FEDERAL GOVERNMENT FINANCE

The first requirement of confidence and of economic recovery is financial stability of the United States Government.  I shall deal with fiscal questions at greater length in the Budget message.  But I must at this time call attention to the magnitude of the deficits which have developed and the resulting necessity for determined and courageous policies.  These deficits arise in the main from the heavy decrease in tax receipts due to the depression and to the increase in expenditure on construction in aid to unemployment, aids to agriculture, and upon services to veterans.

During the fiscal year ending June 30 last we incurred a deficit of about $903,000,000, which included the statutory reduction of the debt and represented an increase of the national debt by $616,000,000.  Of this, however, $153,000,000 is offset by increased cash balances.

In comparison with the fiscal year 1928 there is indicated a fall in Federal receipts for the present fiscal year amounting to $1,683,000,000, of which $1,034,000,000 is in individual and corporate income taxes alone.  During this fiscal year there will be an increased expenditure, as compared to 1928, on veterans of $255,000,000, and an increased expenditure on construction work which may reach $520,000,000.  Despite large economies in other directions, we have an indicated deficit, including the statutory retirement of the debt, of $2,123,000,000, and an indicated net debt increase of about $1,711,000,000.

The Budget for the fiscal year beginning July 1 next, after allowing for some increase of taxes under the present laws and after allowing for drastic reduction in expenditures, still indicates a deficit of $1,417,000,000.  After offsetting the statutory debt retirements this would indicate an increase in the national debt for the fiscal year 1933 of about $921,000,000.

Several conclusions are inevitable.  We must have insistent and determined reduction in Government expenses.  We must face a temporary increase in taxes.  Such increase should not cover the whole of these deficits or it will retard recovery.  We must partially finance the deficit by borrowing.  It is my view that the amount of taxation should be fixed so as to balance the Budget for 1933 except for the statutory debt retirement.  Such Government receipts would assure the balance of the following year’s budget including debt retirement.  It is my further view that the additional taxation should be imposed solely as an emergency measure terminating definitely two years from July 1 next.  Such a basis will give confidence in the determination of the Government to stabilize its finance and will assure taxpayers of its temporary character.  Even with increased taxation, the Government will reach the utmost safe limit of its borrowing capacity by the expenditures for which we are already obligated and the recommendations here proposed.  To go further than these limits in either expenditures, taxes, or borrowing will destroy confidence, denude commerce and industry of its resources, jeopardize the financial system, and actually extend unemployment and demoralize agriculture rather than relieve it.