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EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON, D.C. 20503
FEB 2 8 1972
Honorable William D. Hathaway
Dear Mr. Hathaway:
I appreciate the opportunity afforded by your recent letter to discuss further the need for an outlay limitation in fiscal 1973.
As I stressed in the hearings before the House Appropriations Committee, the overriding fiscal policy consideration for the period immediately ahead is the need to provide sufficient economic stimulation to permit the rate of unemployment to be reduced. But this stimulation must be accomplished without rekindling runaway inflation by increasing spending to the point where the budget would be in deficit even under conditions of full employment. Tl!e full-employment spending guideline maintains the needed stimulus as long as excessive unemploymeni versisis, bui automaticaiiy turns it oii as the effects of stimulation begin to lead to inflation.
To make certain that the 1973 budget does not breach the full-employment principle, the President has proposed a ceiling on 1973 outlays. Further, he has recommended that this ceiling he enacted into law early, before the Congress has comp.leted action on any of this session's bills that would affect the level of spending in the fiscal year 1973. • For several reasons it is desirable that a rigid ceiling be established in legislation:
First, the enactment of such a limitation would serve as clear statement of intent. The President and the Congress would join in formally recognizing the urgent requirement to avoid inflationary spending.
Second, the legislation would be more than high sounding rhetoric bespeaking good intentions in that it would unequivocally provide the authority to force the spending total within the fiscal policy limit considered to be appropriate for the times. In this way it would correct a defect of Section 138 of the Legislative Reorcanization Act of 1916, which has been ignored by the Congress after only two years of experimentation. That legislative provision has been
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ignored because the Congress found that its legislative
Third, in its annual actions on authorizing legislation, the Congress has--quite understandably, because of the limited jurisdiction of its separate oversight committees-emphasized individual program objectives and its assessment of dollar needs or goals rather than making a realistic appraisal of the total resources available. This problem and the resulting so-called "authorization-appropriation gap" or pressure for "full funding" was discussed in my colloquy with Congressman Cederberg during the course of the hearing. Fourth, these annual authorization actions have made it extremely difficult and, in my opinion, politically painful for the Congress to limit appropriations in certain areas. Considering the difficulties, I believe the Appropriations Committees have tried to act responsibly, but their actions hielo been increasingly conditioned anú delayed by the separate authorizing measures. Further, the impact of the annual appropriating process on the budget total (and, hence on the total economy) has been limited by the use of trust funds and other mandatory spending authorizations, and by such devices as contract authority and borrowing authority in bills that do not receive the screening of the appropriations process. Somewhere, somehow, the Congress has to arrange for a judgment of each of its actions against the desired total and against all other actions affecting that total.
Finally, efficiency of program operations and optimal use of tax resources demand that we know before the fiscal year. begins the approximate total of budget outlays that the Congress considers appropriate, and that we start early in the year those actions needed to keep that total under control. When legislative action through December (or later) affects the total for the year beginning the preceding July 1, our objectives of efficiency, economy, and control are weakened and jeopardized.
This last point responds, at least in part, to the statement in your letter that if the Congress decided "to cut back on defense expenditures...and put that money into education, would the President spend the additional money appropriated for education?" In recent years, a number of members of Congress undoubtedly had this kind of trade-off in mind, but the result is always in doubt until the last appropriations bill is passed. For example, last year the appropriation bill for education was enrolled on June 30, but the military construction bill was not enrolled until November 16 and the Department of Defense bill not until December 15. The foreign assistance. appropriation bill for the year starting last July 1, as you know, has not been enrolled as of this writing.
Another reason we believe a legislated expenditure limit is desirable can be seen from an apparent inconsistency in the second and third paragraphs of your lett:er. In the second paragraph you grant that the President "has considerable discretion to spend or not spend," but ..n the third paragraph you seek assurances that he will not exercise at least a portion of his authority not to spend.
The very existence of a legal limit on outlays would remove this ambiguity. It could thus clarify ühe President's authority not to spend; obviously his authority to spend stems from the specific grants of authority made by the Congress. As you know, the President cannot spend funds the Congress has not provided, But if he must exercise his authority not to spend,, he will have to deny use of some of the fund's voted by the Congress, whether they were provided by approving his recommended amounts or by Congressional addition.
I assure you that the President's decision in such cases will be based on a careful consideration of requirements, with full weight given to the expressed wishes of the Congress. Although it obviously is impossible to insure in advance that each and every program would be funded at the level of the appropriation, let me assure you that our proposal has as its basis the desire to work with the Congress in the national interest.
Your letter also refers to the effects of Congressional action on budget outlays. While the Congress has kept within the recommended outlays in two of the past three years, for the
three-year period as a whole, the Congress has increased spending by $3.2 billion over the President's proposals. Further, these reports do not take into account many increases over the budget estimates that arise in the so-called "relatively uncontrollable" programs. While it is easy to dismiss such increases as "mis-estimates of the lidministration"-and to some degree they are--the fact is that they do represent payments out of the Treasury. They are part of our legacy from previous Presidents and/or previous Congresses, and most of the "mis-estimates" arise out: of changes in the external environment, changes that in a private enterprise economy are extremely difficult to forecast. Nevertheless, increased Federal spending for such activities are generally just as inflaticnary as increases enacted by a current session of the Congress--the impact on total Federal disbursements and total Federal borrowing in the priva ce capital markets is just the same. The President's proposal for prompt enactment of a fixed limitation on total outlays would require the Government to curtail other spending when the outlays for relatively uncontrollable programs rise. Such a requirement is especially appropriate at this time, when there is rather general agreement on the prospect of substantial expansion in economic activity and a concomitant reduction in the rate of unemployment. I hope that this discussion will assist you in understanding our position:
(Sigped) George P. Schultz
House Committee on Appropriations