51. Memorandum of Discussion at the 272d Meeting of the National Security Council, Washington, January 12, 19561

[Here follow a paragraph listing the participants at the meeting and agenda item 1, “Defense Mobilization Planning Assumptions Applicable to Stockpiling,” summarized in the editorial note, supra.]

[Page 180]

2. Fiscal and Budgetary Outlook

Mr. Anderson reminded the Council that at this season of the year it was customary for the Director of the Budget to discuss briefly with the Council the fiscal and budgetary outlook for the next couple of fiscal years. Mr. Hughes would present the estimate, after which Secretary Humphrey would make additional comments.

Mr. Hughes stood up, placed a chart before the Council, and assured the President that his report would be very short. The President commented that as long as there was a plus on Director Hughes’ chart, he could sit right down now (laughter).

Director Hughes analyzed the esimated expenditures and income for the remainder of FY 1956 and for FY 1957, indicating in conclusion that there would be an estimated surplus of $200 million at the end of FY 1956 and of $400 million at the end of FY 1957. However, Mr. Hughes warned that the margin between a surplus and a deficit was very close and could easily be upset either by action of the Congress to reduce taxes or action by the Executive Branch in bringing in supplemental budget requests. In short, said Mr. Hughes, while we were apparently in a good position, we should have to continue to fight in order to maintain this position, and to this end he called for uninterrupted team work.

In a philosophical vein, the President said that in the eyes of people like himself, who had been around this town for a long time, we were a “funny bunch”. In the old days, whatever the Executive recommended to the Congress to meet our national defense needs was torn to shreds by the Congress. Now, however, the members of Congress were the experts on how to meet the needs of our national defense. They proceeded to shovel on the money. This, said the President, was a complete reversal of all his earlier experience.

Secretary Wilson informed the Council that he was starting right now to work out the 1958 and 1959 Defense Department programs. Moreover, he was going to undertake a great innovation. Instead, as in the past, of asking each Service to estimate what it believed it needed to carry out its responsibilities, he was going to give the Services the initial figure. In short, he would ask them to calculate what they could do on the basis of a 5% increase over what they had now and a 5% decrease in funds currently available to them.

Mr. Anderson then called on Secretary Humphrey to comment on Mr. Hughes’ report. Secretary Humphrey began by saying with a smile that only the other day, talking with his associates in his office, where there was no danger that the Alsops or Drew Pearson would overhear the conversation, he, Secretary Humphrey, had said that if we finally succeed in balancing the budget it wouldn’t be our fault. By this, said Secretary Humphrey, he meant that we were still increasing the rate [Page 181] and amount of our military expenditure. What actually looked like a reduction of $1 billion in this area was, so to speak, “a phoney”. As Secretary Wilson had earlier pointed out, this apparent $1 billion savings had actually been pulled out of accumulated Department of Defense inventory. It was accordingly a one-shot affair. Secretary Humphrey then cited similar instances in other programs. Moreover, these programs had absorbed practically every cent that Secretary Wilson had succeeded in saving. In effect, therefore, what was making possible the balancing of the budget in FY 1956 and 1957 was not a reduction in expenditure but an increase in the Treasury’s income. We are guessing, continued Secretary Humphrey, that this increase will continue in the future, but this involves a very risky guess. In any event, we will have a real battle on our hands with respect to the repeal of the excise tax, although the atmosphere in Congress on this issue had improved somewhat of late. With respect to the next fiscal year, we are just comfortably assuming that the present good times and prosperity will continue on, although past experience provides no very good basis for such a cheerful assumption. We can only hope that we are right.

(At this point, Secretary Wilson and General Twining left the meeting to go to Capitol Hill. Secretary of the Army Brucker took Secretary Wilson’s place at the table, and Admiral Duncan took General Twining’s place.)

The President, again in a philosophical vein, said that it was all well and good to deplore spending, as Secretary Humphrey did, but you simply couldn’t sleep at night if you kept deploring something that you really couldn’t help. This country had accustomed itself to lavish spending in certain programs, and it was next to impossible to reverse the trend.

With a smile at Secretary Humphrey, Secretary Dulles said that he felt obliged to take exception to Secretary Humphrey’s opening statement, that if we balanced the budget it would not be our own fault. Secretary Dulles said he would hate to admit, at least in public, that the current good economic conditions in the United States were not the result of the sane fiscal policy pursued by Secretary Humphrey and this Administration. Likewise with a smile, the President said they could call him a demagogue if they wanted to, but he certainly proposed to take credit for this prosperity. Surely we have created confidence in the public. This was shown by the behavior of the stock market in relation to the President’s recent illness.

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The National Security Council:2

Noted and discussed an oral presentation by the Secretary of the Treasury and the Director, Bureau of the Budget, on the fiscal and budgetary outlook through Fiscal Year 1957.

[Here follow agenda item 3 on Antarctica (for text, see volume XI, page 640) and the remaining agenda items.]

S. Everett Gleason
  1. Source: Eisenhower Library, Whitman File, NSC Records. Top Secret. Prepared by Gleason on January 13.
  2. The paragraph that follows constitutes NSC Action No. 1499, approved by the President on January 16. (Department of State, S/SNSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)