THE U.S. BUDGET: 1956.: The Administration Is Betting on the Black

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But even if the budget winds up slightly in the red, it does not necessarily rule out a tax cut. Despite all promises to balance the budget, politicians are well aware that the political sex appeal of a balanced budget is small compared to a tax cut. Furthermore, when the budget is as close to balance as it will be in fiscal 1956, a small deficit is not a vitally important factor. Though the so-called "administrative budget" is in the red, the Treasury's "cash budget," i.e., what it actually takes in, will probably show a surplus. In fiscal 1956, for example, a balanced budget would actually result in an overall cash surplus of some $2 billion. If business continues good, economic arguments for a tax cut would be weak; funneling more money into the economy would only increase the pressure of inflation. On the other hand, if business tapers off, as many economists think it may in 1956, a $2 billion cash surplus would exert a mild deflationary pressure on the economy and would accelerate any slide. Thus a midyear tax cut would step up buying power and offset the pressure.

Though many a businessman insists that the first thing to do when a surplus is in hand is to lower the national debt, the fact is that the debt does not loom so large or so menacing as it once did. In 1945 the $257 billion debt was a full 119% of the nation's gross national product of $215 billion. But in 1955, with the gross national product approaching the $400 billion mark, the debt of $277 billion has dropped to less than 69% of U.S. output. In effect, by keeping the debt from expanding much, and by spurring business to build a bigger, more productive economy, the U.S. has actually "paid off" a big chunk of what it owes itself. Thus the U.S. is working its way out of the red at a far faster rate than it could by siphoning off its money to reduce the debt itself.