The Cost of Our Government

I

THE Federal Government cannot be fair with its citizens until it is fair with itself.

It cannot be fair with itself until it takes stock of its depression measures, determines a definite policy with regard to them, and adjusts its expenditures and revenue accordingly.

It cannot be fair with the citizens until, in the light of these policies and the accumulated and existing conditions, it makes unqualified, straightforward answers to three simple questions: What is the national debt? What is the total annual cost of the Federal Government? Who must pay the bill, and what rate is to be assessed upon the various classes of taxpayers?

These questions, while growing in importance to every citizen everywhere in the nation, for eight years have dangled in an abyss of uncertainty. Until they are answered simply and frankly, the government will be uncertain, the administration will be uncertain, its policies will be uncertain, the citizens will be uncertain, business will be uncertain, social welfare will be uncertain, and economic security will be uncertain.

The depression brought its difficulties and hardships. The citizens and their government repulsed the depression, temporarily at least, with fearless action which commanded the respect of the civilized world. The government promptly changed its pace to meet conditions — governments should change to meet changing conditions.

But the government has been overtaken by the moment when another fearless change of pace was necessary. It overran the moment for pausing to take inventory of what had been done, to solidify gains, to face facts, to reënforce its progress by retrenchment in unnecessary expansion, to discard excesses, to eliminate extravagances of emergency measures, to count the costs, to pay the debts and face the future squarely with adjusted policies.

These things were not done. Instead, statements of the national debt were qualified. Expenditures were continued on a double budget basis under promises of a ‘laymen’s balance’ which never materialized. Expansion of government functions, agencies, and personnel continued with emergency fury. Attempts were made to plug round holes through which an avalanche of expenditures were pouring with square pegs of social security premiums and other spurious fiscal practices. Makeshifts were resorted to in place of sound and adequate taxation, policy determination, and adjustment.

These fallacies are still with us.

When the mariner has been tossed many days upon tempestuous seas he naturally avails himself of the first break in the storm for a glance at the sun to get his bearings and ascertain how far the elements have carried him off his course. That is simple salty prudence.

In seven years the Federal Government has spent the incredible sum of $47,000,000,000. In the same period $22,000,000,000 has been added to the national debt. These figures are too large to comprehend, but they are vital because the prosperity of every individual in the nation depends upon the preservation of the credit of the nation.

No one will deny that continuous deficits can lead only to disaster. The credit of the government is still sound, but it will not remain so always under the strain of the present extravagance and enormity of expenditures. The Federal budget has not balanced for eight years.

In six years the increases in the Federal debt have been more than four times the total complete wealth of the State of Virginia — a wealth that Virginians have been accumulating by their frugality and industry for more than three hundred years. Virginia is an average state in wealth and population; thus we may say that the new Federal debt represents the total value of all the property owned by the citizens of four sovereign states of average wealth and population. To argue that such dissipation of resources is dangerous is to put it mildly.

In 1930 the debt of the Federal Government was $16,000,000,000. It had been reduced from the World War peak of $26,000,000,000 by payment of about a billion dollars each year of the twenties. To-day the debt has risen to upwards of $38,000,000,000.

In addition to this direct debt, the Federal Government has guaranteed in full the obligations of twenty-five wholly government-owned corporations and partially guaranteed the obligations of ten semi-government corporations. This contingent liability is approximately $5,000,000,000. Therefore the total direct and contingent obligations are more than $42,000,000,000. It is true that this gross debt is subject to such credits as may (or may not) come from recoverable assets and the ultimate liquidation of the thirty-five corporations — and the tendency is to expand these corporations and increase their number — whose obligations have been guaranteed by the government in whole or in part. It is likewise true that the debt is subject to such credits as may come out of the present gold policy, but it is difficult to calculate the extent of such credits because the problems presented in disposal make gold credits an asset of fluctuating value at best.

To get the debt back to the figure of seven years ago, payment of a billion dollars each year for twenty-two years would be necessary. It is questionable whether, even with uninterrupted prosperity for a generation, the people of this country and their business could sustain the government on its present expenditure basis and retire the debt at this rate. To do so would require nearly a 30 per cent increase in tax collections based upon the 1938 estimates — estimates which were the largest in history, approached only by the year 1920, when war profits were subjected to high tax rates.

The Twentieth Century Fund, an independent fact-finding agency, says that total government debts in the United States — Federal, state, and local — amount to $56,000,000,000, ‘the largest that any nation has ever had.’

In 1913 the per capita income for the United States was $350; in 1936 it was $469, an increase of 34 per cent. In 1913 total expenditures by all governments in the nation equaled $30 per capita; in 1936 the total was $134, an increase of 347 per cent. On a per capita basis, government expenditures in 1913 represented 8 per cent of the national income; in 1936 the expenditures represented 28 per cent of the national income. In 1913 the total public debt averaged $59 per capita; in 1936 the average was $430. At present about one third of every person’s income would be required to meet government expenditures if we were to pay as we spend.

The President predicts a ninth consecutive annual Federal deficit for next year. In the previous history of the nation two years was the longest period of substantial successive deficits. In the three World War years, exclusive of loans to the Allies, the Federal Government spent for normal and war expenses only a little more than was spent in the 1935-1937 period: $25,000,000,000, compared to $24,000,000,000.

II

The best efforts to examine and reconcile figures in the two Federal Government budgets indicate that our annual Federal expenses are now being leveled off somewhere above a $7,000,000,000 base. The double budget was adopted in 1934. There was to be one budget for emergency expenditures and another for regular expenditures. There are still two budgets. But there has never been but one treasury, and one source of revenue.

In 1934 the regular budget presented to Congress by the President was for $2,700,000,000. In 1938 the regular budget is $5,400,000,000 — an increase of 100 per cent in four years.

A reduction is shown in the statement of recovery and relief expenditures in the emergency budgets, but the reduction is accounted for largely by the transfer of such expenditures as those for the Civilian Conservation Corps from the emergency budget to the regular budget. There has been no reduction in total expenditures, and, excluding the nonrecurring soldiers’ bonus, expenditures for the fiscal year ending June 30 will be as great as for any other depression year, if not greater.

It is difficult at best to comprehend expenditure of billions of dollars, but the device of two budgets has added to the confusion. There have been announcements of reductions in spending for recovery and relief, but almost invariably reductions in the emergency budget turn out to mean that the regular, permanent budget has been increased by the items eliminated from the emergency totals. The expenditures have been juggled from one book to another, but the taxpayer pays the bill for both budgets. The two-budget system has merely aggravated the general confusion.

The increase in the regular budget expenses during the past five years is indicated by the following figures: —

Year Regular Budget
1934 $2,700,000,000
1935 3,200,000,000
1936 3,300,000,000
1937 4,400,000,000
1938 5,400,000,000

When recovery and relief expenditures, the costs of the recently inaugurated slum-clearance programme, the additional costs of the new farm programme, and expenditures for other costly new items are added to the $5,400,000,000 budget of 1938, the total in all probability will come closer to $8,000,000,000 than to $7,000,000,000.

Congress has done more to destroy the budget system by its practice of making lump-sum appropriations than by any other form of action. Approximately $15,000,000,000 of such appropriations have been made in the past four years, as compared to $1,500,000,000 of lump-sum appropriations in all previous history of the nation. These lump-sum recovery and relief appropriations, equivalent as they are to blank checks, have flowed in surprising volume into the regular departments for expansion of their activities. In actual dollars and cents, more than $3,000,000,000 of lump-sum appropriations went into the regular departments in 1934, 1935, and 1936, swelling to that extent the budget estimates for their maintenance and operation.

While the unpublicized aspects of the double-budget-lump-sum appropriation may be a revelation to many who do not follow closely the operations of Federal Government, there are other practices which baffle one seeking accurate information regarding the cost of his government.

One example is shown in the budget of 1938, which discloses that $230,000,000 of social security taxes has been used for regular expenses, thus reducing the deficit by use of a tax collected and paid for the specific purpose of providing oldage security.

Another example is the practice of deducting from current expenditures excesses of collections on loans over loans made. In this manner the combined expenditures in 1937 were shown to have been reduced by $243,000,000. In reality, and for the sake of accuracy, the excess of capital loan collections over the total of loans made should be applied to public debt reduction. Instead it has been and is being applied to current expenses.

Somewhat related to the foregoing is a third example involving the government corporations, at present so popular, which account for contingent liabilities amounting to more than $5,000,000,000. The statement has been made publicly, and has not been denied, that the credits and recoverable assets of these corporations, as shown on official government reports, have been grossly overestimated.

An instance in point is the Reconstruction Finance Corporation. The government purchased $500,000 of stock and about $4,000,000,000 of notes of this corporation. The stock and notes have been carried on government reports at face value, creating the impression that the total assets represented sound value, ultimately recoverable into the Treasury to reduce the public debt. Congress was informed more than a year ago that $2,500,000,000 of these RFC assets were valueless because the money had been diverted into relief expenditures and expenditures of regular agencies of the government and were not recoverable. But not until recently was it recognized publicly that RFC notes were not worth more than fifty cents on the dollar as recoverable assets. At the request of the Chairman of the RFC, who was not responsible for the misleading Treasury Department record, a bill was introduced in the current session of Congress canceling $2,600,000,000 of these so-called recoverable assets and $33,000,000 interest.

The government requires its citizens and the business enterprises they conduct to make clear and candid statements of their financial condition. There is no reason why the government should not be equally clear and frank in reporting the activities and financial condition of the government as a whole, and all of its agencies and the corporations in particular. These corporations have sprung up rapidly during the depression days. They have become a sort of special-privilege class of government agency. Some of them, in their functions and activities, bear striking resemblance to holding companies. Some of them disregard the Congress in the expenditure of funds. Some of them refuse orthodox government audit.

The huge deficits can no longer be attributed to failure of revenue. Even before the request was made of the current session of the Congress for another quarter of a billion dollars for a relief deficiency, the estimates for the present fiscal year indicated that the total deficit would be upwards of $2,000,000,000 despite the greatest revenue in the history of the nation. And that revenue did not come from millionaires, for if the government had confiscated all the income of all the millionaires in the country the revenue would have run the government only about three days. It did not come from big business through the so-called undistributed-profit taxes. The records show, and no one will deny, that this and other share-the-wealth schemes broke down. Some contend that, together with other Federal policies and activity, they carried business down with them, with the resulting recession.

Nearly half of all the revenue came from the miscellaneous taxes embracing tobacco, amusements, and hundreds of other items which rich and poor alike pay at the same rate.

Ordinary people will pay most of these bills and carry the load of this debt and these expenditures. A true and accurate diagnosis requires frank and fearless recognition of the present economic predicament and governmental activity.

III

By far the greatest evil of the governmental operations during the past few years has been the gross waste of money through unadulterated extravagance, duplication of effort and agencies, and creation of agencies and functions which, if necessary at all, were of shortlived value.

A typical illustration of the manner in which millions of dollars have been squandered has come to light through examination of the use made of a lumpsum appropriation allocation for construction of houses in Virginia to be rented to mountain people. The average cost of these houses, complete with land and overhead, was about $8000. Representatives of Virginia in Congress had no opportunity to vote on the appropriation for their own state. Competent builders in the locality have offered to reproduce the houses at the rate of $900 apiece.

A formal request to the Resettlement Administration to stop such excesses was unavailing. In the same manner the same administration built about fifteen thousand houses throughout the country, some costing more than $16,000 each. These houses were to be rented to low-income tenants. The overhead on some of these places, according to official audit, has run as high as 40 per cent of cost. The government’s own experts admit that families for whom the houses were designed could never pay rent based on actual costs.

The cost of the average American home is $4400. With this in mind, efforts were made to limit the cost of houses to be built under the new slumclearance law to a figure which competent persons, both in the Congress and out, including proponents, said was adequate.

The Federal Government has extended its operations until one out of every eighty men, women, and children in the United States is now on the national payroll and is naturally a supporter of legislation that has given him or her a job. He likewise is a supporter of legislation that will make that job permanent. When the personnel of the regular army, the navy, the marine corps, the legislative and judicial branches, and the Civilian Conservation Corps (now permanent) is added to the 889,550 (as of December 31, 1937) regular civil executive payroll of the executive branch of the government, the total is approximately 1,500,000 employees. With their dependents, it is seen that a substantial portion of the population of the United States is dependent upon the Federal Government for regular employment. But that is not all. To the regular payroll there may be added a million Federal pensioners (not including recipients of old-age pensions) who receive regularly a check from the Federal Treasury. Add to these the millions on relief. It is not fanciful to apprehend that the day may come when organized minorities receiving Federal support may combine to make and maintain administrations pledged to a progressive continuance of this prolific distribution of money wrung from taxpayers.

The statement is made advisedly that there is to-day in the United States the most complicated and costly bureaucracy in all history. To point to fifty Federal agency legal divisions in Washington is enough to describe the density of the Federal jungle. But there have been at least twenty-four agencies concerned with lending government funds, thirty-four with acquisition of land, forty-eight with wild-life conservation, nine with credit and finance, at least a dozen with home and community planning, ten with materials of construction, and numerous others which overlap and duplicate functions in such fields as public welfare, health, and relief; regulation of business enterprise; transportation; agriculture; power; law enforcement; property and personnel; publicity, and so forth.

Make a simple test in your own community; check your telephone directory. There are branches of 75 Federal agencies in the State of Virginia. A government-compiled directory in Washington showed 143 separate Federal agency numbers, exclusive of hundreds of branch and extension numbers. Agency offices at the seat of the government outgrew the capital, and one large unit had to be taken to Baltimore. There were in Washington, at the time of a recent check, 46 personnel officers listed for the government; 104 publications and information offices; 126 agency libraries; 51 agency traffic managers. It was estimated that several hundred exnewspaper men found employment in Federal agency press sections in Washington more profitable. In 1930 the Federal and district governments paid for 17,142 telephones in Washington; in 1936 the number was 32,882.

Besides the bureaucracy in Washington, there have been set up forty-eight or more miniature federal governments outside, one or more in every state in the Union. In the period from March 1, 1933 to July 1, 1936 the government built 664 new buildings outside of Washington at a cost of $239,000,000. Yet on July 1, 1936 (later figures have not been made available), notwithstanding the new and old government-owned buildings, the government was leasing 11,842 others. The floor space of buildings owned and leased by government outside of Washington is the equivalent of fifty-two Empire State Buildings, or more than one Empire State Building for each state.

Thus it is not difficult to see how the overlapping of activity, the duplication of effort, the extravagance and inefficiency, have mounted.

The failure to form definite policies has been particularly costly with regard to relief. The Federal Government has been spending an average of $810 a year per person on relief, but with no permanent relief policy. That figure may be compared with $692, the average per capita income of the people in the United States in the prosperous year of 1929. Federal Relief was inaugurated as an emergency measure and has been continued as such, in a separate budget. In seven years the Federal Government appropriated $15,000,000,000 for recovery and relief. Recent requests for more money for the current year indicate that the pace is not slackening.

The facts and figures cited to this point are only examples of what can be found in a thorough study of the Federal Government. The result of the activities of the Federal Government, from the standpoint of its fiscal status, is that for four years it has spent $14,000 every minute of every day, including Sundays.

There are those in the nation who would take the last dollar in the Treasury to see that no one goes hungry or cold, and would bend every human effort to guarantee equal rights and privileges to all, but these same people to-day view with alarm the situation as it has developed. Their belief is that a mandate for progress and welfare without a mandate for solvency is a mandate impossible of fulfillment, and very likely a mandate for disaster. When they question whether what is being done can be done more economically and more efficiently, and whether all of the activities are necessary, they are held up to scorn as economic royalists, tories, hard men without the milk of human kindness, men completely indifferent to human suffering.

In reality, many of those who question the safety of spending more than the income for so long are sincerely searching for means for better conditions for more people on a more permanent basis. That was true, for instance, of the group in the United States Senate in the summer of 1937 who endeavored to rid the nation of the greatest possible number of slum sections and provide in their place the greatest possible number of substantial and comfortable homes for the slum occupants, within the bounds of money available. This same group recently were made villains in a play written and staged by persons on the government’s Works Progress Administration payroll in New York.

If the nation is to meet the future squarely and fearlessly, with a determination to make a better America for Americans, the time has come for the government to face the existing conditions frankly, to get back to one budget, and to begin paying as it goes.

One way to pay is to reduce expenditures, through elimination of waste, extravagance, inefficiency, duplication of effort, and unnecessary agencies, functions, and activities. The saving from such action, if applied to the public debt, would make substantial reductions. There are also other ways to pay.

But there can be no orderly progress until the government first takes inventory of its vast and cumbersome self, until it determines what parts of it are to be permanent and what parts are not. When these questions are answered with definite and clearly defined policies that will be adhered to, then the questions involved in paying the bill will be met sternly, but definitely and with certainty.

Admittedly that is the hard way back to prosperity; but it is the commonsense way. It is a slower way than priming the pump; but it is a sure way, and more certain of lasting results.