Deficits as a Policy

February 4, 1963

Mr. Kennedy is the first President who has ever openly advocated deficit-financing as a policy. He is planning a deficit of $11.9 billion for the fiscal year 1964 and expects deficits in succeeding years. He lumps them all together by calling them a “temporary deficit.” Eventually, because of the stimulus that a huge tax cut combined with increased expenditures is expected to give to the economy, these “transitional” deficits are expected to cure themselves and bring about a surplus.

Taxpayers will uneasily remember that they have heard all this before. They have been hearing it off and on, in fact, ever since the days of the New Deal. “It has taken courage for the Federal government to go into the red,” said Franklin D. Roosevelt on July 8, 1938, “but it has been worth it.” Somehow the promises that deficits would bring surpluses have never been kept. We have had 27 deficits in the last 33 years.

Is there any prospect that the theory will work better this time? Before we try to answer that question, let us see what is being proposed.

Mr. Kennedy is proposing that the Federal government spend in fiscal 1964 more than it has ever before spent in its history, in peace or war. He is asking for “administrative” expenditures of $98.8 billion This tops even the $98.4 billion of the peak war year, 1945. In the cash budget (which includes old-age pensions, etc.) he proposes to spend the unparalleled sum of $122.5 billion.

NON-DEFENSE SPENDING

Throughout his Budget Message the President gives the impression that this record budget is brought about mainly by increased defense expenditures. That thesis cannot be maintained. True, he is proposing defense expenditures for 1964 of the record amount of $55.4 billion. But as total cash expenditures will reach $122.5 billion, this means non-defense expenditures of $67.1 billion.

And non-defense spending has risen faster than defense spending. If we compare 1964 with 1954, we find that while total defense expenditures have increased $8.4 billion, non-defense expenditures have increased $22.9 billion and, counting social security, etc., $42.2 billion.

If Congress is sincerely looking for places where it can cut the budget, it need not look far. It might look at the scheduled expenditures of $4.2 billion for space research connected with defense), at the $3.7 billion scheduled for foreign aid, at the $5.8 billion for farm programs, at the $6.7 billion for “commerce and transportation,” at the $1.1 billion for housing subsidies, at the $6 billion for veterans’ programs, and at the glorious $27.4 billion for “health, labor, and welfare.”

NO FOURTH DIMENSION

The President speaks of all these and many more programs as “a necessary payment on future progress.” He insists that others “are for activities which will promote increased productivity and economic growth, yielding substantial benefits in the future.” But this is to talk as if the money for these programs came out of some fourth dimension. It is to forget that it is taken away from the taxpayers. It does not “meet more national needs.” It causes every tax-paying family to meet fewer of its own needs. It leaves less for private persons and private business to invest in the future, in increased productivity or economic growth.

So far we have taken the budget estimates at face value. But suppose, as there are strong reasons for thinking, that expenditures are even more than $98.8 (or in cash, $122.5) billion; that revenues are less than $86.9 billion, and that the deficit is more than $11.9 billion? This is more than possible. A year ago the President estimated a surplus for the current fiscal year of $500 million. This has now become an expected deficit of $8.8 billion, because expenditures are $1.8 billion more and revenues $7.5 billion less than he estimated.

The budget that Mr. Kennedy has submitted, in brief, is irresponsible. Even if the deficit is no greater than the $11.9 billion he estimates, the course he proposes of raising expenditures and cutting taxes can lead only to more inflation, and will undermine confidence in the world’s anchor currency, the dollar.