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services that are legitimately demanded by the voters. It depends on the efficiency and the economy with which they conduct their affairs, and it depends upon the right of self-determination without fear of Federal domination.

As far as I can see, the Murray-Metcalf bill would strengthen State and local government on these scores, and not undermine it.

Mr. THOMPSON. Federal control is largely limited to moneys expended for education. There is never any Federal control in moneys requested to support peanut crops, tung nuts, and cotton, things like that. You do not have Federal control then-or highways. There is no Federal control on highways. Mr. HELLER. May I add to your comment from my testimony?

The Murray-Metcalf bill is an expression of the genius of our federalism in its ability to achieve national objectives in a tightly interdependent economy through constructive cooperation among different levels of government. Under this approach, the Federal Government does what it can do best, namely, mobilize financial resources through taxation, and State and local governments do what they can do best, namely, make grassroots decisions and to carry out functions under the direct control and close scrutiny of the local electorate.

But, it may be averred, how can the Federal Government provide this support in the light of the $13 billion deficit it faces this year, and a possible continuation of this deficit into the year 1960? Do we dare risk a further addition to the Federal debt, with possible inflationary consequences? Three points can be cited to lay these fears to rest.

First, as we have noted before, if you have a continued brisk recovery, the deficit will disappear in a relatively short period of time. By some time during the fiscal year 1961 I should think we would have achieved a balance in our Federal intake and outgo.

The second point is that there are a lot of fears about the growth of the Federal debt. I do not mean to say that we should, with equanimity, look at a $13 billion increase in the Federal debt in 1 year. That certainly is something to be concerned about, but, as a proportion of our national income, the Federal debt has been cut in half in the postwar period.

Immediately after the war the Federal debt was equivalent to 112 times the annual income of this country:

Mr. THOMPSON. Is not Britain's national debt, in proportion to its, income, about four times as high as ours?

Mr. HELLER. I do not recall the exact figure. I know that it is multiple of our relationship. Our relationship now of the national debt is about three-quarters of 1 year's income, and in Great Britain it is several times 1 year's income, but I do not happen to recall the exact figure.

Mr. THOMPSON. To whom do we owe this money except ourselves? I am not an economist, but I just cannot get frightened, using the simplest terms—and I can only think in those terms—by the fact that we owe ourselves some money. We do not owe it to Great Britain or France or India. We owe it to ourselves. It is mostly in insurance companies that we owe it, I understand, and they are doing all right.

Mr. HELLER. This is a point that I really wanted to make before, when Mr. Frelinghuysen raised the question of whether it was not better to have the State and local governments carry the debt or incur the debt than the Federal Government?

As to this, it should be pointed out that there is a sharp and complete difference between debts at the State and local level and debt

at the Federal level. At the State and local level, the debt is much more like that of a business concern or a family, because you can force a State or local government into bankruptcy, as we know from the many bankruptcies in the thirties.

The Federal Government, on the other hand, is in the situation that the taxpayer is, as you suggest, on both sides of the balance sheet. We 175 million taxpayers in the United States owe the debt, to be sure, but we also own the debt. Therefore, the main problem of the debt is a transfer problem within this complex known as the United States.

I do not mean to say for a moment as an economist that that means there are no problems. There is no question but what our Federal debt complicates the problem of inflation control.

Mr. THOMPSON. It is very serious. I did not mean to imply otherwise, or to be frivolous about it, but it just does not frighten me into saying that rather than underbalance our budget and increase our national debt, we have to let the greatest of our national resources go, namely, our children. It just does not make sense.

Mr. HELLER. I agree 100 percent with these priorities, not just in terms of substance, but in terms of the economic dangers—in quotation marks—that are alleged to arise from an increase in the Federal debt. At the level that it now stands, the Federal debt is simply not a major economic problem in this country. Mr. THOMPSON. Doctor, do you have available from any of

your studies, statistics on how much of the income of a particular, or each particular, State remains in that State, and where it goes?

Mr. HELLER. Mrs. Selma Mushkin, of the Department of Health, Education, and Welfare, has made some studies that bear on this question. I am not sure that they answer precisely this point.

Mr. THOMPSON. The flow would be interesting to see in this discussion of where the money goes and how it comes back. We keep hearing in a State like New Jersey, the taxpayers' associations all tell us that it costs $2.74 to get $1 back, their theory being, of course, that they would like $2.74 back for each dollar that they put out, which is the way they would run their businesses, if you let them, without laws, relatively to usury, and so on.

Mr. HELLER. These figures, of course, for the relative contribution to Federal revenues, and the relative comeback, so to speak, from the Federal budget, are the figures that Mrs. Mushkin has developed.

When it comes to total income, those are, of course, extremely difficul to come by.

Mr. THOMPSON. Mr. Brademas, do you have any questions?

Mr. BRADEMAS. I want only to state that I have had the pleasure of talking with Dr. Heller in years past about some of the economic problems confronting our country, and he has been just as intelligent and perceptive and stimulating in his appearance today as he was on those occasions, and I am very glad that he took the time to talk to the committee.

Mr. THOMPSON. I would like to thank you too, Doctor. This is the most impressive and best worked-out argument on behalf of this legislation that I have seen in my time here. I just cannot tell you how valuable it is and how much we appreciate it.

Mr. HELLER. Thank you. It has been a pleasure to appear before the committee.

(Supplemental material furnished by the witness follows:)


Minneapolis, April 2, 1959.
Senate Office Building
Washington, D.C.
House Office Building
Washington, D.C.

DEAR SENATOR MURRAY and CONGRESSMAN BAILEY: “When both the facts and the argument run against you, try to discredit the witness.” Only in terms of this approach can I comprehend the heavy-handed attempt of the U.S. Chamber of Commerce (speaking through Dr. K. Brantley Watson's statement to the House Education and Labor Committee's Subcommittee on General Education, March 11, 1959) to bring my integrity into question by implying that I take contradictory stands in addressing myself to different groups.

Permit me to show how wrong the chamber is. First, let me dispose of the chamber's sly assertion (p. 41 of Dr. Watson's mimeographed statement) that "In all fairness, it should be mentioned that in the earlier report Dr. Heller was talking to State and local government officials, in the later, to a committee of Congress.” On the contrary, both sets of statements quoted by the chamber were made to committees of the U.S. Congress. My July 1957 State government article (as clearly stated in an introductory note which the chamber could not have missed) was an adaptation of testimony before the Congressional Joint Economic Committee on February 1, 1957 (Hearings before the Joint Economic Committee, January 1957 Economic Report of the President, U.S. Government Printing Office, 1957, pp. 412417).

Second, the basic position taken in both statements, though in differing contexts, is the same: That the solution to State-local financial problems requires a dual attack: (1) full use of State-local revenue sources and (2) Federal action to buttress State-local fiscal capacity to meet the enormous pressures for services that now confront them. In other words, State and local governments can and must intensify their tax efforts if we are to maintain strong and independent selfgovernment at the State-local level. But at the same time, they can and should expect the Federal Government to assume its fair share of the financial responsibility.

In the earlier testimony, I dealt with the broad scope of Federal fiscal action to buttress State-local taxing efforts. In a pre-sputnik setting, prospects for Federal surpluses were rather bright, even with an assumed $11/2 billion annual increase in Federal expenditures. What the chamber of commerce apparently fails to realize is that the world continually changes, and that it has, in fact, changed quite markedly since February 1957. Federal budget expenditures have jumped, not by the $142 billion annually I used as an assumption in my earlier statement, but by nearly $5 billion a year from fiscal 1956 to fiscal 1959 (from $66.5 billion to an estimated $80.9 billion). Leeway for tax cuts to bolster State-local revenue systems has simply not developed. Moreover, the 1958 recession exposed the great strain State tax systems are undergoing. We have clearly not maintained a “briskly expanding, fully employed, noninflationary economy.” Broadscale tax increases, aggregating over $112 billion, are being sought in State legislatures this year. State tax capacity is being tested even more severely than I anticipated in early 1957.

The positive case for Federal aid to education has also gained new strength and urgency since 1957. Soviet scientific and military achievements have thrown education into bold relief as a basic instrument for achieving military security and rapid economic growth, functions which are clearly a national responsibility.

Those points were made, forcibly I hope, in my 1959 testimony before the House and Senate Subcommittees on Education. But my testimony also stressed, as in 1957, the desirability of determined taxing efforts at the State and local level. Some of the paragraphs quoted by the chamber from my 1957 discussion of tax potentials of State and local governments were, in fact, included and am

plified in my 1959 testimony—but the chamber was careful not to mention this. It might have endangered the shaky structure of their derogatory argument and would have demonstrated that the advocates of Federal aid are willing to do what the chamber is not willing to do, namely, bring out the facts suggesting that greater fiscal efforts can and should be made at the State and local level side by side with the facts that support Federal aid to education.

Indeed, a fair-minded critic, far from pouncing on my discussion of unused State-local tax potential as an example of inconsistency, would have recognized it as an objective attempt to present a balanced picture of responsibility for public school finance at various levels of government. States and localities should do a courageous job of taxing themselves, and should not run hat-in-hand to the Federal Government to solve all their financial difficulties. The Federal Government, in turn, should pay its fair share of the bills which State and local governments incur on behalf of the national interest in such areas as welfare, highways, and schools, i. e., areas where the control and execution of the functions are local, but the purposes served are, in very considerable part, national.

Finally, though it should not need saying, let me say that the 1959 testimony not only harmonizes with the 1957 testimony but represents my own basic convictions on Federal aid for public schools, held long before I had any consulting relationship with the NEA. For the chamber of commerce to hint to the contrary by noting “that in his later statement he was appearing as an economic consultant to, and on behalf of, the National Education Association," is a sly attempt at character defamation which ought to be beneath the chamber's dignity. Let the argument proceed and the issue be resolved on its merits, not on blows clearly aimed below the opponent's belt. Sincerely yours,


Chairman, Department of Economics. Mr. THOMPSON. Without objection, the committee will adjourn until Tuesday, February 17, at which time we will discuss with the Department of Health, Education, and Welfare the implementation of the National Defense Act. The committee will then resume hearings on the school construction legislation on Wednesday the 18th.

(Whereupon, at 12:15 p.m., the committee recessed until Tuesday, February 17, 1959.)




Washington, D.C. The subcommittee met at 10 a.m., pursuant to recess, in room 429, House Office Building, Hon. Cleveland M. Bailey (chairman of the subcommittee) presiding:

Present: Representatives Bailey, Thompson, Udall, Brademas, Frelinghuysen, Lafore.

Present also: Representatives Pucinski, Daniels, Kearns, and Metcalf.

Staff members present: Fred G. Hussey, clerk, full committee; Melvin W. Sneed, minority clerk; Russell C. Derrickson, investigator, full committee, and Robert E. McCord, clerk, subcommittee.

Mr. BAILEY. The committee will be in order.

The clerk will call the roll and ascertain that there is a quorum present.

Mr. McCORD. Mr. Bailey.
Mr. BAILEY. Present.
Mr. McCORD. Mr. Thompson.
Mr. McCORD. Mr. Udall.
Mr. UDALL. Here.
Mr. McCORD. Mr. Brademas.
Mr. McCORD. Mr. Frelinghuysen.
Mr. McCORD. Mr. Lafore.
Mr. LAFORE. Here.
Mr. McCORD. A quorum is present, Mr. Chairman.

Mr. BAILEY. The Chair notes the presence in the audience of the former member of the subcommittee, Congressman Metcalf. I would like to extend an invitation to him to come up and occupy one of the chairs here at the committee table.

Mr. METCALF. Thank you, Mr. Chairman.

Mr. BAILEY. Since he is still a member of the Congress and interested in education, we might give him the privilege of asking questions if it comes to a point that he is interested in.

Mr. METCALF. I thank the chairman for that, too.

Mr. BAILEY. The committee has met this morning for the expressed purpose of hearing Dr. Flemming, the Secretary of Health, Education, and Welfare, offer an explanation of the proposed legislation having to do with elementary and secondary schools.

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