Most of the remaining debt—­more than 100 billion dollars—­is held by the commercial banks and the Federal Reserve banks.  Heavy purchases by the banks were necessary to provide adequate funds to finance war expenditures.  A considerable portion of these obligations are short-term in character and hence will require refinancing in the coming months and years.  Since they have been purchased out of newly created bank funds, continuance of the present low rates of interest is entirely appropriate.  To do otherwise would merely increase bank profits at the expense of the taxpayer.

The 275-billion dollar debt poses a problem that requires careful consideration in the determination of financial and economic policies.  We have learned that the problem, serious as it is, can be managed.  Its management will require determined action to keep our Federal Budget in order and to relate our fiscal policies to the requirements of an expanding economy.  The more successful we are in achieving full production and full employment the easier it will be to manage the debt and pay for the debt service.  Large though the debt is, it is within our economic capacity.  The interest charges on it amount to but a small proportion of our national income.  The Government is determined, by a resolute policy of economic stabilization, to protect the interests of the millions of American citizens who have invested in its securities.

During the past 6 months the net revenue receipts of the Federal Government have been about 20 billion dollars, almost as much as during the closing 6 months of 1944 when the country was still engaged in all-out warfare.  The high level of these receipts reflects the smoothness of the reconversion and particularly the strength of consumer demand.  But the receipts so far collected, it must be remembered, do not reflect any of the tax reductions made by the Revenue Act of 1945.  These reductions will not have their full effect on the revenue collected until the fiscal year 1948.

It is good to move toward a balanced budget and a start on the retirement of the debt at a time when demand for goods is strong and the business outlook is good.  These conditions prevail today.  Business is good and there are still powerful forces working in the direction of inflation.  This is not the time for tax reduction.

RECOMMENDATIONS FOR SPECIFIC FEDERAL ACTIVITIES

1.  War liquidation and national defense

(a) War expenditures.

The fiscal year 1947 will see a continuance of war liquidation and occupation.  During this period we shall also lay the foundation for our peacetime system of national defense.