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Projection of the economy.-Between fiscal years 1970 and 1975:

The total economy or gross national product-GNP-is expected to increase by $400 billion, to nearly $1.4 trillion.

Consumption expenditures are anticipated to rise by 45 percent. After allowing for population growth, this would result in an increase in per capita consumption of more than one-third.

Investment and total Government purchases together would rise by 35 percent to provide the plant and equipment, housing, and supporting facilities and services consistent with a larger economy.

The potential total supply of goods and services-potential GNP—will grow significantly during the 1970-75 period as the civilian labor force increases substantially and average output per man-hour rises. Actual GNP could be expected to amount to nearly $1.4 trillion in 1975, measured in current dollars, after allowing for a declining rate of inflation during the next 2 years, followed by relative price stability thereafter.

Economic and budget policy must solve the two problems of (a) keeping demand roughly equal to potential output, once inflation is slowed, and (b) allocating Federal resources among alternative uses.

Constraints: Revenues and built-in expenditures.-The growth of GNP will obviously generate substantial increases in personal income and corporate profits. Applying the tax rates in this budget to these larger bases results in estimated Federal Receipts amounting to $266 billion in 1975. Because of the termination of the surtax and the effect of the provisions of the Tax Reform Act of 1969, the ratio of revenues to GNP is anticipated to be lower in 1975 than in 1970. The net amount of additional Federal revenues and current program outlays will determine the margin available to the Federal Government to use itself or to return to private citizens or to State and local governments.

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As far as Federal outlays are concerned, the most predictable increases in future budgets will reflect an expanding population and some further rise in the cost of living. Outlays under a number of programs (such as social security and veterans compensation and pensions) tend to increase on the basis of existing law because of a growing number of eligible beneficiaries, or to be increased by the Congress to provide for increases in the cost of living. Such expansion is virtually "built in" to budgets of the future. Larger outlays will also be required in some other programs, merely to accommodate increases in both the prices of goods purchased and the population served. Additional budgetary growth will occur as the result of future pay increases for Government workers. On the basis of the assumptions used here, the estimated net increase in outlays for current programs averages $7 billion a year between 1971 and 1975. The termination or restructuring of outmoded or uneconomic Government programs proposed in this budget can reduce these built-in expenditures by $2 billion in 1972, thereby reducing the spending base. Budget savings can be increased in the future with the addition of new program reforms.

The projection of revenues and expenditures provides an estimate of the funds that will be available for discretionary action, as shown below.

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The $22 billion of funds to cover new initiatives during the 1972-75 periodincluding tax reduction or budget surpluses as well as new programs-is the difference between projected revenues and the budget base that is necessary to provide for built-in program requirements.

Though the amount may seem large when viewed in the abstract, it is quite small when seen as the limit of the outlays required in 1975 for all initiatives begun in 1972 and the other intervening years to 1975. It is not enough to cover the likely demands for all initiatives in any of these years, initiatives which have a pervasive cumulative effect as the initial year's costs are multiplied in subsequent years.

Effects of changing assumptions on the uncommitted resources.—In practice, revenues will depend on the future tax structure and the performance of the economy. Relatively small changes in the rate of economic growth, the rate of price increases, and the distribution of national income between personal income and profits can change revenues substantially.

The prices the Government must pay to obtain goods and services also reflect the general price level and productivity experience in the private sector. Thus, the level of built-in outlays could also vary significantly from this projection.

The estimates of 1975 outlays for the initiatives reflected in this budget are subject to the special uncertainties that attend new ventures. These outlays will depend on the number of individuals eligible for program benefits, the responses of State and local governments to grant programs, the price performance of specific sectors of the economy, and the success of research and development efforts. Neither the costs nor rate of progress toward distant goals can be accurately forecast.

Budget strategy.-Long-range planning involves developing a resource allocation strategy that specifies objectives, describes alternative approaches, and anticipates possible outcomes. The optimum budget would be one that most fully meets the objectives in each year and brings us nearest to long-range goals. Each year, projections should be revised and the best course of action again chosen. This approach emphasizes the value of comprehensive and flexible strategies. Overall fiscal and monetary policy influence (and are influenced by) the level of employment, price trends, and conditions in financial markets. At the same time, the projected economic environment establishes the framework for specific program decisions and the likelihood of program success. For example, the kinds and levels of manpower training, income security, and housing programs must be geared to the economic environment. A comprehensive strategy must recognize these important policy and program interrelationships.

Feasible strategies are those that balance new programs with available resources. A comprehensive strategy includes consideration of tax changes, reductions in the base of the budget, debt reduction, and the addition of new programs. This year's proposals to terminate and reduce outmoded and uneconomic programs will help relax the constraint of limited resources.

Nonetheless, the funds available will be grossly inadequate to accommodate all meritorious new initiatives. Therefore, new initiatives for program increases, budget surpluses, or tax reductions can be fit into successive budgets over time only as resources permit.

This presentation is a new departure in Federal budgeting. The publication of a long-range outlook is intended to provide perspective by emphasizing the

lack of resources relative to claims and to encourage a longer range strategy for Government actions.

It is virtually certain that the 1975 budget will not fit any projection that possibly could be made at this time. Rather, it will reflect the experience and changing needs of the intervening years.

FUTURE COSTS OF NEW INITIATIVES

Mr. MAHON. You show that the "new initiatives" recommended in this budget, in terms of budget expenditures (or outlays) would cost roughly $3 billion in fiscal year 1971, and roughly $18 billion in fiscal year 1975.

What are the items involved?

Would you have the same information on an appropriation or budget authority basis for the years 1971 and 1975?

Mr. MAYO. The principal items included in the "new initiatives"

are

Programs to improve the quality of our environment;
Crime reduction activities;

The family assistance program;

The food stamp program;

Revenue sharing with State and local governments;

Modernization of the Nations system of airports, airways, and public mass transit; and

An extended rural housing program to help families with lowto-moderate incomes obtain adequate housing.

We did not estimate fiscal year 1975 appropriation or budget authority data for these items.

Mr. MAHON. What sort of price increase factor was cranked into your calculations?

Mr. MAYO. A declining rate of inflation was projected for the next 2 years, with relative price stability assumed thereafter.

VIETNAM WAR COST ESTIMATES

Mr. MAHON. We have in prior years had an estimate of what the war in Vietnam is costing. The figures have run all the way from $20 to $30 billion. Of course, we all know that deficits in the middle 1960's and the later 1960's were undoubtedly largely brought about by heavy defense spending and inadequate revenues. We hope that situation is changing somewhat. What can you tell us officially about how much you are budgeting for the war? I realize if you say how much you are budgeting that tends to indicate the intensity of the war from the Government's standpoint. This question was touched on briefly this morning.

Mr. MAYO. Yes, Mr. Chairman. Do you want me to respond for the record on that?

Mr. MAHON. If you could respond very briefly. Can you give a figure?

Mr. MAYO. I cannot give a figure. I can say that the figure for the fiscal year 1970 which Secretary Laird released in November of $23odd billion is the only estimate that I have seen that is current at all for 1970. The preference of the administration for 1971, Mr. Chairman,

was to give no figure for the cost of Vietnam purposely to avoid undue speculation that would involve the President's flexibility in conducting the deceleration of the war. These is a second point, and the flexibility point is the more important. Again Secretary Laird, I think, made quite clear in his testimony, I believe before this committee at an earlier date, that there is indeed no accounting basis for giving some figures on Vietnam.

They are just educated guesses.

Mr. MAHON. Why don't you expand this explanation for the record. I realize the problem you are confronted with.

Mr. MAYO. I would be glad to, Mr. Chairman. (The information follows:)

PRESENTATION OF VIETNAM COSTS IN THE 1971 BUDGET

The President's two-pronged program to achieve peace in Vietnam as rapidly as possible consistent with our basic objective of selfdetermination for the South Vietnamese includes negotiation and Vietnamization. While progress in Paris has been disappointing, the Vietnamization program is well underway. Authorized U.S. forces in Vietnam have been reduced by 115,500 below the level existing when this administration took office. We hope that further reductions can soon be made. As you know, the actual withdrawal schedule will depend upon progress in the Paris negotiations, on the intensity of enemy activity and the level of combat, and upon further progress in Vietnamization. If these conditions permit, further U.S. troop withdrawals can and will be announced. But, since U.S. actions are not independent of these factors, estimates have not been shown in the 1971 budget for the size, the timing, or the costs of future activities. Disclosure of a budget plan for Vietnam would be interpreted as a forecast of the President's withdrawal program. To preserve the President's flexibility to direct withdrawals as progress in Paris, enemy activity and Vietnamization permit, no Vietnam estimates have been published.

There is a further consideration. The estimates of the prior administration originally purported to measure the incremental costs of Vietnam above and beyond "normal" defense requirements which would be necessary quite apart from events in Southeast Asia. Over a period of time, however, the Vietnam estimates came to include many full costs. As such, the estimates were not a reasonable measure of the added cost of Vietnam, and they were very misleading as an indication of the budget resources which might be made available after withdrawal.

Estimates of this nature are bound to be misleading because they lack accounting support. The interests of the nation are better served by focusing attention upon the total defense budget, and the substantial reductions shown there, than in debating what is and what is not allocated on a judgmental basis to a part of the total Vietnam support.

As you know, the Secretary of Defense has addressed the question of Vietnam spending and spending rates as recently as November before this committee. You may wish to direct detailed questions about further information on this subject to Secretary Laird.

FULL FUNDING

Mr. MAHON. I have a number of questions here with regard to full funding. As you know, there is a growing hue and cry that we should provide full funding for many legislative authorizations. The point sought to be made is that when a specific dollar amount was "authorized" for a certain program, Congress in effect had thereby "promised" to fund it 100 percent by appropriation.

Of course, the claim crosses the borders of absurdity. There will never be enough money to "fully fund" all authorizations. And, of course, there is no way to even make the claim for authorizations that have no specific dollar authorizations. I would like to develop for the record the magnitude of spending full funding might entail.

Mr. MAYO. I would merely observe on some things, Mr. Chairman, this is the only way that we indeed are able to keep within the expenditure limits, that is, in effect to spend less than is actually appropriated.

Mr. MAHON. Spend less than is appropriated and spend less than is authorized.

Mr. MAYO. Yes.

Mr. MAHON. Indeed there are many programs which have no specific upper limits as to expenditure.

Mr. MAYO. That is true.

Mr. MAHON. I think we need some documentation.

Mr. ROONEY. Mr. Chairman, will there be inserted in the record at this point a statement with regard to these programs?

Mr. MAHON. Yes, we need a feel for the programs that are on the books now which provide for spending-that is, authorized spending for various programs Government-wide. Show what these figures are and particularly state where these authorizations are as well as you can.

RELATION BETWEEN AUTHORIZATION, APPROPRIATION, AND SPENDING

Mr. FLOOD. Mr. Chairman, at this point in answering that question, there is something even more fundamental than just the mere figures, if anything can be more fundamental than that. I have found out this past year as chairman of the Subcommittee on HEW that there are many very fine and sincere and honest groups in this Nation who are special pleaders for a certain cause. They actually, believe it or not, do not understand the procedural difference between authorizations and appropriations. They just do not know. At some point in your answer I wish you would go to some pains to point out how Congress can do one thing on Monday and do a different thing on Tuesday. They just do not understand.

Mr. MAYO. I will do that.

Mr. ROONEY. And the executive branch do a different thing on Wednesday.

(NOTE: An explanation of the budgetary relationships of authorizations, appropriations, and agency spending follows. A comparison of the amounts authorized and the appropriations requested in the 1971 budget will be supplied to the committee at a later date.)

THE RELATIONSHIP OF AUTHORIZATIONS, APPROPRIATIONS, AND AGENCY
SPENDING IN THE BUDGET PROCESS

"Authorizations" are generally contained in basic substantive legislation that gives statutory sanction to Federal agencies for the conduct of programs or projects to achieve specified purposes. Such legislation sometimes sets monetary limits on the amounts of budget authority that can be enacted, but does not usually provide such authority.

"Appropriations" and other financing techniques provide the budget authority required to incur obligations and make disbursements for specified purposes and programs that were previously authorized by law.

As a part of the procedural arrangements in each House of Congress, the committees other than the Appropriations Committees are not permitted to include appropriations in the bills they recommend for enactment, and conversely the Appropriations Committees cannot recommend appropriations for purposes or programs not authorized by law, or in excess of amounts authorized by law. Similar restrictions apply to amendments of bills from the floor.

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