Review of The Week: Budget Girds U. S. for Long Haul
$62.4 Billion Set
As '56 Need; Plan
Envisions Deficit
President Elsenhower unveiled his
first “long-haul” budget last week—
the sort of budget that is supposed
to carry the country through per
'haps 50 years of cold wax.
It was a deficit budget, which was.
not necessarily a forecast of -con
tinuing deficits, although it did point
up the extreme difficulty of making
ends meet in the cold war.
It was a big budget, with two
thirds of the spending earmarked to
buy protection for the Nation.
but it was an optimistic budget,
assuming the Nation could carry the
huge load and still prosper.
Bask Assumptions
The budget was built around three
basic assumptions:
• Tensions between the Commu
nist and free worlds will continue in
the coming fiscal year, but no shoot
ing wars will involve the United
States (the budget messagi was
written before fighting broke out in
the Tachen Islands and in Costa
Rica).
• The Nation will prosper in the
coming fiscal year, national Income
rising modestly (though the Presi
dent’s annual economic report,
which also went to Congress last
week, was not rash enough to pre
dict specifically the amount of rise).
• Congress will extend taxes at
present levels for another fiscal
year. , ,
Policy Decisions
These basic assumptions were
combined with two major policy
decisions:
• Defense Policy. "We should plan
end finance our national security
program on a long-term basis that
would maintain essential military
strength over an indefinite period
of time without impairing the basic
soundness of the United States’
economy.”
• Domestic Policy. "A liberal at
titude toward the welfare of people
and a conservative approach to the
use of their money have shaped
this budget.”
Shake the basic ingredients to
gether, mix witty 1,224 pages of
figures and explanations and you
produce a dish that staggers the
Imagination.
A fast man counting dollar bills
24 hours a day, .365 days a year,
would count a billion dollars in
about 13 years. It would take him
almost eight centuries to count the
money proposed to be spent by the
new Eisenhower budget. .
Budget-in-a-Nutshell
Governmental income in a Na
tion as rich—and as tyeavily taxed—
as America is measured in astro
nomical figures. But when income
and outgo are compared, the differ
ence, in the new fiscal year, will
be printed in red ink. Here is the
fiscal 1956 budget in a nutshell
(the new fiscal year will start at
12:01 a.m. July 1 and will end at
midnight, June 30,1956):
Net spending $62.4 billion
Total receipts 60.0 billion
Deficit $ 2.4 billion
The estimate of a $2.4 billion ad
dition to the national debt a
disappointment to the administra
tion. but it was better than the esti
mated deficit for the current (1955)
fiscal year, $4.5 billion; better than
the 1954 figure, $3.1 billion, and
much better than the 1953 deficit,
$9.4 billion.
It might be pointed out that al
though the budget often was re
ferred to as a $62.4 billion budget,
it also was a $58.6 billion budget *
(the total of new money to be ap
propriated by Congress) and a $68.2
billion budget (the total cash which
will be paid out by Uncle Sam).
Since some money is carried over
unspent from year to year the
spending and appropriation figures
never match. And since several trust
fund transactions are not properly
figured into an over-all budget, the
Foreign Affairs Review: Crisis in China Presages Shift in American Policy
President Eisenhower end Secre
tary of State John Poster Dulles be
gan clearing the decks last week for
a shift in the United States’ Asia
policy, toward more normal relations
with Red China and a general ac
ceptance of the status quo through
out the Par East.
Apparently the administration was
acting on the basis of information
obtained in Peiping by United Na
tions Secretary General Dag Ham
marskiold earlier this month. The
United States appeared ready to
make new concessions to Communist
China %y modifying Its long insist
ence on quarantine of the “outlaw"
regime, but was still adamant In
backing the Chinese Nationalist
claim to Pormoes and the Pesca
dores.
Peck’s bad boy or not. Communist
China has simply become too big,a
fact to Ignore. The Peiping regime
proved that first at Panmunjom In
1952-3, at Geneva and Quemoy in
1964 and at Peiping two weeks ago.
Last week’s activity covered the
whole range of American-Red Chi
nese relationships, from the status of
Chinees offshore islands, through the
defease of Formosa and the Pesca
dores, the case of the 11 flyers whom
Red China has Jailed on trumped-up
spy charges, and American recogni
tion for the Communist Chinese re
gime, to the seating of Peiping's rep
resentatives In the United Nations.
Guessing Game
The Red Chinese aren’t guessing
so much any mors about what part
the United Btates 7th Fleet will play
In defense of Chinese offshore is
lands.
■eeretary Dulles and Ur. Eisen
hower served notice last week that
t a
Editorials—Features
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» Taxes 'pi [/ ft jr 1 \ International _ fast J> jP Welfare,
»7J i 4LJL-X Affairs & ****[ j I Health, [
BILLION DEFICIT p Commerce, | *6.4
(All figures in billions of dollars) ■
- Graphic by Star Staff Artist Stan Jennings
OUT OF BALANCE: Tha newly announced budget for fiscal year 1956 lacks $2.4 billion of matching income with outgo. At that, it is closer to the break-even point than earlier ones.
total cash outlay never matches the
official budget spending figure.
Income
Individual Tax Revenue
.Rises, Corporate Fees
Decline in Coming Year
Os immediate Interest to the citi
zen is the answer to the question:
Where is the money coming from?
Most of it, as usual, will come
from that 1913 inovation: The in
come tax. Individuals will be touched
for $33.5 billion, corporations for
sl7 billion. Most of the remaining
general funds will come from excise
taxes—a total of $9.3 billion.
Estate and gift taxes will raise al
most $1 billion; customs will bring
in a half billion and miscellaneous
fines, rents, sales, dividends, etc.,
will clear $2.5 billion. In addition,
some $7 billion will be collected for
the social security, unemployment
compensation and railroad retire
ment funds.
These figures assume that Con
gress will extend the corporate and
excise taxes that are scheduled to
drop on April 1. Corporate income
taxes would fall from 52 per cent to
47 per cent, and excise taxes on
REVENUES' FROM..
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American forces will not help Gen
eralissimo Chlang Kai-shek hold the
Tachen Island group, and hinted
broadly that the same attitude will
apply to other offshore islands.
Prom the American viewpoint, the
offshore islands are more of a
springboard for an offensive by
Chlang against the mainland than a
defensive asset. The United States is
interested only in defending For
mosa and the Pescadores, which arc
regarded as vital to American de
fense.
The mounting site of Red Chinese
air attacks on the Tachens Indicated
that Chlang probably will not be
able to cope with the Communists
with his own air force alone. With
out oontrol of the air, the National
ists cannot hops to hang on to tha
There has been soma question, too,
whether Chlang Intended to defend
the Taehens or pull out Friday
Taipeh announced they would be
defended. President Elsenhower had
been Inclined to give Chlang Ttt>
Fleet help If he decided to evac
uate. Congressmen were told Thurs
day they might be called on to
ratify American participation In the
evacuation of the 18.000-man garri
son.
Saturday morning Republican
House Leader Joseph Martin earns
out, of is White House breakfast
conference with the announcement
President Elsenhower would send
a special message to Congress to
morrow or Tuesday asking indorse
ment of his Formosa policy. Mr.
Martin does not expect the Presi
dent to draw a dearly defined line
behind which the United States win
take Its stand with Chiang, It is not
known if the united States would
dal and Quemoy **“* Matsu, although
Iffje Jfomdmj Jlfctf
WASHINGTON, D. C., JANUARY 23, 1955
The administration has sent to Capitol Hill a
broad revision of military pay scales. Some uni
formed men will like the bill, others will not. It is
alcohol, tobacco and several manu
factured items would be reduced.
If the rate is not extended, the
corporate tax reduction would cost
lections, down $1.4 billion from fiscal
1955; personal income tax collec
tions, up SIJ billion.
Tox Trends
Even if Congress acts as request
ed, individual taxpayers will see
their shore of the burden of Oov
ernment increase over the current
fiscal year while the corporate share
goes down. Democrats pointed this
out last week with some glee, but
the explanation is not as sinister as
the critics of the “big business” ad
ministration would like to pretend.
Actually, corporate taxes will drop
because the collection date will be
changed this year. For five years
the Government has, in effect, bor
rowed some corporate tax money
from the following year. Fiscal 1956
will have to “lend” some of its re
ceipts to 1955, but will be unable
to “borrow” from 1957. So it will
be 10 per cent short of its rightful
income.
At the same time national Income
is expected to rise gradually in the
coming months. Both-corporate and
personal taxes will reflect this rise,
but the collection gimmick iir the
corporate levy will reduce total col
lections from business.
The net effect: Corporate tax col
lections down $1.4 billion from fiscal
1955; personal income tax collec
tions up $l.B billion.
The President's budget message
was disappointing in that it did not
approve a tax cut for fiscal 1956, but
it did hope for a reduction in
1957. It was a reasonable hope, as
both parties will be amenable to an
there apparently had been some dis
cussion of this possibility.
Mr Martin said there was “no
doubt" Congress will be practically
unanimous in approving Mr., Eisen
hower’s plan, which probably would
be presented in the form of a
resolution. •
Such a resolution,would be a dra
matic demonstration to Peiping of
two things:
1. The United Stabes has no inten
tion of attacking mainland China.
2. Even under the Eisenhower for
mula for getting Congressional back
ing in any war move, the United
States Government could act with
Impressive speed.
The resolution would also shift a
share of the responsibility for any
casualties In the 7th fleet from
the executive to • the- legislative
branch, and show American unity.
Sip * \
.. IKHHR - :
ALERT ON TACHENS: Qnmn Notionalist troops gflfdi Hnts|h t vslloqo on gag aland at boiaopaacod prong.
« 1 •
More Money for Men in Uniform?
election-year vote on tax reduction.
The only question will be; Who will
get the breaks?
Outgo
Everything Else Is Drop
In the fucket Compared
With Defense Outlays
There are two ways of presenting
the expenditures side of a budget. It
can be listed by department, or it
can De listed by function. The fiscal
1956 budget does the job both ways,
with several variations added to
clarify special points.
But to the general public. Govern
ment spending becomes most under
standable in one new treatment
added to the budget this year. It
is a simple table showing how much
must be spent for four principal
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President Eisenhower summed up
his reasons for withholding 7th
Fleet support for Chiang’s defense of
the Tachens at his press conference
Wednesday: *
“No military authority that I
know of has tried to rate these small
islands that are now under attack,
or indeed the Tachens themselves, as
an essential part of the defenses of
Formosa and the Pescadores,' to the
defense of which we are committed
by the treaty that is now bdfore the
Senate for approval. ... The Tach
ena ..„ are not a vital element, as
we see it, in the defense of the is
lands."
The Seventh Fleet did not inter
vene when the Reds attacked and
took TUdangshas, a island 12
miles north of urn Tachens.
That confirmed what the Red
Chinese had suspected before: The
I sure to cause controversy in Congress. An analysis
of the measure, discussing the reasoning behind
specific proposals, appears on Page A-29.
functions of the Government: Pro
tection, civil benefits (e.g., welfare),
interest on the public debt and civil
operations (the administration of
the civilian side of the Government).
Protection, of course, eats up most
of the tax money. Welfare is ex
pensive, and the interest on the
national debt is large. But the cost
of administration—the area where
the public usually feels a mountain
of money could be saved with a little
more efficiency—is actually so small
it is almost lost in the budget.
Civil Operations
When Juggling a $62.4 billion
budget, the $2.3 billion cost of ad
ministering the qivil arm of the Gov
ernment isn’t much. But it includes
all money spent for repair and main
tenance, for operation of civilian fa
cilities and for regulatory activities.
This category, which takes up 4
per cent of the budget, is up S4OO
million over last year, mostly be
cause the Federal Government, as
an employer, will put money into
the Government worker retirement
fund, which it is not doing in fis
cal 1955.
Interest
The $6.4 billion earmarked for
interest is easy to understand. The
national debt will climb, by the end
of fiscal 1956, to $276 billion. Such
a huge loan requires huge interest
payments.
Actually, the interest will be down
a little in the coming year. By bor
rowing at lower interest rates during
the past 12 months and by changing
the time of some interest payments,
the Treasury Department has man-
keep-em-guessing policy was a cover
for our Intention not to help defend
the island outposts. Few if any,
Chinese offshore islands could be de
scribed as “vital" to the defense of
Formosa and the Pescadores.
The President's words emphasized
again, however, the United States'
determination to hold on to For
mosa. Loss of the big island to the
Communists would breach America’s
Par Eastern perimeter defense. It
would immediately endanger the
Philippines and Okinawa—and,
later, Japan. It might result In
driving America’s western defense
line back to Hawaii and the West
Coast.
Mr. Eisenhower obviously has de
cided that Chou En-lal must simply
learn to live with an enemy state
based on Formosa. Peiping Radio
was still pouring out Its'stream of
Resorts and Travel
aged to reduce total interest by S2OO
million in fiscal 1956.
Civil Benefits
The welfare state in all its glory
may not be a part of America, but
the welfare bill still is a large one.
Uncle Sam will spend $4.5 billion on
veterans' benefits in fiscal 1956; al
most $1.5 billion for public assistance
to persons unable to care for them
selves finsmcially: $750 million to
help farmers, mostly to support the
price of crops, and $537 million to
aid business. Other money will go to
home owners, weather bureaus, etc.
In addition to these aids and serv
ices. Uncle Sam will spend about $2
billion on long-range development
of national assets—roads, airports,
schools, soil, public health, etc. And
some $2 billion will go for construc
tion and major equipment—all sorts
of more-or-less permanent Federal
assets.
Although President Eisenhower’s
state-of-the-Union message con
tained long sections on public wel
fare—long enough to make some
conservative Republicans wonder if
the New Deal were not winning out
after all—a look at the President’s
budget indicates he is not going
overboard on welfare.
Total spending for civil benefits
will be down a billion and a quarter
from the current fiscal year. Most of
the reduction will be in acquisition
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still too early to know If Ihe Corn
threats against Formosa, but it is
munists intend to test the new
United States defense line in the
Formosa Straits. The Reds must
first clean up the offshore islands.
The Jailed Flyers
In return for their thinly-veiled
invitation to Peiping to do its worst
in the Tachens, American policy
makers obviously hoped Red China
might see its way clear to commute
the sentences of the 11 American
flyers they jailed late last year.
But It developed Friday that Mr.
Chou hopes to get even more mileage
out of his grab of the 11 Americana.
He was using it aa a bid for Amer
ican recognition of his Communist
regime.
The United Nations disclosed that
Peiping would be happy to allow the
parents and relatives of 17 Jailed
Americans to visit Red China and
see their hapless kin. (Besides the
II airmen accused of vying, there
are two civilians in Jail on tM same
charge and four Jet pilots awaiting
tifal.)
Red China’s offer posed the State
Department with another unhappy
dilemma: How will the relatives get
visas 7
Peiping said the question of get
ting visas would be up to the Amer
ican Government. Chou En-lal was
making a new and telling point in
his campaign to heap ridicule on the
United States’ nonrecognition
policy.
The Government’s problem is this:
If enough public clamor Is raised,
th* administration may—however
grudgingly—be forced to help rela
tives who want to see their Im
prisoned kin. But If the visitors
would require visas, the United
§ I
* A-25
of new Federal assets, but there also
will be significant reductions in
money spent for farmers, on indirect
mail subsidies to second and third
class users (provided Congress votes
to increase postal rates) and a slight
dip in public assistance spending.
Despite talk of more Federal aid
to education, spending actually will
go down (mostly because less aid is
needed in federally affected crowded
school areas). No new program of
school construction is provided for.
New expenditures for public health
do not loom large. The current
year’s spending will total $321 mil
lion. In the next fiscal year it will
be increased by $52 million to pay
tor all of the President’s proposed
new programs (health reinsurance,
training of nurses, medical care for
the indigent, etc.) plus a few small
boosts in existing services.
Protection
Back in the happy days when a
standing Army of 150,000 was enough
to protect the Nation, the annual
budgets devoted little space to de
fense. In fiscal year 1956, however,
the largest section carries a “pro
tection” label.
Under that classification lies 67
per cent of the spending, including
$34.7 billion for the three armed
services, plus spending for atomio
energy, stockpiling of strategic ma
terials and foreign aid.
The budget estimates foreign aid
spending in the coming year at $4.7
billion. The figures were not broken
down. There was no way to tell how
much would go to each trouble spot
Officials did indicate, however, that
about two-thirds would go to Asia.
Perhaps $250 million will be set
aside for economic aid there—all
that is left of the “Marshall Plan
for Asia” idea which Secretary of
the Treasury Humphrey slapped
down late last year.
Military Spending
Most eyes, of course, were on tha
military budget. This was the key
to the long haul the President is
planning for. Mr. Eisenhower said
in his budget message it was essen
tial that the Nation build and main
tain military strength sufficient to
retaliate decisively and to defend
itself in case an enemy attacks.
Specifically, he said, we need mora
atomic air power and a stronger
continental defense (how the small
“nibbling” Communist wars were to
be handled, he did not specify).
A look at military spending figures
for the three Elsenhower budgets in
dicates that the outgo of the three
services has leveled off. The long
haul has started.
The size of the armed services still
is being adjusted, however. Total
military personnel will be reduced
from the present 3.2 millon men to
about 3 million this June and then
to about 2.8 million at the end of
fiscal 1956. That will mean a sharp
drop for the Aripy and Navy and
a slight increase for the Air Force.
Emphasis on air power shows up
in comparative expenditures. While
the Army will spend slightly less
than $lO billion and the Navy $9.8
billion, the Air Force will have $15.5
billion.
The President, in his budget
message, assured Congress that those
figures were sufficient. As he is
considered the foremost military
expert in the Government, his word
will carry much weight. But an
other expert outside the Govern
ment, former Secretary of the Air
Force Thomas K. Finletter, feels the
Air Force money is not enough.
Mr. Finletter maintains that the
country will not have a retaliatory
air force larger than Russia's unless
at least $lB billion are appropriated
each year for air. The new budget
calls for only $14.5 billion in new
appropriations (another billion will
be available in surplus from this
year).
Unless the $lB billion mark is
reached and maintained. Mr. Fin
letter believes, “the presumption la
almost conclusive that we are still
not preparing for the terrible threat
before us.”
So there are the two experts, Mr.
(ContinuedTSn Page A-29.)
States Government would have to
make diplomatic overtures of some
sort to Red China. This in Itself, if
not a form of recognition, would be
at least another step toward recog
nition of Peiping.
State Department spokesmen were
making much of their fears about
the safety of visiting relatives, but
Mr. Hammarskjold does not believe
there would be any danger. The Chi
nese Communists probably would be
extremely careful with such valuable
propaganda assets, just as a matter
of good global public relations.
As Senator Walter George of
Georgia commented sadly on Friday,
Chou En-lai is the "ablest Commu
nist living today.”
U. 5. Recognition
President Eisenhower, of course,
appears to be giving no serious con
sideration to recognizing Communist
China yet. His price for consenting
to an exchange ct ambassadors is aa
high as ever. At his press conference
last Wednesday be said Peiping must
drop all Its aggressive activities first.
He listed four specific deeds for
the Red Chinese:
1. They must withdraw their sol
diers from North Korea.
2. They must return ail prisoners
of ours whom they have held in vio
lation of the Korean armistice
agreement.
3. They must abstain from aggres
sive act* in Southeast Asia.
4. They must conduct themselves
“as a civilised nation in the councils
of the world," l. e„ conform to tradi
tional diplomatic practice instead of
riding rough-shod over foreign na
tionals and foreign diplomats.
Chou’s hopes for recognition by
(Continued on Page A-29.)
A