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.

In the fiscal year that ended on June 30, 1945, almost wholly a period of global warfare, war expenditures amounted to 90.5 billion dollars.  For the fiscal year 1946 war expenditures were originally estimated at 70 billion dollars.  That estimate was made a year ago while we were still engaged in global warfare.  After victory over Japan this estimate was revised to 50.5 billion dollars.  Further cut-backs and accelerated demobilization have made possible an additional reduction in the rate of war spending.  During the first 6 months 32.9 billion dollars were spent.  It is now estimated that 16.1 billion dollars will be spent during the second 6 months, or a total of 49 billion dollars during the whole fiscal year.

For the fiscal year 1947 it is estimated, tentatively, that expenditures for war liquidation, for occupation, and for national defense will be reduced to 15 billion dollars.  The War and Navy Departments are expected to spend 13 billion dollars; expenditures of other agencies, such as the United States Maritime Commission, the War Shipping Administration, and the Office of Price Administration, and payments to the United Nations Relief and Rehabilitation Administration are estimated at 3 billion dollars.  Allowing for estimated net receipts of 1 billion dollars arising from war activities of the Reconstruction finance Corporation, the estimated total of war expenditures is 15 billion dollars.  At this time only a tentative break-down of the total estimate for war and defense activities can be indicated.

An expenditure of 15 billion dollars for war liquidation, occupation, and national defense is a large sum for a year which begins 10 months after fighting has ended.  It is 10 times our expenditures for defense before the war; it amounts to about 10 percent of our expected national income.  This estimate reflects the immense job that is involved in winding up a global war effort and stresses the great responsibility that victory has placed upon this country.  The large expenditures needed for our national defense emphasize the great scope for effective organization in furthering economy and efficiency.  To this end I have recently recommended to the Congress adoption of legislation combining the War and Navy Departments into a single Department of National Defense.