My first question is if we make this loan to the Arabs is it an outand-out loan to do with as they choose?

Senator DOUGLAS. I do not think that either one should be an outright grant with no supervision. I think that in each case there should be supervision as to the purposes for which the loan or grant will be made, either for military or actual constructive purposes and how it is to be spent.

As a matter of fact, the clause in your existing bill at the bottom of page 5 applying to Near East and Africa says, "Funds appropriated pursuant to the section shall be available under applicable provisions of the Economic Cooperation Act of 1948," which, of course, provides for supervision.

CUT IN TOTAL AMOUNT OF BILL

Senator WILEY. The second question that I have which has come out of what you said was that you suggested that $1,150,000,000 be taken from the military and economic aid under the bill that was assigned to Europe.

Senator DOUGLAS. Yes, sir.

Senator WILEY. How do you arrive at that figure?

Senator DOUGLAS. First, this is how I arrived at the $1 billion cut. I think our expenditures as submitted by the President are totaled now at about $73 billion. They may rise to 80 billion. I do not believe the yield of the existing tax structure will be more than $61 billion. I, therefore, think we have a deficit of from 12 to 19 billions unless we reduce expenditures and increase taxes.

I had not thought that we could raise taxes by more than the House figure of approximately $7 billion, although I personally think the situation is far graver than is generally realized and that a still larger tax bill is needed. But in fact, all the implications in the newspapers are that the Senate Finance Committee is going to cut a billion dollars off of the House bill.

However, it would seem to me we should economize by at least $5 billion.

When you come to where the economy of $5 billion should be made, I suppose we all have varying ideas. I thought that $2 billion could come from the domestic, nonmilitary budget; that $2 billion could be taken from the defense budget, and $1 billion from foreign aid. Then if we increase taxes by $7 billion, we get a balanced budget assuming we do not spend more than 73 billions, and we consequently reduce that source of inflation. Of course, if we have an 80 billion expenditure, the situation will be still more serious.

As you know, I have always been a very strong supporter of the foreign-aid program and at times the Senator from Nebraska has raked me over the coals on that point. I think it has been money which on the whole has been well invested. But I think now we have this imperative necessity of balancing the budget; and foreign aid must be fitted into the general financial picture, and the reduction of $1 billion should be carried out as a part of this drive against inflation. Senator WILEY. That is again very interesting.

The point that I am getting at is, did you just arrive at this arbitrarily?

Senator DOUGLAS. I suppose all estimates are somewhat arbitrary. Each set of claimants will declare that their item cannot be cut.

I am sure the State Department is saying that this $8.5 billion cannot be cut; ECA says theirs cannot be cut; the Defense Department says that their $56 billion cannot be cut, but we have to cut somewhere. And we are falling behind even on this $2 billion cut on domestic expenditures.

I totaled up a few hours ago what the cuts are to date, taking the best record of the House or Senate, and it appeared to me we only cut about $1.1 billion from our nonmilitary items. There is every prospect moreover that the Senate figure for Army civil functions will be increased over the House figure, so it appears to me that unless there is heroic effort on the floor, the cuts on the domestic or nonmilitary budget will do well to exceed $1 billion instead of the $2 billion which I had hoped we could get. That means we will have to cut at least $4 billion elsewhere if we are to balance the budget and prevent inflation.

Under those circumstances, this seems to make the proposed cut of $1 billion on foreign aid most modest indeed.

Senator WILEY. Where would you make another cut on the domestic front?

You said $2 billion; did you not?

Senator DOUGLAS. Yes. I had hoped for more rigid cuts on Army civil functions, on Agriculture, on Post Office, and on the Interior, including Reclamation. I had hoped there would be greater cuts there, but we have lost out on those.

Senator BRIDGES. We have not lost out on civil functions yet.

Senator DOUGLAS. The psychological and political build-up for increased appropriations for civil functions is proceeding.

Senator WILEY. Now to get back to this $1 billion cut on the military and economic aid to Europe.

Have you studied what effect that would have in view of what it is claimed by our military and other experts as comparatively needed? Senator DOUGLAS. The Military and State Departments will tell you that you just cannot cut a dollar or you will ruin the whole program.

NEED FOR BALANCED BUDGET

Now my only reply to that is that if we do appropriate at the rate the executive agencies are requesting us to do, we will have a big governmental deficit which we will be forced to make good by borrowing; and that borrowing will largely come from the banks. It will amount to an inflation in credit and a rise in the price level. That will do damage to the country, too.

If I might approach the executive agencies, and I am looking at the representative of the State Department, which is equally guilty but perhaps not more guilty than others, they do not see the relation of their program to the whole governmental fiscal policy. They are special claimants, so to speak.

It is our job to try to take the whole picture into consideration.

Senator WILEY. When you take the $1 billion you refer only to the European appropriations. Do you mean the over-all foreign aid? Senator DOUGLAS. Yes. But you will notice that what I am advocating is an increase in amounts for the Near East. We will need a cut on Asia, but in Asia there are great needs, too.

I am not an authority on foreign affairs or national defense. I am perfectly willing to say, "Make your reductions wherever you think they can best be made."

Senator WILEY. I think that is all, Mr. Chairman.

The CHAIRMAN. Senator Gillette.

Senator GILLETTE. Yes, Mr. Chairman, I wanted to ask a couple of questions.

Senator Douglas, as I understand your statement, you were not discussing S. 1247.

Senator DOUGLAS. That is correct.

Senator GILLETTE. You were discussing and your remarks were directed toward amendment of this pending bill, S. 1762.

Senator DOUGLAS. That is correct.

Senator GILLETTE. And the specific amendment you referred to was to change the figures "$125 million" in line 20 on page 5 to "$275 million"?

Senator DOUGLAS. Yes, sir.

NEED FOR AMENDING S. 1762

Senator GILLETTE. May I call your attention to the fact that, if I understand this proposal, this title II provides in 201 for the sum of $415 million for Greece, Turkey, and Iran, pursuant to the Mutual Defense Assistance Act; 202 provides that when the President determines that it is necessary, also under the provisions of the Mutual Defense Assistance Act, he can devote not to exceed 10 percent of this, or $41.5 million, to any other country in the Near East.

Senator DOUGLAS. That is correct.

Senator GILLETTE. Now the section 203, which we are seeking to amend provides that

in order to further the purposes of this act there are hereby authorized to be appropriated to the President

you would make it—

$275 million dollars for economic and technical assistance in Africa and the Near East in areas other than those covered by section 103 (a) of the Economic Cooperation Act.

And section 103 (a) of the ECA Act lists the countries that have signed the report of the Committee on European Economic Cooperation in Paris in 1947.

Senator DOUGLAS. We did not include Israel and the Arab states. Senator GILLETTE. These other states are all outside of that. Senator DOUGLAS. Yes, sir.

Senator GILLETTE. And they are available under the applicable provisions of the ECA Act "excepting that not to exceed $50 million of the funds authorized in that section may be contributed to the United Nations," as provided in section 204 of this.

I direct your attention to the fact that this $275 million, if this is left as it is now proposed, would enable the President to spend $275 million on any one country in this area if he saw fit to do so.

Senator DOUGLAS. If you want to protect that clause in order to provide parity as between the Arabs and the Jews or to require any other specific allocation, that could be done; but that rather delicate question is apparently already skirted in section 203 and covered by the report on basic data.

Senator GILLETTE, I merely suggested that amended as you have suggested with no other change, it would enable the President to spend the entire amount of $275 million on Israel or Iraq or Syria or any other country in the East.

Senator DOUGLAS. In that event I would sugest that the report which the committee finally issues be changed to conform the allocations as between countries to the new text, and to provide for equality between the Arab states and Israel. Thus the report would govern the disposition of funds.

I would certainly not ask that the whole $150 million additional be spent on Israel. The aim is the same as under the present act to preserve equality in total amounts as between the Jews and the Arabs. Senator GILLETTE. That is all, Mr. Chairman.

The CHAIRMAN. Senator Bridges.

Senator BRIDGES. Senator Douglas, I have just one question.

DURATION OF PROGRAM FOR ISRAEL

Your proposal here for an increased amount for Israel, do you look upon this based upon your knowledge and judgment as a 1year proposition to put Israel in shape, or do you look at it as the start of a continuing proposition?

Senator DOUGLAS. That is a very good question, Senator, but I can answer it only on the basis of rather tentative estimates.

It is estimated that the total amount needed by Israel in 3 years is $1.5 billion. Of that, Israel will raise about $350 million itself. They hope to get from the Jews of other countries-England notably, and other countries-$150 million, which makes $500 million.

They hope to sell bonds to private investors in this country in the amount of $500 million. That brings them up to $1 billion. They hope to raise in the 3 years from United States private philanthropy by donations $125 million. They hope to get from outside private investment $75 million, which raises them to $1.2 billion, leaving them $300 million short.

Now they may, on these individual items I have mentioned, be able to go up. They may exceed them, or they may fall below them. These are the best estimates that I have been able to work out. To the degree that they are true, it would require a balance over 3 years of $300 million to make up the $1.5 billion total. That $300 million might ultimately be requested. Possibly it will not be that much, but you are quite right that this is not merely a one-shot affair. However, I think from the testimony of Secretary Acheson as reported in the newspapers that he is not contemplating or the State Department is not contemplating the entire present program as a one-shot affair either.

Senator BRIDGES. What you are recommending here is what per centage for this year, roughly?

Senator DOUGLAS. It is $144 million of an estimated total of $306 million.

Senator BRIDGES. You would anticipate that the other $160 million would be roughly divided in the next 2 years?

Senator DOUGLAS. I would think so; yes, sir.

I hope it might be eliminated. I hope they will be able to sell more bonds, get more donations, bring in more private investment, and

possibly raise more by taxes themselves. But to raise more than $350 million for taxes over and above civil expenses from a population of 1,300,000 on a relatively low standard of living, that is a tremendous job.

Senator BRIDGES. Do you think that if this objective was obtained that Israel would be on a sound, self-sustaining basis after that period? Senator DOUGLAS. No one knows. There are skeptics, of course, about the whole venture. There are some who think that they could not develop a sufficient agricultural and industrial base.

My point is that they have made a very plucky try so far, and that they ought to be given a chance and that they have a very good prospect of making a success of this.

Senator DOUGLAS. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Smith.

Senator SMITH of New Jersey. I just want to ask the Senator one question.

In your suggestion of taking this amount out of title I

Senator DOUGLAS. Or possibly out of title III.

Senator SMITH of New Jersey. Title III would be the Far East. Senator DOUGLAS. Asia and the Pacific.

PLACE AND EFFECT OF POSSIBLE CUTS

Senator SMITH of New Jersey. The title I proposition is put up to us this way, the military end of it: The calculations here for the money needed, the military estimates, are based on the estimates of General Eisenhower as to the number of divisions he is able to mobilize in fiscal year 1952. This would be a commitment for the equipment for those divisions. The argument is made that we do not have the needs for equipment. We may have a problem there in the development of the collective security army. You would meet that by saying, "We are sorry, we just cannot do it."

Senator DOUGLAS. It is a very hard decision to make, because I think I recognize the need. On the other hand, I do not want to see inflation in the United States, either.

Senator SMITH of New Jersey. I agree with you there, but I am just trying to see how your thinking goes in developing the handling of these things. We also thought that this far-eastern program is important. We feel this Formosan proposition is important, too. We do not want to injure that if we can help it. However, we want to see if the military things are not the primary things we are looking at and when your plea for Israel and the Arab States is as pressing as this military situation.

Senator DOUGLAS. If you want to cut domestic defense by $3 billion instead of $2 billion and not cut foreign military aid at all, that could be done. Or you might cut economic aid by $500 million and military aid by $500 million, or military aid by three-quarters of a billion and economic aid by a quarter of a billion. You can apportion it any way you want to.

I only say that the budget at this moment looks like it is out of whack by about 11 or 12 billion dollars at a minimum and possibly $19 billion even with the savings we are making.

Senator SMITH of New Jersey. I want to know whether you think we have to go the whole $150 million for the Palestinian and Arab