450 million without the cost of modernization of the Postal Establishment. It would still

be large enough to require increases in postal rates. Secondly, I think the facts would show rather clearly that the need for modernization has been generated over quite a period of time, from what might be called neglect of the postal plant through many years prior to 1953. There is a great backlog of modernization required not only to improve the facilities, but to expand them in order to take care of the growing mail volume, the creation of new suburbs and all of those factors.

Mrs. GRANAHAN. I understand that. I can't quite reconcile the idea that all this automation and mechanization is giving us better service because I can definitely prove it is not.

Mr. STANS. Mrs. Granahan, I would be a prejudiced witness on that, because as you know, I spent more than 2 years in the Post Office Department.

Mrs. GRANAHAN. Yes; I know.

Mr. STANS. I think the Department could supply much better evidence than I could as to the caliber of service today. I suppose always there are instances in which the human element for one reason or another causes mail to be delayed. I would be very much surprised and tremendously disappointed if it were not provable that the mail service today is much better than 8 years ago.

Mrs. GRANAHAN. Maybe in some parts of the country, but I could almost poll a great many Members of Congress who agree with me. We get constant complaints. I said many times before the committee that I have doctors in my district whose mail is delivered at 5 o'clock in the afternoon. I cannot mail a letter to my Philadelphia office today and be certain it would be delivered tomorrow. I call that poor service.

Mr. STANS. I should find it hard to debate this with you, Mrs. Granahan, because I don't have any of the facts at my command. I think the Post Office Department and the Postmaster General would be most happy to know about these complaints. My own experience is that the service is much improved.

Mrs. GRANAHAN. I have spoken to the Postmaster General and he was going to furnish me, after investigation, with a report, but I have not yet received it. That was some time ago. Thank you.

The CHAIRMAN. Mr. Stans, do you look for a balanced budget this fiscal year?

Mr. STANS. Mr. Chairman, unless there are sudden emergencies that develop or retroactive legislation or things like that, I expect that our budget will be in balance on June 30. It will be balanced by a relatively small amount, but it will be in the black.

The CHAIRMAN. How much is our Federal indebtedness now? Mr. STANS. It is somewhere between $285 billion and $290 billion at the moment.

The CHAIRMAN. What is the interest on that each year?

Mr. STANS. The interest on that this year is going to be close to $9.3 billion. As I have said before, Mr. Chairman, 11 cents out of every dollar of taxes, or one-ninth of our taxes, go just to pay interest on the debt.

The CHAIRMAN. How long ago did the Government operate on that amount for its entire fiscal operations for a year?

Mr. STANS. In 1940, the entire expenditures of the Federal Government were $9 billion. That means that 20 years ago we ran the entire Government of the United States for what it now costs to pay interest on our debt.