The Test of Necessity

This budget carries out the policy of this Administration to move toward reduced taxes and reduced Government spending as rapidly as our national security and well-being will permit . . . Government must play a -vital role in maintaining economic growth and stability. But I believe that our development, since the early days of the Republic, has been based on the fact that we left a great share of our national income to be used by a provident people with a will to venture. Their actions have stimulated the American genius for creative initiative and thus multiplied our productivity.

--From President Eisenhower's Budget Message

In the first federal budget presented by a Republican Administration in 21 years. Dwight Eisenhower last week set a new tone and trend. He called for1) lower taxes, 2) less Government spending, 3) reduced appropriations for future years, 4) a smaller deficit, and 5) the transfer of some Federal Government activities to private enterprise and to local governments. It was, said the President, the kind of fiscal program that used "necessity--rather than mere desirability--as the test for our expenditures."

Both Budget Director Joseph Dodge and Treasury Secretary George Humphrey called press conferences to brief newsmen on the details. After tax reductions totaling almost $5 billion (as a result of rates already reduced and revisions proposed--see below), they estimated the Government's income for fiscal 1955 (beginning next July 1) at $62.7 billion. Sources of that income, in billions:

Individual income taxes $30.3 Corporation taxes 20.3 Excise taxes 10.2 All other 1.9

Against that income the Administration proposed expenditures of $65.6 billion, $5.3 billion less than the latest estimate of expenditures for this fiscal year, $8.4 billion less than the last fiscal year. The general classification, in billions:

National Security $44.9 (defense, military aid, atomic energy, etc.)

Fixed Charges 14.1 (interest on debt, pensions, etc.)

All Other 6.6 (most nondefense operations)

In the gap between income and expenditures, Dodge and Humphrey found themselves with a deficit of $2.9 billion. (Without the January 1 tax cuts, the Ad ministration, with the same expenditures, could have figured on a $2 billion surplus for the next fiscal year.) Even with the $5 billion loss in tax revenue, the Government's "cash budget" -- the money it actually takes in, balanced against the money it pays out -- will show a surplus of $115 million. Chief reason: payments to the Government for social security, not counted in the main budget,, exceed expenditures by about $2 billion.

Phenomenal Slice. Perhaps more im portant than the cut in expenditures is the budget's reduction in "new obligational authority," i.e., authority to make contracts (45% of the actual spending proposed in the 1955 budget will be from obligational authority granted in earlier years). The President asked for $56.3 billion of such authority, $4.4 billion less than the current year, $23.9 billion less than 1953's total and $35.1 billion below the Korean war peak in fiscal 1952.

Most of the cuts came from the only section of the budget that offered a real opportunity for large-scale reductions : defense. The smaller defense budget was made possible by Eisenhower's "new look" military program (see below), based on air-atomic power. In nondefense opera tions with flexible costs, which get only 10% of the budget, most of the reductions were the result of hard-bitten econ omy in operations. Some heralded the transfer of certain responsibilities to local governments, or to private enterprise, e.g., rural electrification was cut in the belief that private utilities can now do the job. For all of these nondefense opera tions where costs are not fixed, the President's proposed expenditure of $6.6 billion represents a phenomenal slice of 25% in the new Administration's first two fiscal years.

Humanitarian Goals. While the slashes in taxes and spending were in line with traditional conservative principles, the President's budget did not follow any doctrinaire political line. It was an Eisen hower budget, which called for such humanitarian goals as the broadening of social security (TIME, Jan. 25). One sentence in the budget message was enough to illustrate that Dwight Eisenhower was not trying to shunt 20 years of history. Said he: "On the other hand, estimated expenditures for the Tennessee Valley Authority,* urban development and redevelopment, college housing loans . . . the school lunch program, and several other programs of domestic importance will be the largest in our history."

Behind the whole budget was the Administration's reasonable assumption that there will be "fairly stable conditions, internally and externally" between now and June 30, 1955. A marked recession or a new outbreak of hostilities admittedly would throw the budget out of line.

Predictable Urge. On Capitol Hill, some members of Congress thought that expenditures and/or taxes were 1) not cut enough, 2) cut too much, 3) cut in the wrong places. House minority Leader Sam Rayburn went on record with a worry about the cuts in defense spending. Crusty Republican John Taber, Chairman of the House Appropriations Committee, growled: "I believe that a $3 billion cut would get rid of the deficit, and I hope and believe that we will be able to accomplish this without any trouble." Probably the first place the economy-minded will look is at the $5.4 billion item for foreign aid ($4.3 billion military, $1.1 billion economic-technical), which is down only $100 million from this year. Another predictable congressional urge, especially in an election year, will be to try to trim taxes below the Eisenhower program, e.g., by raising the income-tax exemption from $600 to $700, for a loss of $2 billion in revenue.

There would doubtless be other sniping in the five months the Eisenhower budget is on Capitol Hill. But the Administration had already proved good management by its voluntary economizing, good faith by its acceptance of the January tax cuts. Now, drawn up on the line of economic growth and stability, its budget would be tough to breach.

* But Ike jolted an old liberal cause by recommending that TVA pay "an adequate rate of interest" to the Treasury on its investment, thus taxing TVA with one of the normal costs of private industry.

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