During 1939, the government continued its heavy expenditures for relief and national defense in spite of a growing demand for economy in Congress. Existing revenues remained inadequate to meet the necessary expenses and since no new taxes were added the deficit mounted. In spite of the war crisis which shook the market for Government bonds in the fall, the Treasury was able to borrow sufficient sums to meet the deficit at advantageous rates of interest.
The National Budget.
When Congress convened in January, the President presented the budget for the year 1939-40. The plan for expenditures gave a total of approximately $9,000,000,000, including $2,266,165,000 for relief and $1,319,558,000 for national defense, the highest appropriation for any peace time year. Since revenues were estimated at $5,669,000,000, the deficit was expected to be $3,326,000,000 and the total debt on July 1, 1940, would stand at $44,458,000,000. The present debt limit set by the Second Liberty Loan Act is $45,000,000,000. In discussing the budget, the President stressed the need for government expenditures as a stimulus to business. Although he advocated the retention of the excise taxes and the three cent postage rate which would have expired this year and suggested the possibility of new taxes he did not press the need for new revenue and adopted the attitude that the increase of the public debt under conditions of depression was not a matter for concern. The President also suggested further changes in the form of the budget. In the previous year, Congress had voted that in the case of the Commodity Credit Corporation only impairments of, or additions to, capital through current operations should be included in the budget for the United States, instead of the total appropriations for funds for their use. The President suggested that the same principle be extended to all independent agencies of the government. He also suggested that capital expenditures of the government be placed in a separate budget from ordinary expenditures. The net effect of these changes would be to reduce the total of expenditures currently.
Appropriation Bills.
The actual passage of the appropriation bills was the occasion for a strong minority to present the need for economy. When actually passed, the appropriations amounted to $300,000,000 more than the budget demanded. The economy drive cut $50,000,000 from the Deficiency Appropriation Bill for relief and made necessary its passage in two parts, cut out entirely a lending program of $500,000,000 proposed by the President in July and not included in the original budget, and attached numerous provisions to the Relief Appropriation Bill.
The increases in expenditures for national defense were in line with the practice of other governments. The original Military Appropriation Act, approved April 26, provided $508,789,824 while the War Department Appropriation Act (Civil) carried $305,188,584. On July 1, the Supplementary Military Appropriations Act added $223,398,047. Besides these were appropriations for the Navy of $773,049,151 and for Naval Air Bases of $65,000,000. These bills will allow increases in the numbers of men in the army and navy, increases in armaments, new fortifications for the Panama Canal Zone including new military roads, and numerous new air fields and added facilities for training pilots.
The Emergency Relief Appropriation Act was passed only on June 30. It provided the full budget, the economy drive having been directed against the deficiency appropriations for the fiscal year 1938-39. These latter appropriations had in the end amounted to $825,000,000. The new bill appropriated $1,755,600,000 of which $1,477,000,000 was for the Works Projects Administration, successor to the Works Progress Administration. To the expenditure of these funds were attached a series of conditions intended to cut the relief rolls and make private employment relatively attractive. The requirement that projects must pay prevailing wages was dropped and wage scales were allowed to differ in different geographical districts only according to differences in cost of living, while maintaining the existing general average for the country. This meant raising wages in the south and lowering them in the north. Persons were prohibited from working on Federal Projects for periods of more than 18 months continuously, with the hope that a period of complete unemployment would give an added incentive to finding new jobs. Aliens and persons belonging to organizations advocating the violent overthrow of the government were excluded from relief, and administrative officers were required to take oath to defend the constitution from all enemies.
The National Debt.
During the fiscal year ending June 30, 1939, actual Federal expenditures amounted to $9,210,000,000 while receipts were $5,668,000,000 leaving a deficit of $3,542,000,000, a figure somewhat larger than that anticipated for the year 1939-40. For all governments, Federal, state and local, total expenditures were $17,470,000,000 and revenues $15,992,000,000. Taxes thus amounted to $114 per capita or 21.8 per cent of the estimated national income. In the later months of 1939, in spite of the recovery in business, expenditures continued at a rate similar to that of last year, increasing expenditures for defense offsetting declines in expenditures for relief. As a result the additions to the public debt continued to mount. Increases in revenues resulting from the trade expansion cannot be expected until next spring.
The total amount of the direct Federal public debt had been $39,427,000,000 at the end of December 1938, while guaranteed obligations amounted to $4,992,000,000. At the end of October 1939 (latest figure) the direct debt was $41,036,000,000 and guaranteed obligations were $5,449,000,000. Of the direct debt 69 per cent were bonds, 18 notes, 3 per cent bills and 10 per cent special issues.
The condition of the financial markets was such that these securities were absorbed at very low rates of interest. Treasury bills sold at nominal rates. In fact, there was such a demand for them that the Federal Reserve Banks allowed their holdings to run out during the summer. Bond yields also were low. In January, they were 2.47 per cent but they declined to 2.13 per cent by August. At the time of the outbreak of the war in September, the brunt of the demand for liquidity fell upon the government security markets. Rates on Treasury bills rose to .10 per cent, the highest point since 1937, while bond yields rose to 2.74 per cent. The Federal Reserve Banks stepped in and bought some $400,000,000 of these securities and the Treasury postponed its September financing. By the end of November, the rates had dropped again and the Treasury was able to carry through its fall financing without difficulty. See also BANKS AND BANKING; BUSINESS.
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