The first requirement of confidence and of economic recovery is financial
stability of the United States Government. I shall deal with fiscal
questions at greater length in the Budget message. But I must at this time
call attention to the magnitude of the deficits which have developed and
the resulting necessity for determined and courageous policies. These
deficits arise in the main from the heavy decrease in tax receipts due to
the depression and to the increase in expenditure on construction in aid to
unemployment, aids to agriculture, and upon services to veterans.
During the fiscal year ending June 30 last we incurred a deficit of about
$903,000,000, which included the statutory reduction of the debt and
represented an increase of the national debt by $616,000,000. Of this,
however, $153,000,000 is offset by increased cash balances.
In comparison with the fiscal year 1928 there is indicated a fall in
Federal receipts for the present fiscal year amounting to $1,683,000,000,
of which $1,034,000,000 is in individual and corporate income taxes alone.
During this fiscal year there will be an increased expenditure, as compared
to 1928, on veterans of $255,000,000, and an increased expenditure on
construction work which may reach $520,000,000. Despite large economies in
other directions, we have an indicated deficit, including the statutory
retirement of the debt, of $2,123,000,000, and an indicated net debt
increase of about $1,711,000,000.
The Budget for the fiscal year beginning July 1 next, after allowing for
some increase of taxes under the present laws and after allowing for
drastic reduction in expenditures, still indicates a deficit of
$1,417,000,000. After offsetting the statutory debt retirements this would
indicate an increase in the national debt for the fiscal year 1933 of about
$921,000,000.
Several conclusions are inevitable. We must have insistent and determined
reduction in Government expenses. We must face a temporary increase in
taxes. Such increase should not cover the whole of these deficits or it
will retard recovery. We must partially finance the deficit by borrowing.
It is my view that the amount of taxation should be fixed so as to balance
the Budget for 1933 except for the statutory debt retirement. Such
Government receipts would assure the balance of the following year's budget
including debt retirement. It is my further view that the additional
taxation should be imposed solely as an emergency measure terminating
definitely two years from July 1 next. Such a basis will give confidence in
the determination of the Government to stabilize its finance and will
assure taxpayers of its temporary character. Even with increased taxation,
the Government will reach the utmost safe limit of its borrowing capacity
by the expenditures for which we are already obligated and the
recommendations here proposed. To go further than these limits in either
expenditures, taxes, or borrowing will destroy confidence, denude commerce
and industry of its resources, jeopardize the financial system, and
actually extend unemployment and demoralize agriculture rather than relieve
it.