V.

I have referred to the inescapable need for economic health and strength if

we are to maintain adequate military power and exert influential leadership

for peace in the world.

Our immediate task is to chart a fiscal and economic policy that can:

(1) Reduce the planned deficits and then balance the budget, which means,

among other things, reducing Federal expenditures to the safe minimum;

(2) Meet the huge costs of our defense;

(3) Properly handle the burden of our inheritance of debt and obligations;

(4) Check the menace of inflation;

(5) Work toward the earliest possible reduction of the tax burden;

(6) Make constructive plans to encourage the initiative of our citizens.

It is important that all of us understand that this administration does not

and cannot begin its task with a clean slate. Much already has been written

on the record, beyond our power quickly to erase or to amend. This record

includes our inherited burden of indebtedness and obligations and

deficits.

The current year's budget, as you know, carries a 5.9 billion dollar

deficit; and the budget, which was presented to you before this

administration took office, indicates a budgetary deficit of 9.9 billion

for the fiscal year ending June 30, 1954. The national debt is now more

than 265 billion dollars. In addition, the accumulated obligational

authority of the Federal Government for future payment totals over 80

billion dollars. Even this amount is exclusive of large contingent

liabilities, so numerous and extensive as to be almost beyond description.

The bills for the payment of nearly all of the 80 billion dollars of

obligations will be presented during the next 4 years. These bills, added

to the current costs of government we must meet, make a formidable burden.

The present authorized Government-debt limit is 275 billion dollars. The

forecast presented by the outgoing administration with the fiscal year 1954

budget indicates that--before the end of the fiscal year and at the peak of

demand for payments during the year--the total Government debt may approach

and even exceed that limit. Unless budgeted deficits are checked, the

momentum of past programs will force an increase of the statutory debt

limit.

Permit me this one understatement: to meet and to correct this situation

will not be easy.

Permit me this one assurance: every department head and I are determined to

do everything we can to resolve it.

The first order of business is the elimination of the annual deficit. This

cannot be achieved merely by exhortation. It demands the concerted action

of all those in responsible positions in the Government and the earnest

cooperation of the Congress.

Already, we have begun an examination of the appropriations and

expenditures of all departments in an effort to find significant items that

may be decreased or canceled without damage to our essential requirements.

Getting control of the budget requires also that State and local

governments and interested groups of citizens restrain themselves in their

demands upon the Congress that the Federal Treasury spend more and more

money for all types of projects.

A balanced budget is an essential first measure in checking further

depreciation in the buying power of the dollar. This is one of the critical

steps to be taken to bring an end to planned inflation. Our purpose is to

manage the Government's finances so as to help and not hinder each family

in balancing its own budget.

Reduction of taxes will be justified only as we show we can succeed in

bringing the budget under control. As the budget is balanced and inflation

checked, the tax burden that today stifles initiative can and must be

eased.

Until we can determine the extent to which expenditures can be reduced, it

would not be wise to reduce our revenues.

Meanwhile, the tax structure as a whole demands review. The Secretary of

the Treasury is undertaking this study immediately. We must develop a

system of taxation which will impose the least possible obstacle to the

dynamic growth of the country. This includes particularly real opportunity

for the growth of small businesses. Many readjustments in existing taxes

will be necessary to serve these objectives and also to remove existing

inequities. Clarification and simplification in the tax laws as well as the

regulations will be undertaken.

In the entire area of fiscal policy--which must, in its various aspects, be

treated in recommendations to the Congress in coming weeks--there can now

be stated certain basic facts and principles.

First. It is axiomatic that our economy is a highly complex and sensitive

mechanism. Hasty and ill-considered action of any kind could seriously

upset the subtle equation that encompasses debts, obligations,

expenditures, defense demands, deficits, taxes, and the general economic

health of the Nation. Our goals can be clear, our start toward them can be

immediate--but action must be gradual.

Second. It is clear that too great a part of the national debt comes due in

too short a time. The Department of the Treasury will undertake at suitable

times a program of extending part of the debt over longer periods and

gradually placing greater amounts in the hands of longer-term investors.

Third. Past differences in policy between the Treasury and the Federal

Reserve Board have helped to encourage inflation. Henceforth, I expect that

their single purpose shall be to serve the whole Nation by policies

designed to stabilize the economy and encourage the free play of our

people's genius for individual initiative.

In encouraging this initiative, no single item in our current problems has

received more thoughtful consideration by my associates, and by the many

individuals called into our counsels, than the matter of price and wage

control by law.

The great economic strength of our democracy has developed in an atmosphere

of freedom. The character of our people resists artificial and arbitrary

controls of any kind. Direct controls, except those on credit, deal not

with the real causes of inflation but only with its symptoms. In times of

national emergency, this kind of control has a role to play. Our whole

system, however, is based upon the assumption that, normally, we should

combat wide fluctuations in our price structure by relying largely on the

effective use of sound fiscal and monetary policy, and upon the natural

workings of economic law.

Moreover, American labor and American business can best resolve their wage

problems across the bargaining table. Government should refrain from

sitting in with them unless, in extreme cases, the public welfare requires

protection.

We are, of course, living in an international situation that is neither an

emergency demanding full mobilization, nor is it peace. No one can know how

long this condition will persist. Consequently, we are forced to learn many

new things as we go along-clinging to what works, discarding what does

not.

In all our current discussions on these and related facts, the weight of

evidence is clearly against the use of controls in their present forms.

They have proved largely unsatisfactory or unworkable. They have not

prevented inflation; they have not kept down the cost of living.

Dissatisfaction with them is wholly justified. I am convinced that now--as

well as in the long run--free and competitive prices will best serve the

interests of all the people, and best meet the changing, growing needs of

our economy.

Accordingly, I do not intend to ask for a renewal of the present wage and

price controls on April 30, 1953, when present legislation expires. In the

meantime, steps will be taken to eliminate controls in an orderly manner,

and to terminate special agencies no longer needed for this purpose. It is

obviously to be expected that the removal of these controls will result in

individual price changes--some up, some down. But a maximum of freedom in

market prices as well as in collective bargaining is characteristic of a

truly free people.

I believe also that material and product controls should be ended, except

with respect to defense priorities and scarce and critical items essential

for our defense. I shall recommend to the Congress that legislation be

enacted to continue authority for such remaining controls of this type as

will be necessary after the expiration of the existing statute on June 30,

1953.

I recommend the continuance of the authority for Federal control over rents

in those communities in which serious housing shortages exist. These are

chiefly the so-called defense areas. In these and all areas the Federal

Government should withdraw from the control of rents as soon as

practicable. But before they are removed entirely, each legislature should

have full opportunity to take over, within its own State, responsibility

for this function.

It would be idle to pretend that all our problems in this whole field of

prices will solve themselves by mere Federal withdrawal from direct

controls.

We shall have to watch trends closely. If the freer functioning of our

economic system, as well as the indirect controls which can be

appropriately employed, prove insufficient during this period of strain and

tension, I shall promptly ask the Congress to enact such legislation as may

be required.

In facing all these problems--wages, prices, production, tax rates, fiscal

policy, deficits--everywhere we remain constantly mindful that the time for

sacrifice has not ended. But we are concerned with the encouragement of

competitive enterprise and individual initiative precisely because we know

them to be our Nation's abiding sources of strength.