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Michigan Bankers Association Convention, June 23, 1962
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Michigan Bankers Association Convention, June 23, 1962
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The original documents are located in Box D16, folder "Michigan Bankers Association
Convention, June 23, 1962" of the Ford Congressional Papers: Press Secretary and Speech
File at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. The Council donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box D16 of the Ford Congressional Papers: Press Secretary
and Speech File at the Gerald R. Ford Presidential Library
From the desk of
GEORGE HARDING
7-31-62
Dear Congressman Ford- 1
thanks a lat for
your address draft.
I'm returning same
togon. Under seprate
m sending a
Copyof me elugan
Junestor for July28 -62
containing FORD your Connects
is LIBRARY
Geo Barrhsagain antarding
MICHIGAN BANKERS ASSOCIATION
CONVENTION
June 23, 1962
JFK - "must Cut
I.
Tax Bill; current status, etc.
25 mean demande 1962
II. Demands for greatly increased executive power.
III. Fiscal myths - JFK's Yale commensement address:
Kennedy
referred
Turning to hwat he called "fiscal myths, Mr. Kennedy said:
"We persist in measuring our Federal fiscal integrity today by the
conventional, or administrative, budget, with results which would be
regarded as absurd in any business firm, in any country of Europe, or in
any careful assessment of the reality of our national finances.
"The administrative budget has sound administrative uses. But for
wider purposes it is less helpful. It omits our special trust funds and
the effect they have on our economy, It neglects changes in assets or
inventories. It cannot tell a loan from a straight expenditure. And
worst of all it cannot distinguish between operating expenditures and
long-term investments."
1).
I THE E & it
Speech-
What are the types of Budgets involved in this controversy.
QERALD FORD
1]. 1] Other so Today alm
-2-
a).
ADMINISTRATIVE BUDGET
This budget, often called simply the conventional budget, is most familiar
to Americans. It is presented to Congress by the President each January.
In this document are the expected expenditures of Government agencies for
the comingyyear and the anticipated revenues. Certain items have
traditionally been included and excluded in this budget. Generally, the
receipts represent anticipated cash inflows. They are figured on such
estimates as future economic conditions; expenditure estimates are geared
to Congressional action on new programs and the cost of current programs.
Certain large items are excluded, in particular the giant trust funds
operated by the government. Two major funds are Social Security and highways.
The matter of trust funds have become increasingly important as they have
grown in number and size.
(9)
CONSOLIDATED CASH BUDGET
This budget has similarities to the conventional budget. The cash budget
is designed to show the flow of money between the Federal Government and
the public as a whole. It represents the addition of some estimated items
LIBRARI
-3-
to the conventional budget totals and the elimination of certain items
which would otherwise be counted twice as a result of the additional
items. To obtain this budget, three basic adjustments are made in the
conventional budget:
i.
receipts and expenditures of trust funds and Government-sponsored
enterprises are added (included in the enterprises are: the Federal
Deposit Insurance Corporation, the Federal home loan banks, the
Federal land banks, the banks for co-operatives and the Federal
intermediate credit banks);
ii.
intragovernmental transactions (that is, those completely within the
accounts of the budget, trust funds and Government-sponsored enter-
prices) are eliminated because they do not involve any flow of money
with the public;
iii. adjustments to place a limited number of non-cash transactions on a
cash basis are necessary. An example of the last item is interest
on savings bonds which is considered a budget expenditure as it accrues
but is not included as a payment to the public until it is paid.
In comparing the budgets, it should be noted that receipts and expenditures
in the cash and national income accounts budgets include the trust funds for
-4-
highways, Federal disability insurance, Federal old-age and survivors
insurance, Federal employees retirements, railroad retirement, unemployment,
veterans life insurance, and other smaller items.
c). Capital Budget or National Income Accounts Budgets.
Proposal would list only a part of the federal government's annual outlay
as "expenses" and would set up inventories and properties as "investments"
or capital assets.
To put it simply, on the one hand all federal treasury receipts would be
shown as revenue but on the other hand all current federal spending would
not be shown as an expenditure.
d). Let's compare the three budgets:
1961
1962
1963
Administrative
-3,856
-6,975
+ 463
Cash
-2,286
-8,524
+1,810
Capital
-2,200
- 500
+4,410
D fference achieved by what you put in current appear +
e). "It is interesting to recalculate, from (comparative tables in the budget directment
accounts.
DEFINITING
document) how the budget for fiscal '62 would look if all the $34.5 billion
investment expenditures were segregated from the current budget. We
GERALD R.FORD LIBRARY
-5-
"then have $54.6 billion current expenditures to be netted against estimated
receipts of $82.1 billion for a lovely current account surplus of $27.5
billion. Yet such a surplus would be no more than an accounting fiction
available neither for reduction of public debt, nor for lowering of tax
burdens, nor for expansion of spending. The fact is that the whole of this
mythical surplus, and $7 billion besides, are scheduled to be spent."
f.)
"The attraction of the capital budget is the opportunity it affords to achéeve
an artificial balance in the operating budget by shifting outlays from the
current accounts to the capital budget by changes in definition."
g).
"The United Nations, against this broad background, put out in 1951 a
pamphlet on "Budgetary Structure and Classification of Government Accounts"
which warned:
..... asset acquisition, taken by itself, is not an adequate
jusitification for government borrowing, and a separation of current
and capital accounts should not be undertaken for the purpose of
rationalizing government debt creation.
"
BERALD FORD VIBRARY
-6-
II.
With this background I would like to express several personal opinions.
I am most fearful that the Kennedy Administration will propagandize and
sell this theory of account juggling and then use a ficticious surplus to
justify a tax reduction and at the same time continue its reckless policy
of spending tax revenues and borrowed money.
I firmly believe without a change in budgetary practices but by the determined
reduction of federal expenditures a surplus can be accumulated for use
in reducing the national debt or for a bona fide tax reduction.
III.
What is a myth?
A).
(Dictionary definition) MYTH. (Greek "mythos" myth, fable, tale, talk,
speech, of uncert. origin;) 1. A story, the origin of which is for-
gotten, that ostensibly relates historical events, which are usually of
such character as to serve to explain some practice, belief, institution,
or natural phenomena. Myths are especially associated with religious
rites and beliefs, so that mythology is generally reckoned a part of
religion; a non-religious story of mythical character is generally
called a fable or a folk tale. Among the classes of myths commonly
distinguished are: Culture myths, comprising stories in which some hero
(man, god, or animal) is said to have imparted the arts of life to man;
Nature myths, in which phenomena of nature are fictively described esp.
as to their origins; Theogenic myths, narrating the origin of gods;
LIBRARY
-7-
Etiological myths, stories of fictive events given as causes of given
rites or customs. 2. a. A similar story invented as a veiled explana-
tion of a truth; a parable or allegory; esp. one of Plato's philosophical
allegories. b. The theme or plot of a mythical tale occuring in forms
differing only in detail. 3. A person or thing existing only in
imagination, or whose actual existence is not verifiable. 4. Myths
collectively; mythical matter.
B.
My observations - - based on this defention ÷
1.
It is a myth to say that this proposal is new.
a). President Roosevelt and his "brain trust" originally
proposed in 1930s.
Daniel Bell, President of American Security & Trust Co.,
Director of Budget for several years beginning in 1935.
b)
Beardsley Ruml said, August 12, 1953, in testifying before
House Committee on Ways and Means: "This change has been
Dode
recommended for years by students, organizations, and
1
Government agencies."
2.
(It is a myth to contend that the federal government's true fiscal
The
situation is improved by a bookkeeping technique. Capital budget
GERALD
LIBRARY
-8-
proposal is a gimmick to get rid of the bad word "deficits" and
make a better political impression.
recently
Senator Byrd said: "I am opposed to it. I think it's fantastic
to try to take all the capital outlay and outright investments by
the Government in buildings and construction and appropriations for
defense equipment and not charge them to regular expenditures. You
would never know where you stood. It's just a way to cover up real
deficits. We must not try to fool the people!!
3.
Unfortunately the ruthless and powerful propaganda forces of the
Executive Branch of the federal government are being marshalled to
Bell
fescal
sell to the unsuspecting American public the myth that the apparent
strength
solvency of the U. S. Government can be resolved by the use of
bookkeeping legerdemain.
In my judgment we will not solve our basic fiscal problems by such
a gimmick. "All this brings to mind the quip that Prime Minister
Harold Macmillan, head of the Conservative Party in Great Britain,
made in 1959 during his campaign against the Socialist Labor Party.
He said: 'The opposition has some sound and original ideas, but the
LIBRARY
-9-
trouble is that some of the original ideas are not sound and some
of the sound ideas are not original.' The idea of a 'capital
budget' is not original with Mr. Kennedy, and it has been proved
unsound every time it has been publicly debated from the days of
D. Romevelt.
FDR through the years of the Eisenhower administration. "
4.
In evaluating our current fiscal situation may I present some
hard and perhaps discouraging facts. Let me assure you this data
is not mythical: --
a).
On June 15, 1962 the public debt was $299 billion, approxi-
mately $8 billion more than it was one year earlier.
b)
President Kennedy has demanded that the Congress increase the
public debt limitation to a new, all-time high of $308 billion,
and during consideration of the legislation by the House of
Representatives last week unbelievable pressure was exerted
on members of the House to vote for this increase despite
documentation that a lower debt limitation was possible without
curtailing national defense programs providing there was a will
and determination on the part of the Executive Branch to reduce
non-essential demestic spending.
-10-
c).
"DEFENSE SPENDING NOT THE CAUSE: I must point out that
expenditures for the national defense are not the caase of the
increase in federal spending in recent years. The great jump
in expenditures came in non-defense spending.
The Korean conflict ended in mid-1953. Using fiscal year 1954,
which began on July 1, 1953, as a point of reference and carrying
(1962)
through the current fiscal year we find 9 percent increase
in defense spending but an increase in non-defense spending
of 85 percent.
Taking the President's 1963 budget and projecting expenditures
through next year, we find defense expenditures up only 12-
percent while non-defense spending will be increased by
94'
percent over 1954.
These percentages are based on the budget expenditures for
national defense of $46.9 billion in 1954 and $52.6 billion
This
in 1963. Comparable figures for non-defense functions are
$20.5 billion and $39.8 billion. And under defense spending
is included not only the regular operation of the Department
DR.FORD.LI
817
of Defense but also Selective Service, defense stockpiling,
ARE
our
-11-
military construction, military foreign aid, and the Atomie Energy
Commission. Defense spending for our national security is not
responsible for continued deficit financing and the enormous
public debt.
d)
In the past 31 years the federal government has balanced its
budget - income versus expenditures - only six times. In 1947,
1948, 1951, 1956, 1957 and 1960.
The cumulative net deficit during this period totals approximately
$270 billion.
During that period of time the purchasing power of the dollar
through inflation has eroded to a value of 48c.
111 If we continue on this course of economic reckless ness and
fiscal brakemanship, we are playing Russian roulette with our
freedom and our destiny.' -- Maurice Stans, budget director under
President Eisenhower,
"
e).
Despite some short-term expedients taken to meet the continuing
problem of the balance of payments it must be admitted that this
most urgent economic problem still confronts the U. S.
GESALD FORD BRAR)
-12-
colunter
In 1961, our balance of payments deficit was reduced, but this improvement
was limited to the first half of the year and must primarily be
credited to advance repayments on long-term U.S. Government obligations
by foreign governments. In the second half of 1961 our balance of
payments position worsened dramatically and thus far in 1962 there is
no encouraging trend.
"The longer-range and fundamental solution to our balance-of-payments
problem will depend on our ability to increase earnings abroad through
an expansion of exports of goods and services, and income on foreign
investments, to such magnitude as will generate a favorable balance
of payments in the private sector sufficient in size to cover our foreign
expenditures under governmental programs.
"This essential correction can be achieved only if the costs of production
of American goods are competitive in an increasingly competitive world
market.
"This focuses attention upon the urgent need to eliminte monopoly power
from both labor and industry, wherever present, so that the forces of
the free market can operate to bring about the needed improvements in
the efficienty of our economy.
GERALD LIBRARY
-13-
"It also focuses attention on the urgency of maintaining confidence in
the integrity of the dollar and of avoiding the generatión of in-
flationary forces. This requires the exercise of fiscal discipline
and the avoidance of inflationary finance.
"If we are to fulfill our responsibilities at home and abroad, and
deal effectively with our balance-of-payments difficulties, we must
overcome the obstacles which stand in the way of our economic progress.
MARTIN
"High on the agenda of reforms needed to promote a better economic climate
is a fundamental revision of our tax system, including depreciation
reform toiinduce greater savings, and increased investment in domestic
productive enterprise."
5.
With this background we should ask the question, Has not the Kennedy Adminis-
tration changed fiscal policy for the federal government?
6.
COMPARISON of Eisenhower fiscal year 1962 budget and Kennedy fiscal year
1963 budget.
GERAUD LIBRARY