The increase in total payments in 1967 is mainly for the first year's cost of benefits under the programs of hospital insurance and other health services to older Americans enacted in 1965. The payments for these new programs will be made from a trust fund and are expected to total $3.3 billion in 1967. Outlays from trust funds for social security and other income maintenance programs are estimated to rise by over $1 billion. Additional increases totaling $897 million will provide for expanded public health and vocational rehabilitation services and for a buildup in efforts to combat poverty.

Health services and research. The first session of the 89th Congress enacted 12 major health measures, including provision of better health care for the aged and for needy children, expansion of healthrelated professional schools and medical libraries, improved treatment of various illnesses, and increased efforts to combat air and water pollution. The Department of Health, Education, and Welfare is taking steps to organize and administer these and other health programs effectively.

Total payments to the public for health services, research, training, and related activities, including trust fund outlays, are estimated to increase by $3.6 billion over 1966 to a level of $6.1 billion in 1967.

Health services for the aged: Public and private costs of medical services provided to the Nation's 19 million aged persons are estimated at $8 billion in 1967. Almost one-half of these costs will be met by the new health insurance programs and by medical assistance to the aged provided under public assistance.

Outlays in 1967 from the hospital and supplementary medical (120) insurance trust funds are estimated at $2.4 billion for the new hospital insurance program and $899 million for the supplementary medical insurance program, which is primarily for doctor bills.

Administrative budget expenditures of $833 million are estimated to be paid in 1967 to these trust funds, including: (1) $283 million to provide hospital insurance for the aged who are not covered under the social security or railroad retirement systems and (2) $550 million to match the $3-per-month premium payments being made by aged persons who will enroll voluntarily by April 1, 1966, in the supplementary medical insurance program.

Medical assistance grants will be made to the States to help about 860,000 aged persons meet the required premiums or costs not covered by the new insurance. However, these grants are estimated to decline by $75 million to a total of $289 million in 1967.

The two new insurance programs will pay State and community hospitals for care provided to the aged. Legislation will be proposed to permit these insurance programs to make similar payments to Federal hospitals for care provided to beneficiaries.

Maternal and child health: Expenditures totaling $215 million will be made in 1967 by the Children's Bureau to support State and local maternal and child health programs in selected areas. These programs will be expanded by $41 million over 1966 principally to provide comprehensive medical diagnosis and treatment for expectant mothers, infants, and school-age children in families which cannot afford the cost of medical care.

In addition, some of the savings in the program for medical care for the needy aged will be used to increase and improve the extent and

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quality of medical care provided to other needy people-particularly children.

Social security and public welfare. The 1965 Amendments to the Social Security Act increased the cash benefits provided under the system and extended its coverage. Now practically all workers and their families are provided protection against the loss of earnings due to death, total disability, or retirement either through the basic social security system or through the special systems for railroad and Federal workers.

Expenditures of $24.9 billion are estimated for 1967 from the trust funds for old-age, survivors, and disability insurance; for railroad retirement; and for retirement programs for Federal employees. These expenditures reflect both the continued growth in numbers of beneficiaries of these programs and increases in benefits. The increase of $1.2 billion estimated from 1966 to 1967 is smaller than would be expected, because nonrecurring payments of $830 million were made in September 1965 to cover the 7% increase in social security benefits retroactive to January 1, 1965.

The protection provided by these systems is financed by payroll contributions shared by employers, employees, and also paid by the self-employed. Receipts of the retirement and disability trust funds in 1967 are estimated at $27.7 billion, an increase of $4.5 billion over 1966. Most of this rise is in the social security system, reflecting (1) the full year's effect of the January 1, 1966, increase in the wage base from $4,800 to $6,600 and in the combined payroll tax rate from 7.25% to 8.4%, and (2) a further increase in the combined payroll tax to 8.8%, scheduled for January 1, 1967. These new rates also cover the new hospital insurance program.

To help meet rising workloads more efficiently, the Social Security Administration will further extend the use of automatic data processing in its recordkeeping and computational operations in fiscal year 1967. About $12 million will be saved by procedures which will automatically recompute individual benefit amounts based on changes in earnings after retirement.

Federal payments are made each year to the railroad retirement system to liquidate the Federal Government's obligation to that system for credits for past military service. This budget includes expenditures of $17 million in 1967 for the third of 10 installments and $105 million as the second of 50 installments to liquidate a similar obligation to the social security system.

Public assistance: As indicated earlier, Federal grants for medical assistance for the aged are expected to decline in 1967, reflecting the impact of the new health insurance programs. Similarly, greater benefit payments through our social security system will continue to reduce the number of aged persons requiring help from the FederalState public assistance program-even though Federal legislation enacted in 1965 will extend assistance to some 18,000 aged in mental or tuberculosis institutions. The resulting savings will offset somewhat the increase needed to provide higher monthly cash assistance payments and more adequate medical care for other needy peopleparticularly 4.7 million in broken families.

An economy with abundant job opportunity enhances the prospects for rehabilitating and successfully finding productive employment for some individuals on the public assistance rolls. Accordingly, legislation is being proposed to improve the role of programs giving assistance to unemployed parents of needy children by providing work experience, services, and training to equip them for regular employment. New obligational authority of $3.4 billion is recommended for 1967 for Federal grants-excluding grants for medical assistance for the aged. This is an increase of $222 million over 1966. When matched with State and local funds, $5.7 billion will be available in 1967 to provide necessary financial and medical assistance, and social services to 7.5 million of our poorest citizens. Federal expenditures, however, will rise by only $65 million to $3.3 billion because of a change in the scheduling of payments to the States.

This Nation is once again extending its welcome to refugees from Cuba who are fleeing oppression and tyranny. Federal expenditures to help resettle and absorb these refugees are expected to rise by $8 million to $46 million as the number granted asylum since October 1965 rises from 36,000 by July 1966 to 88,000 by July 1967.

Payments to the public for veterans programs are estimated to rise (135) in 1967 by $738 million from the 1966 level. This increase results mainly from (1) greater net expenditures for the housing loan programs because of a decline in offsetting receipts available from the sale of Government-held mortgages, as the inventory of these mortgages is substantially reduced in 1966, and (2) greater life insurance trust fund payments, largely because some dividends scheduled for payment in 1966 were paid in 1965.

The 1967 budget proposals reflect the need to meet current requirements of veterans and their dependents. Legislation will be supported to provide education and training assistance for veterans of recent service to help ease readjustment to civilian life. On the other hand, as we continue to improve and broaden programs designed for the general populace we should place greater reliance on these programs for meeting veterans' needs not connected with their military service. Critical reappraisal of veterans' program which have persisted virtually unchanged since their inception over 40 years ago should eliminate those concepts which are no longer consistent with current medical knowledge. Additionally, those concepts which provide special advantages for favored groups of veterans not enjoyed by all veterans similarly situated should be eliminated or modified to equitably meet current requirements.

Service-connected compensation.-Compensation payments for death and disability resulting from military service are estimated at $2.3 billion in 1967, about the same as in the current year. A slightly declining caseload will be nearly offset by higher average payments per case, in line with increased compensation rates provided by the 89th Congress and with the general advance in veterans' age and disbilities. Approximately 2,320,000'disabled veterans or their survivors will receive payments in 1967, about 40,000 less than this year. The

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average annual payment in 1967 is estimated to be $937 to disabled veterans and $1,319 to survivors.

Non-service-connected pensions.-In 1967, pensions for disability and death not connected with military service are estimated at $2.0 billion, a decrease of $23 million from the current year. An increase in the number of World War II and Korean conflict veterans receiving pensions will be more than offset by the decreasing number of veterans of World War I and earlier wars, while the $1,064 average payment per case will remain unchanged. The number of veterans' survivors receiving pensions is estimated to rise by 22,550 to a total of 980,085, with the average payment for these cases also remaining level at $739.

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Veterans life insurance trust fund.-The national service and U.S. Government life insurance trust funds finance about 5 million life insurance policies, primarily for veterans of World Wars I and II. Receipts are chiefly from premiums and interest on investments; expenditures are mainly for death and disability claims and dividends. The expenditures of these trust funds are estimated to increase by $129 million in fiscal year 1967, mainly because half of the total regular dividend payments due in 1966 were disbursed in January 1965.

Other veterans benefits and services.-Insurance and indemnity expenditures from administrative budget funds are estimated to decline in 1967 because (1) the scheduled 10-year payments for the servicemen's indemnity program are nearly completed, and (2) premiums, principally for special term insurance, will exceed benefit payments and administrative costs.

A new servicemen's group life insurance program enacted by the 89th Congress provides for each serviceman on active duty a commercially underwritten insurance coverage of up to $10,000. The net cost to the Federal Government of this program in 1967 is estimated at $6 million. For survivors not covered by the new life (140) insurance program, a special gratuity was provided, resulting in a nonrecurring expenditure of $40 million in 1966.

The costs of general administrative operations of the VA will continue to decline as a result of reductions in workload, recent reorganization of field installations, continuing improvements in productivity, and continued efforts to improve automatic data processing.

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The Renegotiation Act expires on June 30, 1966. This act should be extended in order to continue the Renegotiation Board's recovery of excessive profits on procurement for national defense and certain other programs.

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[Excerpts from the President's Economic Report]

ECONOMIC REPORT OF THE PRESIDENT

To the Congress of the United States:

ECONOMIC OUTLOOK FOR 1966

FISCAL AND MONETARY POLICY

The fiscal program I recommend for 1966 aims at full employment without inflation. It is a responsible program. It recognizes that vigorous private demand and required defense spending could upset the balance of supply and demand so diligently pursued by fiscal and monetary policies in recent years, and now so effectively achieved.

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Until this year, pursuit of this balance has pointed fiscal policies (11) toward the stimulation of demand. Now a stimulus is no longer appropriate.

I have reviewed every program of Government to make room for the necessities of defense. I have sharply reduced or eliminated those civilian programs of lowest priority.

But, as I indicated in my State of the Union Message, I am unwilling to declare a moratorium on our progress toward the Great Society. My budget will add $3.2 billion to our war against poverty, ignorance, and disease. Yet savings elsewhere will hold the rise in the Administrative Budget-apart from the added costs of Vietnam-to only $600 million.

Moreover, I am asking the Congress to enact promptly a combination of proposals affecting tax payments in the year ahead:

a rescheduling of the January 1, 1966, and later excise tax reduction enacted last June for automobiles and telephone service;

a graduated withholding system that will improve the pay-asyou-go basis of our personal income taxes without increasing tax rates or tax liabilities;

a corresponding speed-up in payments of corporate income taxes this year and next, also without increasing tax rates or tax liabilities; and

a method of paying self-employment Social Security taxes on a current basis.

These measures will let us stay close to a high-level balance between the revenues that the Federal Government draws out of the economy and the expenditures that it puts back into the spending stream, and to a high-level balance between total demand and the economy's capacity to produce. It is my judgment that this budget provides the appropriate fiscal environment for the maintenance of basic price stability with continued growth.