Federal Budget for Fiscal 1966
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February 1965 by CHARLES A. WAITE The Federal Budget for Fiscal 1966 J_ HE Federal budget presented to local governments—programs which are although they show divergent move- Congress in January shows a shift in essentially for civilian purposes—ac- ments. From fiscal 1965 to fiscal 1966 emphasis from defense and space to count for over 85 percent of the increase the deficit on the administrative budget programs for education, health, aid to in expenditures. A similar pattern is basis declines by $1 billion to about the elderly, and for the war on poverty. shown in the administrative budget. $5 billion, the cash deficit remains virtu- This shift is evident on all three budget Federal expenditures are expected to ally unchanged at about $4 billion, and bases. For example, for the first time rise fa-om fiscal 1965 to fiscal 1966, the NIA budget deficit increases by $1 since 1950, cash budget outlays for with the amount depending on the billion to $6 billion. Summary data defense, international programs and budget concept used. The adminis- for the three budgets are shown in space activities will account for less table!. than half of the total cash payments to trative budget proposes an increase of the public. In the national income just over $2 billion in expenditures. In both the cash and NIA budgets Table 1.—-Federal Government Receipts and Expenditures, Fiscal 1964-66 outlays are up $6 billion. (Billion dollars) The budget estimates assume a GNP 1964 1965 1966 Federal Fiscal Position on of $660 billion in calendar 1965 or an actual estimate estimate Three Accounting Bases increase of about 6 percent, somewhat Administrative Budget: Billion $ less than the 6% percent rise in 1964. Receipts ^__ _ 89.5 91.2 94.4 Personal income is estimated at $520 E xpen ditures 97.7 97 5 99.7 billion, up about $29 billion from the Surplus (+) or deficit (-) _ -8.2 -6.3 -5.3 Cash Budget: previous year while corporate profits Receipts 115.5 117.4 123.5 Deficit Expenditures 120.3 121.4 127.4 before taxes are projected to rise from Surplus (+) or deficit (-) . -4.8 -4.0 -3. 9 National income Accounts Basis about $57 billion to $61 billion. National income and product / If the economic assumptions under- account: Receipts. -__ . _ 114.7 116.0 121. 0 lying the budget presentation turn out Expenditures 118 5 121 0 127.0 Surplus (-H or deficit (-)_ -3.9 -5.0 -6.0 as projected, Federal receipts in fiscal -5 Sources: "The Budget of the United States for Fiscal Year 1966 under all three budget bases are Ending June 30, 1966," and U.S. Department of Commerce, estimated to increase, despite revenue Office of Business Economics. losses from the proposed $1% billion reduction in excise taxes and the sec- Outlook for remainder of fiscal 1965 ond stage reduction of corporate and -10 The NIA budget receipts and ex- individual income taxes under the penditures by major component are Revenue Act of 1964. Administrative presented in table 2 for the fiscal years budget revenues are expected to rise 1964-66 along with quarterly data for 1961 1962 1963 1964 1965* 1966* by over $3.2 billion; cash receipts from calendar 1964. Fiscal Years the public will be up more than $6 Total receipts are expected to show a *Estimates from the Budget of the United States in Fiscal Year 1966 marked increase in the first half of U.S. Department of Commerce, Office of Business Economics 65-2-7 billion, and NIA receipts will rise by $5 billion. Revenues are expected to calendar 1965, largely resulting from accounts (NIA) budget, defense pur- advance more rapidly in the cash and lower-than-usual refunds and higher- chases, which comprised better than NIA budgets than in the administrative than-usual settlements for individual in- one-third of the total rise in expendi- budget mainly because the latter ex- come taxes due to under-withholdings tures in the budget of only two years in calendar 1964. cludes the rise in the Social Security ago, show virtually no increase in fiscal On the expenditure side, a small rise 1966 over the previous year. Outlays payroll tax rates and in the earnings is expected in national defense pur- other than purchases of goods and base scheduled for January 1, 1966. chases. Transfer payments to persons services, such as transfer payments to All three budgets are expected to in early 1965 should also rise due in persons and grants-in-aid to State and remain in deficit through fiscal 1966, part to accelerated dividend payments Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis February 1965 February 1965 SUEVEY OF CURRENT BUSINESS from veterans' life insurance trust Table 3 contains a detailed reconcilia- due largely to an anticipated increase funds. Other major components will tion of the various budgets. in sales of mortgages by the Veterans remain fairly stable through fiscal 1965. Administration and loans by the Small Differences in budget patterns With revenues rising faster than ex- Business Administration is expected to penditures in the first half of calendar Although in periods of rising incomes decrease cash payments, but will have 1965, deficits of about $4^ billion receipts on an accrual basis usually no effect on national income account (seasonally adjusted annual rate) are increase more rapidly than collections, expenditures. However, this is offset the opposite is anticipated in fiscal 1966. in fiscal 1966 by an expected drop in expected, or about $1 billion below the ; rate of the last half of 1964. Collections of corporate profits taxes Commodity Cred t Corporation certi- are expected to exceed accruals because ficates of interest, which will reduce The Three Federal Budget of the acceleration of corporate pay- NIA expenditures but have no corre- ments under the provisions of the 1964 sponding effect on cash outlays. Measures Revenue Act, and the lower tax rates Fiscal 1966 Receipts The three measures of Federal finan- effective January 1, 1965. (Fiscal 1966 cial transactions differ from one another will be the first year to reflect the full Federal Government receipts under with respect to both coverage and tim- impact of the tax cut.) In addition, the NIA budget are expected to be up ing. The administrative budget, which the anticipated reduction in excise $5 billion from fiscal 1965 to fiscal 1966. serves as the basis of recommended taxes, like the reduction in corporate Personal income taxes are estimated legislative action, excludes trust fund taxes, will be reflected in lower liabili- to rise nearly $2 billion. The advance operations, which have grown rapidly ties in the national income accounts in personal income assumed in the in recent years. Several important as soon as the lower rates become effec- budget for the coming year will produce parts of the Government's program, tive, whereas cash collections of excise a substantial expansion of the individ- such as Social Security, Federal-aid taxes will reflect these changes only ual tax base. However, the relative highways, and unemployment insurance after a brief lag. By way of contrast, increase in projected taxes shows a are carried out through trust fund personal income taxes on the NIA somewhat smaller gain than personal operations. basis are expected to run slightly ahead income because fiscal 1965 personal The consolidated cash statement pro- of collections despite the lower tax taxes are being inflated by unusually vides a more comprehensive picture of rates on calendar 1965 income. The high net settlements on 1964 incomes, the flow of cash transactions (excluding personal withholding rate, which was and because tax rates will be lower in borrowing) between the Federal Gov- reduced from 18 percent to 14 percent fiscal 1966 than in 1965. The second ernment and the public. It includes in March 1964, is unchanged this year. stage reduction of income tax rates the receipts and expenditures of trust Expenditures are expected to increase enacted in the Revenue Act of 1964 funds as well as the general fund. about the same amount on both the went into effect January 1, 1965. The national income accounts budget cash and national income accounts Since withholding rates were not differs from the cash budget in that it bases, although there are some differ- changed, the main direct impact on counts most taxes as receipts at the ences in detail. A sharp decline in net tax receipts will show up in lower non- time the liability is incurred rather than outlays under Federal lending programs withheld taxes. when the Government actually receives payment. On the expenditure side, Table 2.—Federal Receipts and Expenditures in the National Income Accounts, 1964-66 the NIA budget attempts to synchro- (Billions of dollars) nize Federal purchases with other sec- Fiscal year Quarterly, seasonally adjusted tors of the national accounts. As a at annual rates result, many goods, chiefly military 1964 1965 1966 1964 actual esti- esti- hardware, are counted as Federal pur- mate mate chases at the time of delivery rather I II III IV than at the time checks are issued, as Federal Government receipts 114.7 116.0 121.0 114.8 112.3 114.0 n.a. in the administrative budget, or when Personal tax and nontax receipts 51.4 50.3 52.2 51.2 47.3 48.2 49.3 Corporate profits tax accruals _ _ 23.5 23.9 24.7 23.9 24.4 24.4 n.a. funds are withdrawn from Treasury Indirect business tax and nontax accruals _ 16.0 16.8 16.1 15.9 16.4 16.6 16.6 Contributions for social insurance 23.8 25.0 28.0 23.9 24.2 24.7 25.0 accounts, as in the cash budget.