AT LEAST $33 BILLION OF GOVERNMENT OBLIGATIONS OWNED BY THE GOVERNMENT ITSELF ARE BEING COUNTED AS OUTSTANDING Several Government agencies, including the Treasury, are holding Government debt obligations which they have bought with Government money. By far the biggest amount are in possession of the Federal open market, of the Federal Reserve System. This is the most powerful Committee on earth. They pass on monetary policy; they determine the volume of money and the cost of money. This Federal Open Market Committee has the power under a law that was passed in 1935 to buy Government bonds and pay for them with Government money. In the last analysis they pay for these bonds with Federal Reserve notes that are printed at the Bureau of Engraving and Printing here in Washington. Every one of those Federal Reserve notes says on it-take one and look at it-the Government of the United States promises to pay the bearer on demand so many dollars. That is a Government obligation. The Federal Reserve takes those Government obligations that are noninterest bearing and trade them for U.S. Government obliga ations that are interest bearing. If you will you take the RECORD that came out this morning and turn to page 21193. You will find there a speech I made yesterday outlining this procedure. BONDS HELD BY THE FEDERAL RESERVE HAVE BEEN PAID FOR WITH PUBLIC MONEY The Federal Reserve takes our money, our Government obligations and buys our bonds. They have bought and are holding $32.4 billion worth of those bonds. The debt represented by those bonds has been paid off. It has been paid off by the Government of the United States, yet these Treasury bonds, bills, certificates and other interest-paying obligations are still carried as part of our national debt subject to the debt ceiling. That is wrong and, intellectually, dishonest. It is deceit. I do not accuse the Federal Reserve people of any wrongdoing in this matter, because they feel they are carrying out a duty under the law. It is the way the law is stated-the Second Liberty Bond Act that sets the debt ceiling-that is in The Federal Reserve is a Government institution, it is not privately owned. It holds these bonds that have been paid for and collects the interest on them-to the tune of about $1 billion a year. What do they do with that $1 billion? They spend it for any purpose they please and then return whatever is left over to the Treasury. It does not go through Congress; it is not appropriated; it is not in the budget; and it is not audited by the General Accounting Office. As I said in my speech, I hope to excite the interest of those Members who are so intensely interested in "back-door spending." The Federal Reserve lives on the biggest and most free wheeling spending that was ever invented. It is just the same as the Secretary of the Treasury taking Uncle Sam's purse with $1 billion in it and throwing it over to the Federal Reserve on the first of the year and saying to the Chairman of the Federal Reserve Board, "You fellows spend all you want of this $1 billion, and what you have left over, just throw it back into the Treasury and let the taxpayers have the benefit of it." That is how loosely this thing is handled. What I am saying nobody can contradict, because I know the story. Over a period of 25 years I have interrogated these people, the high ones and the low ones, and I know what they would say in answer to almost any question you could put to them. This debt has been paid-this $32.4 billion. Why carry it as outstanding national debt? That is the question. How can you answer that? If you think I may be wrong, you could answer it, if I were permitted to offer an amendment we could then discuss the amendment. Then you could have your mind clear as to whether or not you should vote for the amendment. CONGRESS HAS TIME TO CONSIDER AND DEBATE AMENDMENTS So, all I ask you to do is to vote against the previous question, so as to make it possible for me to offer an amendment possible for me to offer an amendment to the rule that will make amendments germane. That is what I ask you to do. And, then, if that is voted down, I ask And, then, if that is voted down, I ask you to vote against this gag rule. Mr. Speaker, we have plenty of time in which to consider this national debt limit bill. There is no reason to be rushing here when most of us have been working only 2 or 3 days a week, practically all this year. Furthermore, we have from now until January 3, because we will not actually get out of here until the Constitution moves in at noon on January 3 and causes the 2d session of the 88th Congress to commence. So I ask you, my friends, to take that speech of mine in yesterday's CONGRESspeech of mine in yesterday's CONGRESSIONAL RECORD at page 21193 and you will find in there good reasons for voting against this gag rule. BUSINESS FIRMS AND INDIVIDUALS DO NOT COUNT DEBT THAT HAS BEEN PAID OFF AS DEBT STILL OUTSTANDING Let us suppose that Mr. Martin, Chairman of the Federal Reserve Board, the honest, sincere gentleman that he is, were a good friend of yours, and you went to him and you said, "Bill, I owe $10,000 on my home." The SPEAKER. The time of the gentleman from Texas has expired. Mr. BOLLING. Mr. Speaker, I yield the gentleman 2 additional minutes. Mr. PATMAN. Suppose you said to Bill Martin, "I owe $10,000 on my home. Here is $10,000 of my money, will you please go buy that mortgage for me. Bill Martin would take your money and he would go buy that mortgage. Furthermore-and this is the point-he would have that mortgage canceled. He would not go put it in his lock box, as though it were his, and every year call on you to pay him interest on that canceled debt. debt. That is the same thing that is involved here. Uncle Sam's money has been used to buy Government bonds. been used to buy Government bonds. The bonds that have been purchased have been redeemed; they are not outstanding debt. HOW THE BILL COULD BE AMENDED TO Mr. JONAS. Mr. Speaker, will the gentleman yield? Mr. PATMAN. Yes, I yield to the gentleman from North Carolina. Mr. JONAS. Will the gentleman from Texas read the amendment which the gentleman would offer if permitted to do so? Mr. PATMAN. Yes, I would be glad to. It reads as follows: Strike out all after the enacting clause and insert: "That the first sentence of section 21 of the Second Liberty Bond Act, as amended (31 U.S.C. sec. 757b), is amended by inserting (except such obligations as may be owned by Federal Reserve Banks)' after "The face amount of obligations issued under this Act.'" It is very simple. It simply says that the $32.4 billion in bonds that have already been paid for by the Government will not be counted as debt still outstanding. This amendment would not change the Federal Reserve Act, and it Federal Reserve; it only says that for would not change any practices of the the purposes of maintaining a ceiling on the public debt that can be outstanding at any one time, we will count accurately the amount of debt that is actually out standing. Why is this debt-increase bill necessary? Simply because under present law the Federal Government is using an irrational and misleading method of counting the amount of Federal debt that is outstanding. If we followed the commonsense method used by every business firm and every individual, we would not count as outstanding those debt obligations which have been purchased by the Federal Government itself and are being held by the Federal Government on behalf of the general public. AMOUNT OF FEDERAL SECURITIES THAT ARE PUBLICLY OWNED WILL CONTINUE TO INCREASE There are several very good reasons why the Federal Government ought to follow normal, commonsense bookkeeping in accounting for the Federal debt. One reason is that the Government is acquiring more and more of its debt obligations, and it will continue to acquire increased amounts in the future. Therefore, if we continue the present irrational method of counting outstanding debt, we will cause needless difficulties and complications in managing the Government's fiscal affairs, and we are also going to mislead the public more and more about the amount of the debt. As I pointed out to the Rules Committee yesterday, the amount of Government obligations owned by the Government itself has grown in the past and must necessarily grow in the future. At the end of June 1929 the amount of Government securities held by the Federal Reserve was $2 billion. At the end of 1939 it was $2.5 billion. At the end of 1950 it was $20.7 billion. At the end of 1960 it was $27 billion. At the end of 1962 it was $30.5 billion, and it is now $32.4 billion. Why must the Federal Reserve's holdings of Government securities continue to grow? Because this is part of the system of providing for an increase in the Nation's money supply. Most of our money today is in the form of what is called "checkbook money," or deposits in the commercial banks. The commercial banking system can expand this money only in rough proportion to expansions in their reserves. The method by which the Federal Reserve expands bank reserves is by purchasing Government securities. When the Federal Reserve decides it is appropriate to increase bank reserves by, say, $1 billion, it does so by buying $1 billion worth of Government securities from the open market. The private commercial banks can then expand their deposits on a ratio of about 10 to 1. That is to say, they can expand bank deposits by $10 billion as a result of a $1 million increase in their bank reserves, brought about by the Fed's purchase of $1 billion of Government securities. The money supply must be increased from year to year, to keep up with the growth in economic transactions which are effectuated by transactions in money. It is not likely that the Federal Reserve will ever have to sell any substantial amount of its holdings. But if it does, under the amendment I propose we would exclude from the debt ceiling on any particular day only the amount of Federal debt obligation the Federal Reserve owned on that particular day. GOVERNMENT SECURITIES HELD IN TRUST FOR PARTICULAR SEGMENTS OF THE POPULATION ARE PROPERLY COUNTED AS OUTSTANDING DEBT Let me make clear that the bookkeeping method I propose would still count as subject to the debt ceiling those debt obligations which are held by the Government in trust funds, such as the civil service retirement fund, the old age and unemployment compensation funds, the Federal Deposit Insurance Fund, the Postal Savings Fund, and so on. The general public does not own these securities, and they should continue to be counted as outstanding debt. Federal agencies held on August 30, some $58 billion of Federal obligations in such trust funds. In these cases, the Government is merely acting as trustee on behalf of particular claimants or particular segments of the population. FEDERAL GOVERNMENT IS NOT ABOUT TO GO BROKE Now let me also make clear that the reason I will vote against this bill is not that I think it will reduce Government spending. When we set a debt ceiling, we are only second guessing what we have already done when we voted for the appropriation measures. It is a ritualis tic exercise which has little practical effect except to make life difficult for the Secretary of the Treasury, by making it difficult for him to finance what we have already ordered him to finance. Furthermore, I do not think that the Federal Government is approaching in solvency. True, we now have a debt of $307 billion, or a real debt of approximately $274 billion, if we exclude the debt obligations which the Government has paid for and are no longer outstanding. But the Federal Government owns assets in excess of $300 billion. The last annual Federal Real and Personal Property Inventory Report of the House Committee on Government Operations, which was as of June 30, 1962, more than a year and 5 months ago, then showed that the real and personal property holdings of the Federal Government amounted to $300 billion, and this was an understatement. That report showed that the Government owned approximately 772 million acres of real estate, most of which was appraised, for the purpose of the inventory report, at its purpose of the inventory report, at its acquisition cost, rather than its presentday value. In other words, the $300 billion asset figure contains real estate valued as of the time the Indians were roaming most of our national parks and even many of our post office sites. To illustrate, the approximately 12 acres of the White House grounds are valued at a total of $1,000. If the Federal Government is approaching insolvency with a reported debt of $307 billion, and a real debt of $274 billion, then so is every private bank in the country. THE FEDERAL DEBT IS BEING REDUCED RELATIVE TO OUR ABILITY TO PAY Therefore, Mr. Speaker, I feel very strongly that the previous question should be ordered and the closed rule passed. Mr. Speaker, I move the previous question. The SPEAKER. The question is on ordering the previous question. The question was taken; and on a division (demanded by Mr. BROWN of Ohio) the previous question was ordered. The SPEAKER. The question is on the resolution. The question was taken; and on a division (demanded by Mr. BROWN of Ohio) there were-ayes 71, noes 34. Mr. BROWN of Ohio. Mr. Speaker, I object to the vote on the ground that a quorum is not present and make the point of order that a quorum is not present. The SPEAKER. Evidently a quorum is not present. The Doorkeeper will close the doors, the Sergeant at Arms will notify absent Members, and the Clerk will call the roll. The question was taken; and there were yeas 212, nays 149, not voting 72, as follows: Abbitt Barrett [Roll No. 194] Garmatz Gonzalez Grabowski Grant Bennett, Mich. Green, Oreg. Betts Boggs Brademas Finally, to make remarks which indicate that the debt burden on the public is continually increasing, is simply to mislead the public. In terms of our ability to pay, the Federal debt today is the smallest it has been in 30 years. The public debt today, including the $33 billion which should not be counted but is counted, is equal to 52 percent of our current national income. Ten years ago our debt was equal to 89 percent of our national income of that year. If we go Burleson back to the years immediately following World War II, we find that the public debt was then well over 100 percent of our national income. CONGRESS OWES THE PUBLIC ACCURATE ACCOUNT- Cohelan ING OF THE PUBLIC DEBT Now, if the House does not see fit to adopt my suggestion to amend the law so as to allow commonsense bookkeeping, rather than continuing to require misleading bookkeeping, then it will be necessary to pass this bill to increase the debt ceiling. But as I see it, we owe the public a proper accounting of the public debt. And if we give the public a proper accounting of the public debt, it will not now be necessary to increase the debt ceiling and thus disturb the minds of a great many people who are deeply concerned about this matter. Mr. BOLLING. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, I have great affection and deep respect for our colleague, the gentleman from Texas [Mr. PATMAN], the distinguished chairman of the Committee on Banking and Currency. However, I do not think that this debt limit increase bill is the vehicle for changing the Federal Reserve Act. Brooks Buckley Burke Green, Pa. Griffiths Hagen, Calif. Hanna Harding Hardy Harris Mathias Matsunaga Matthews Miller, Calif. Mills Minish Morgan Morris Morrison Multer Murphy, Ill. Murphy, N.Y. Murray Natcher Nedzi Nix O'Brien, N.Y. O'Hara, Ill. Byrne, Pa. Healey Hébert Hechler Hemphill O'Hara, Mich. Olsen, Mont. Cooley Corbett Corman Joelson Powell Chelf Clark Conte Curtis Donohue Downing Duncan Edwards Farbstein Fascell Feighan Finnegan Flood Leggett Lennon Lesinski Libonati Flynt Forrester Long, Md. McDowell McMillan Macdonald Madden Pucinski Randall Reuss Rhodes, Pa. Rivers, Alaska Rogers, Colo. Rogers, Tex. Rooney, N.Y. Rostenkowski Ryan, Mich. Shipley Sikes Sisk Slack Smith, Va. Staebler Staggers Mr. Boland for, with Mr. Burton against. Mr. Bass of Tennessee for, with Mr. Talcott against. Mr. Cameron for, with Mr. Siler against. Mr. Everett for, with Mr. McIntire against. Mr. Gray for, with Mr. Gubser against. Mr. Diggs for, with Mr. Laird against. Mr. O'Brien of Illinois for, with Mr. Westland against. Mr. Wright for, with Mr. Michel against. Mr. Davis of Tennessee for, with Mr. Bates against. Mrs. Hansen for, with Mr. Avery against. Mr. Roberts of Alabama for, with Mr. Anderson against. Until further notice: Mr. Smith of Iowa with Mr. Pirnie. Mr. Long of Louisiana with Mr. Wharton. Mr. Thornberry with Mr. Kyl. tion on the tax bill that the House subsequently passed. In August we had only completed action on two appropriation bills, representing only about 7 percent of the budget for 1964. While some of the uncertainties which existed this last May and August still are unresolved, yet in other respects, we have more information now as to the probable receipt and expenditure totals for this fiscal year than has generally been true in the past when a limitation previously has been established. As you know, the House has now completed its action on the Revenue Act of 1963. In addition, 6 of the 12 major appropriation bills have been passed by both Houses of Congress. Three of the remaining six appropriation bills have also been passed by the House. Moreover, since 4 months of the fiscal year 1964 have already elapsed, it is now possible to make better revenue estimates for the current year than is usually the case. This is because the receipts received in this fiscal year are based on corporate profits for the calendar year 1963 which already is 5/6 over and on personal income for the fiscal year 1964 where we have already had 4 months of actual experience. In the case of expenditure totals for the fiscal year 1964 the major area of Mr. HAGAN of Georgia changed his uncertainty is the action still to be taken vote from "yea” to “nay.” by Congress on the appropriation bills. The result of the vote was announced However, here too, the fact that 4 as above recorded. Mr. MILLS. Mr. Speaker, I move that the House resolve itself into the Committee of the Whole House on the State of the Union for the consideration of the bill (H.R. 8969) to provide for the period ending June 30, 1964, temporary increases in the public debt limit set forth in section 21 of the Second Liberty Bond Act. The SPEAKER. The question is on the motion offered by the gentleman from Arkansas. The motion was agreed to. Accordingly, the House resolved itself into the Committee of the Whole House on the State of the Union for the consideration of the bill H.R. 8969, with Mr. ROOSEVELT in the chair. The Clerk read the title of the bill. By unanimous consent, the first reading of the bill was dispensed with. Mr. MILLS. Mr. Chairman, I yield myself 15 minutes. Mr. Chairman, the proper way to begin discussion of this matter I think is for me as chairman of the Committee on Ways and Means to apologize to the membership of the House for having to consider in this fiscal year the debt ceiling on three separate occasions. No one regrets this, Mr. Chairman, any more than do the members of the Committee on Ways and Means. However, it will be recalled that on the two previous occasions, in May and August when this matter was considered, we extended the debt ceiling to $309 billion for July and August and then the same for September, October and November of this fiscal year because of uncertainties as to receipts and expenditures. Even in August the Committee on Ways and Means had not completed ac months of the fiscal year has already elapsed gives us more knowledge about expenditures for this year than is usually the case when debt ceilings are established. In any event, we must now act on the debt ceiling because as of the end of November, it reverts to a ceiling of $285 billion while the debt subject to the ceiling which it is expected will be outstanding as of that time is $308.8 billion. Not to act in such a situation would, of course, be unthinkable. I would hope that in the coming fiscal year it will be necessary only to consider this matter on one occasion, and I pledge you as chairman of the committee that that will be our goal. We shall aspire to bring it in only one time rather than have to go through the procedure of several separate appearances before the House as we have this time on this same subject. Mr. Chairman, having said that, let us look to the situation that we have. We are asking in this legislation for a continuation for the full fiscal year of a ceiling of $309 billion. For that part of the fiscal year between December 1, 1963, and until June 29, 1964, we are granting the Secretary of the Treasury additional authority to issue securities in an amount not to exceed $6 billion, for the reason which is stated in the bill itself, because of variations in the timing of revenue receipts. It is important to tell you exactly what the bill before us does because there has been some misunderstanding on this point in referring to this bill as increasing the debt ceiling to $315 billion. Actually, what the bill provides is quite different from that and also substantially more restrictive. The temporary debt ceiling which applies from July through this November is $309 billion. This bill continues this same temporary ceiling throughout the remainder of the entire fiscal year 1964. It also, however, provides an additional $6 billion which in the words of the statute is made available "because of variations in the timing of revenue receipts." This additional amount, however, expires on June 29, 1964, with the result that by the last day of the fiscal year the statutory ceiling will again be $309 billion. This means that the $6 billion is to be available only to provide for variations in the timing of receipts and expenditures throughout the year and not for the total debt for the entire fiscal year. I do not believe that the significance of this variation in the timing of receipts and expenditures is generally recognized. Expenditures tend to be relatively uniformly spread throughout the year. Receipts, however, are concentrated in concentrated in March, April, and especially June, which are the last months of the fiscal year. Sixty percent of the receipts as a general rule are received in the last 6 months and of this amount a very large proportion is received in the last 3 months. A table in the committee report demonstrates this point by showing that although the administration expects a deficit for the fiscal year 1964 of $9 billion from January through May, the excess of expenditures at the end of each of these months can be expected to be substantially in excess of this $9 billion deficit. The excess of expenditures is still greater in these months if this excess is stated for the 15th of each month rather than for the end of the month. On June 15, for example, the excess of expenditures over receipts cumulated to that point in time from the beginning of the fiscal year is expected to be in excess of $15 billion by the Treasury. This is true despite the fact that the deficit for the entire year-due to receipts which come in the last half of June-is expected to be $9 billion. I believe that this demonstrates a need for a $6 billion leeway factor to take into account this seasonal variation. I do not, however, believe that this demonstrates the need for as high a ceiling as this at the end of the fiscal year. For this $6 billion leeway expires on the 29th of June, and at that time the debt must again be governed by the $309 billion ceiling. This $309 billion ceiling, which on next June 29 will again determine the amount of debt which can be issued, represents a continuation of the existing ceiling which applies to the first 5 months of the fiscal year-through November 30. Since we began the fiscal year with a debt of $306 billion, this accounts for $3 billion of additional debt during the year. In addition, the cash balance as of the beginning of the year was $11 billion and the Secretary of the Treasury has indicated that we will need a cash balance at the end of the year of $7 billion. As a result, the $309 billion debt limitation with the reduced cash balance really represents an increase in the actual or net debt of $4 billion more than the $3 billion I have already mentioned or $7 billion in all. This, however, is still $2 billion less than the $9 billion debt which the Secretary of the Treasury has informed us we will have by the end of the fiscal year. Therefore, this Therefore, this bill in effect forecasts a deficit of $2 billion less than is now estimated by the Treasury Department. I cannot prove that the actual debt will be this $2 billion less, but nevertheless I believe that this will actually occur. I say this not because I anticipate that the debt limitation itself will cause a reduction in expenditures but rather because I believe that this Congress has expressed its determination to go down the road of the free enterprise system rather than the road of high Government spending. As a result, I believe this Congress will decrease appropriations to such an extent that, when combined with what may well be larger revenues than anticipated by the Treasury, the deficit for the fiscal year 1964 will be down to $7 billion. As I have indicated to you, this position is implicit in the debt limitation provided by this bill. Mr. Chairman, those who feel that the debt ceiling itself can exercise some influence in this respect ought to take some degree of encouragement at least from the action of the committee in limiting the ceiling to accommodate a deficit of $7 billion rather than the $9 billion suggested by the Secretary of the Treasury. I do not know whether we can limit the deficit to $7 billion. I cannot prove it will be no higher than $7 billion any more than the Treasury to be $9 billion. But I do know on the can prove at the moment that it is likely basis of past experience that when the economy has been climbing, there have been some underestimations of revenue and there have been some overestimations of expenditures. To recall this I do not have to go back further than the year 1963. We thought in terms of the need at that time of a debt ceiling of $307 billion. However, it turned out that the deficit was not in the area of $8 billion, but rather in the area of $6 billion. chologically-and that probably is the I want us to use the debt ceiling psyprincipal purpose it serves. It should help us strive for a lesser deficit in the actions we take in other areas, such as in our consideration of appropriations. If we can accomplish that, I would think the American people would look upon our actions with a great deal of favor. As I have already indicated to you, the $309 billion limitation presupposes a reduction of the deficit for the fiscal year by $2 billion below the level currently forecast by the Treasury Department. The additional $6 billion is not of significance in this respect because this is designed, and made available, only during the year for seasonal fluctuations in the receipt of revenues and the paying of the Government's bills. As I have already indicated to you, this leeway disappears before the end of the fiscal year as soon as the seasonal fluctuation in receipts and expenditures ends. While I believe as strongly as any of you in the need for controlling government expenditures, nevertheless, I am convinced that the way to do this is through action on appropriation bills and not through a ceiling on the amount you can borrow to pay bills coming due. To place an unrealistic ceiling on the debt which does not take into account the appropriations already made is like an individual who continues to buy all he wants but says that he will no longer pay any bills after he has spent so much money. The responsible way to control spending is through the control of appropriations. Controlling the appropriations we are acting upon this year, however, will have only a very limited effect on the expenditure level in the fiscal year 1964. About one-half of the expenditures in 1964 will arise from appropriations made in 1963 and prior years. The factor which is probably most significant in determining the level of government spending is the total appropriations made in the fiscal year 1963. In that year, although we spent $92.6 billion our total appropriations amounted to $101.5 billion. This means that the level of spending in 1964 will go up because the bills we incur in 1963 went up. The administration now says the total will be $97.8 billion. I believe it will be less than this. Our action on appropriations this year will have its primary impact in 1965. If we can hold appropriations at, or below, $101.5 billion then this year we will have gained control over spending for 1965. This, in my view, is the responsible way to go at this problem of keeping a tight rein on Government spending. might be some misunderstanding on the Mr. Chairman, I think, too, there part of many as to just how this matter of spending occurs and how we control it. Some reference has been made in the supplemental views of the committee that those of us who supported the tax bill, describing the road we wanted to be taken in the future by the Congress in these matters, have departed from our own statements by supporting a debt ceiling of $309 billion with $315 billion for a period of time during this fiscal to fully appreciate just how appropriayear. I think that results from a failure tions work and just how the spending of Federal funds occurs within the executive departments of Government. Let me point out what happened in 1963, for example. The Congress appropriated a total of $1012 billion. That partments to spend. is what we authorized the executive deWe gave them $1012 billion to spend. Well, we know what the record was on June 30. We had finished the fiscal year, not spending that amount, but spending $92.6 billion. Now the chairman of the Committee on Appropriations has said on the floor of the House that he thought appropriations in 1964 would not exceed $1012 billion. Well, no one is suggesting that the spending level in 1964 will be $101.5 billion. What it is, according to the administration estimate which I believe is too high-is $97.8 billion for fiscal year 1964. What I am saying is this, Mr. Chairman: Once we authorize a project or a program, and once we make available funds for that particular operation, those funds frequently are not spent within the year in which we make the appropriation. Because we appropriated $101.5 billion in 1963, and we actually spent $92.6 billion means that there was a carryover in the fiscal year 1964 of most of those unspent amounts in the payment of obligations coming due in 1964 that were actually created in fiscal year 1963. In fact, about half of the money that will be spent in fiscal 1964 results from appropriations that the Congress has made either in fiscal year 1963 or in some previous fiscal year. When we talk in terms of establishing a tighter rein with respect to Federal spending, we are talking in terms of a restriction within this appropriation process. If the Congress does not appropriate more in 1964 than it appropriated in 1963, then in 1965 less money will be spent than if the Congress appropriates more money in fiscal year 1964 than it did in fiscal year 1963. We attain the goal we want if we do not appropriate more money this time than we did in 1963, and we would materially improve the situation if the appropriations are less than they were in 1963. It should be clear from what I have already said that the debt limit is not an efficient or effective method of controlling Federal spending. The only businesslike way to control expenditures is to control the appropriations from which they flow-or to change the terms of the existing laws which give rise to those appropriations. This becomes evident when we see how much of the expenditures in a fiscal year comes out of prior year appropriations and how much is otherwise relatively uncontrollable each year. For example, the current estimate of administrative budget expenditures in fiscal 1964 is $97.8 billion. Almost half of this amount consists of interest on the public debt and outlays from balances of obligational authority granted in prior years. Included in these balances is $13 billion for military procurement, $3.6 billion for military research, development, test, and evaluation, $1.7 billion for military operation and maintenance, and $1 billion for military construction. To reduce substantially these and other expenditures out of obligated balances-apart from national security considerations-would require breaking contracts or otherwise reneging on legal obligations. There are in addition, as the Congress is well aware, many expenditures that are not susceptible to administrative reductions in the short term since they are required under conditions set forth in the basic statutes or are otherwise relatively uncontrollable in any fiscal year. Included among these are veterans pensions, public assistance grants to States, and payments due under the agricultural conservation and the conservation reserve programs. Also in this category are the expenditures of the legislature and the judiciary, which the executive branch cannot alter. Expenditures for In addition, the 1964 expenditure esti- An additional $30.2 billion of expenditures are estimated for pay, allowances, and other military personnel costs and for the remaining military functions of the Department of Defense. The Congress will agree that these expenditures should be based on national security needs and should not be subjected to arbitrary and disruptive changes for debt limit reasons. Expenditures out of current obligational authority for other programs of the highest priority and necessity-such as atomic energy, medical care for veterans, the postal service, Coast Guard activities, space, operation of the Federal airways—are estimated to total $7.3 billion. All other activities of Government in 1964 are estimated to involve expendi1964 are estimated to involve expenditures out of current appropriations of $4.8 billion. They include Public Health Service hospital and medical care, weather services, the conduct of foreign affairs, the manufacture of currency and coins, antitrust activities, the Patent Office, assistance for Cuban refugees, the suppression or prevention of fraud in the sale and trading of securities, the marketing of power generated by our hydroelectric projects, the maintenance of our national parks and forests, retraining of the unemployed, water supplies for water short areas, meat inspection, and protection against harmful cosmetics and drugs. Sharp reductions in expenditures for these activities, especially in a short time, would inevitably result in interrupting public services which are needed and expected by many segments of our population. The problems come more clearly into focus when we take note of the fact that almost 5 months of the fiscal year have already passed and cannot be affected by efforts to cut back spending. Of the $4.8 billion estimated to be spent in the fiscal year 1964 for the regular governmental activities just described, over $2 billion has already been spent. If a $3 billion expenditure reduction, forced by an overly restrictive debt ceiling, were to be sought by cutting back on these presumably lower priority programs, they would all have to be abolished imme diately for the remainder of the fiscal year. The Government could, of course, attempt to reduce nominal expenditures in 1964 by deferring the payment of bills due for delivered goods and services until early in fiscal 1965. However, such a technique would tend to impair the Government's credit, would be costly to contractors, would raise the prices at which the Government purchases goods, and should not be given serious consideration under any standards of sound or orderly financial management. More significantly, such tinkering would not result in reducing Government expenditures. It would only change the timing of the expenditures and increase Government costs. It could not save any of the taxpayers' dollars. We saw the results of this type of action in 1957, when the administration then in office was faced with an extremely tight debt limit. Payments to defense contractors were delayed, there were disruptions in defense programs and planning, and many experts believe there were resulting adverse economic effects which contributed to the reces sion of 1957-58. We would not want to repeat this experience. Nor do we be- |