The possibility of further tax reductions must depend on the budgetary situation and the economic situation.  The level of anticipated expenditures for the fiscal year 1947 and the volume of outstanding public debt require the maintenance of large revenues.

Moreover, inflationary pressures still appear dangerously powerful, and ill-advised tax reduction would operate to strengthen them still further.

My decision not to recommend additional tax reductions at this time is made in the light of existing economic conditions and prospects.

2.  Borrowing and the public debt

The successful conclusion of the Victory loan marked the end of war borrowing and the beginning of the transition to postwar debt management.

Because of the success of the Victory loan, I am happy to report that the Treasury will not need to borrow any new money from the public during the remainder of the present fiscal year except through regular sales of savings bonds and savings notes.  Furthermore, a part of the large cash balance now in the Treasury will be used for debt redemption so that the public debt which now amounts to about 278 billion dollars will decrease by several billion dollars during the next 18 months.  The present statutory debt limit of 300 billion dollars will provide an ample margin for all of the public-debt transactions through the fiscal year 1947.  The net effect of the excess of expenditures and debt redemption on the Treasury cash balance, as compared with selected previous years, is shown in the following table: 

Excess Of budget expenditures, the public debt, and the treasury cash balance in selected years

Excess of At end of period

Budget ex- _____________________

penditures Public Cash bal-

Fiscal Year over receipts debt ance

1940 $3. 9 $43. 0 $1. 9

1945 53. 6 258. 7 24. 7 1946: 

July-Dec. 1945 18. 1 278. 1 26. 0

Jan.-June 1946 10. 5 275. 0 11. 9

1947 4. 3 271. 0 3. 2

Although the public debt is expected to decline, a substantial volume of refinancing will be required, because of the large volume of maturing obligations.  Redemptions of savings bonds also have been running high in recent months and are expected to remain large for some time.  The issuance of savings bonds will be continued.  These bonds represent a convenient method of investment for small savers, and also an anti-inflationary method of refinancing.  Government agencies and trust funds are expected to buy about 2.5 billion dollars of Government securities during the next 6 months, and 2.8 billion dollars more during the fiscal year 1947.  Through these and other debt operations, the distribution of the Federal debt among the various types of public and private owners will change, even though the total is expected to decline.