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The Army funds provide for the training and maintenance of a force of men increasing from 250,000 in June 1940 to 1,400,000 in 1942, equipped with the most modern devices of motorized and mechanical warfare. The Navy estimates continue the construction of our over-all Navy and contemplate the doubling of naval personnel. There is provision for a great increase in the number of Army and Navy planes and for training pilots, technicians, and ground crews.

Behind the lines a whole new defense industry is being built with the financial support of the Federal Government. One hundred and twenty-five new plants are under contract; more are planned.

In submitting these recommendations, I have not covered the full requirements of the civilian training program. At present, surveys are

. under way which will provide a basis for transmitting an estimate of funds needed for the extension of this essential defense activity. In the current fiscal year, over a million men and women are included in the various programs of apprentice training, vocational training in trade schools and engineering colleges, work-experience shops, and pilot training

Expenditures under the defense program during the last six months amount to 1,750 million dollars. This is two and one-half times the amount spent for national defense in the same period of the fiscal year 1940. However, these expenditures understate the progress already made. In six months, contracts and orders for 10 billion dollars have been placed. This means that in addition to present defense production, all over the country more factories, large and small, are getting ready rapidly to increase production. Once these preparations have been completed actual deliveries and expenditures will be greatly accelerated.

I expect actual expenditures to be stepped up to four and threequarter billion dollars in the six months ending June 1941 and to almost 11 billion in the fiscal year 1942. We shall actually expend more than 25 billion dollars for defense within a 3-year period. This can be accomplished, but only if management, labor, and consumers cooperate to the utmost.

NON DEFENSE EXPENDITURES

The increased military expenditures permit a substantial reduction in nondefense expenditures, particularly for those activities which are made less necessary by improved economic conditions. Obligations such as interest, pensions, and insurance benefits are fixed. Almost as fixed are the appropriations for which the Congress has already

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It is our policy to retain the ideals and objectives of our social and economic programs in the face of war changes. The costs of those programs affected by economic activity are flexible. Because of the defense effort some of these programs can be carried on at a lower cost. In other cases, no curtailment is possible without sacrificing our objectives.

We should realize, however, that even with a fully functioning defense effort there will remain special areas of need and that social security, agricultural benefits, and work relief contribute to total defense in terms of the health and morale of our people.

Social-security programs.-I recommend the continuance in full measure of the social-security programs. This includes not only the payment of old-age benefits as required by law but also aid to youth and continued payments toward the State aid of old persons not covered by the insurance benefits; aids to children and to the physically handicapped. In total, these services will require approximately the same expenditure as in the current fiscal year, except for some increase in grants to the States as required by law.

Furthermore, I deem it vital that the Congress give consideration to the inclusion in the old-age and survivors insurance system and the unemployment compensation system of workers not now covered.

Agricultural programs.--The increased domestic market for farm products, resulting from defense expenditure, will improve the income position of many farmers. At the same time the curtailment of foreign markets, particularly in cotton, wheat, and tobacco, would leave large numbers of these farmers in a serious plight without the continuance of the farm programs. After weighing both of these factors, I estimate a reduction of 45 million dollars in the agricultural programs. We are definitely maintaining the principles of parity and soil conservation.

Public works. During this period of national emergency it seems appropriate to defer construction projects that interfere with the defense program by diverting manpower and materials. Further, it is very wise for us to establish a reservoir of post-defense projects to help absorb labor that later will be released by defense industry.

With this in mind, I am recommending reductions for rivers and harbors and flood-control work. Where possible, without placing the projects or the water users thereof in jeopardy, reductions are proposed in the expenditures for reclamation projects. I have requested that further contracts for the construction of public buildings outside the District of Columbia be held in abeyance for the present. On the other hand, I have recommended funds for power and other projects considered essential to national defense.

Projects under construction, or on which bids have been solicited, will go forward to completion. Throughout the Federal service other projects are being deferred until a more appropriate time. However, surveys and the planning of new projects will go forward so that construction can be resumed without delay. This will produce a long list of public work projects, apart from defense construction, arranged according to priorities. Such a list could be submitted to a future Congress for the appropriation of funds to put it into operation.

Work Projects Administration.-- The defense program has already resulted in a substantial increase in production, employment, and national income. Although industrial production is now running 20

235000—40-1

percent above the average level of 1929, there are still many persons either unemployed, or employed as emergency workers, or incapable of steady employment.

The defense program will lead to further reemployment, and also to a further increase in the labor force and to a shift from part-time to full-time or over-time employment. But even under the full defense program we cannot expect full absorption of the labor force because some people just cannot be fitted into the picture. There will be some localities with a labor shortage at the same time that others have a labor surplus. There will be shortages of particular skills and aptitudes at the same time that others are in surplus.

I recommend an appropriation of 995 million dollars for work relief for the full fiscal year. This is 400 million dollars less than the amount required for the present fiscal year. It will not be necessary to use this full amount if the defense program should result in a more general reemployment than is presently indicated. The expenditure can also be reduced if employers will contribute by hiring unskilled or semiskilled or older workers for those jobs where special skills are not required.

We must face the fact that even with what we call “full employment" there will remain a large number of persons who cannot be adjusted to our industrial life. For this group, the Government must provide work opportunities.

FINANCING THE NATIONAL PROGRAM

Estimates of expenditures and revenue compared.--The defense program dominates not only the expenditure side of the Budget, but influences also the expected revenue.

Economic activities and national income are rising to record heights. From a higher national income a greater revenue will flow, although in the case of most taxes there is, of course, a time lag. The revenue for the fiscal year 1941 will reflect some of the increase in defense activities; the revenue for the fiscal year 1942 will be affected to a larger extent; but the full impact will not be felt before the fiscal year 1943.

The revenue for the fiscal year 1942 is expected to be 9 billion dollars. It will exceed the revenue collected in the fiscal year 1940—the last year before the start of the present defense programby 3 billion dollars. One-half of this increase will come from the defense taxes already enacted by the Congress, the other half from the increase in national income.

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