Mr. MITCHELL. I presume the manufacturers of the country got a great deal of that $200,000,000,000.

Senator CONNALLY. You know whether they did or not. You have got all sorts of tables and statistics there.

Mr. MITCHELL. I do not think they got it all.

Senator CONNALLY. No; I do not think you did, either. I think you would if you could, but you did not do it.

Mr. MITCHELL. You do not mind if I disagree with you, Senator? Senator CONNALLY. No; and you do not mind if I disagree with you?

Mr. MITCHELL. No.

Senator CONNALLY. I want the manufacturers to get something. I want business to grow and develop along with our economy, of course, but all this wild cry about disaster; those cries do not appeal to me because we are doing pretty well.

Mr. MITCHELL. Senator, our difference is I am trying to look into the future. I would like this to keep up. I rather like the way the country is doing businesswise, and I would not like it to stop. Senator CONNALLY. That is right.

Mr. MITCHELL. I am afraid if we do not fill this capital need in the future, you are liable to come against a time you will not be doing

so well.

The CHAIRMAN. What percentage of what you fellows get goes to pay roll?

Mr. MITCHELL. I do not know if I have the national figures, but I would be happy to tell you about my own company, sir.

We do $95,000,000 worth of business and our pay roll and employee benefits are $40,000,000 of the $95,000,000.

The CHAIRMAN. What is the national over-all percentage of pay roll to the national income?

Mr. HAGEDORN. Senator, if you take the national income without any fluctuations, you will find the payments to hired employees are about 75 or 80 percent and have been from time immemorial. That percentage has not changed at all in historical period.

If you take the record of private business and include the total receipts of business, you will find the pay roll is just about half, and remains very close to that point through all different economic periods. Out of the remaining half, business has to pay its taxes, provide for replacement of its capital, and whatever is left after those is its profit. The CHAIRMAN. What is the historic percentage of profit?

Mr. HAGEDORN. I have some figures here, Senator, on the percentage distribution of private national income from 1929 to 1947. They are by the Department of Commerce.

Of course, in that 18-year period, we had some rather violent economic fluctuations.

The Department of Commerce says that the 1947 corporate profits after taxes took 9.4 percent of the total private national income.

In 1929, it took 10.1 percent. Of course, during the depression it

became very small.

The CHAIRMAN. Is that after taxes?

Mr. HAGEDORN. That is after taxes.

During the depression it became very small. In fact, in 1931–32–33, it was a negative item.

Since 1939, I will read off the figures: 7.7 percent in 1939; 8.8 percent in 1940; 9.9 percent in 1941; 7.8 percent in 1942; 7.3 percent in 1943; 6.6 percent in 1944; 6.1 percent in 1945; 8 percent in 1946; 9.4 percent in 1947.

The CHAIRMAN. Thank you very much.

Senator MARTIN. May I ask a question there, Mr. Chairman?
The CHAIRMAN. Yes.

Senator MARTIN. In that percentage paid out in wages, does that include the white-collar salaries and executive salaries, or just what we commonly know as labor?

Mr. HAGEDORN. It includes all wages and salaries.
Senator MARTIN. Includes executive?

Mr. HAGEDORN. That is right.

Senator MARTIN. What proportion of it is for, we will say, the administrative end; that is, the white-collared class and executive? Mr. HAGEDORN. I cannot say offhand, Senator. The CHAIRMAN. Proceed, please, Mr. Mitchell.

Mr. MITCHELL. First, the budget can be reduced to a level that will make possible a degree of tax reduction under which the funds needed for capital formation can be provided. I am sure that all of us can agree that this is the ideal way to get the job done. I am sure that this committee, or the Congress as a whole, will agree that the ideal is realizable at this time.

Senator LUCAS. Right on that point: How do you figure the budget ought to be reduced?

Mr. MITCHELL. That is a difficult question. The National Association of Manufacturers has made a study, sir, and on the basis of the facts before us, we believe the budget could be cut to $33,000,000,000.

Senator LUCAS. That would be some $6,000,000,000 plus. You have got facts and figures to substantiate that?

Mr. MITCHELL. Yes, sir. We would be happy to supply each of you with complete detailed facts.

Senator LUCAS. Instead of testifying on this tax bill, you should have appeared before the Budget Committee.

Mr. MITCHELL. We would be very happy to supply you with our reasoning. It is a complete and detailed study, Senator.

Senator LUCAS. I think that ought to go to the Appropriations Committee, because that is an important statement to make.

If you could show how to reduce the budget $6,000,000,000, I am sure the Congress would be very grateful to you.

Mr. MITCHELL. I would be happy to do so, sir.

(The information will be found on p. 601.)

Second, if we assume that an across-the-board reduction of the budget is not now possible, there can still be a budget cut by sacrificing the nonessentials because of the urgency of certain essentials. For example, if the requirements of foreign aid and defense have top priority in the budget, then there should be drastic belt tightening in other parts of the budget.

We suggest, for instance, public works.

Senator LUCAS. You come here with an assertion of that kind, without any break-down, and just a general conclusion. It does not mean a thing to me.

When you make a statement that the budget ought to be reduced. over $6,000,000,000, you ought to have figures to substantiate it.

Mr. MITCHELL. The statement we are making here does not call for

Senator LUCAS. You are telling the Finance Committee exactly what ought to be done with the budget.

Mr. MITCHELL. I have told you, sir, we have a break-down of that budget we will be glad to supply you. So it is not just an out-andout assertion.

Senator LUCAS. You are talking about if national defense cannot be sacrificed, there ought to be belt tightening in other parts of the budget. You ought to have some figures to show what you mean by that statement, because, standing alone, it is worthless.

Mr. MITCHELL. The reason we do not have it, we are not depending on that for this thing we are asking for.

Senator LUCAS. You should not make a statement unless you depend upon it.

Mr. MITCHELL. Very well, sir.

Senator MARTIN. Mr. Chairman, I think in fairness to the witness, as I understood, you do have those figures that you could present? Mr. MITCHELL. Yes, sir, and have offered them to the Senator.

Senator MARTIN. And I think that it is not quite fair of my distinguished friend from Illinois, not quite fair to the witness to leave him in that position.

I think if there is any doubt as to his figures, he ought to be permitted to present them here, although they ought to go before the Appropriations Committee.

The CHAIRMAN. Those figures have direct relevance on what we are doing here, and we will certainly be glad to have them here. I am sure Appropriations would also be glad to have them.

Mr. MITCHELL. Thank you, sir.

Senator BARKLEY. Does that mean you are going to tell us how much you think ought to be sliced off the budget for Public Works? Mr. MITCHELL. We have a total for Public Works; yes, sir.

Senator BARKLEY. Do you know the total?

Mr. LUTZ. In the fiscal year 1949, the total for civic public works, Senator, is $2,859,000,000.

Senator BARKLEY. Will you tell us how much of that ought to be cut off?

Mr. LUTZ. That is the total in the fiscal year 1949.

Senator BARKLEY. The total estimated by the Budget?

Mr. LUTZ. That is in the Budget estimate; yes, sir.

Senator BARKLEY. You do not know how much Congress will appropriate?

year.

Senator TAFT. I recollect that it is about a 50-percent increase over expenditure for public works in the current fiscal Mr. LUTZ. One hundred percent over 1947. Senator TAFT. That is what I meant.

Senator BARKLEY. Those expenditures and appropriations for public works are not required to be spent in the year appropriated. They run on until usually completed, and they are not bound by a particular date.

I am interested to know how much of this public works you would cut off, and what part of it, and what items.

Mr. MITCHELL. Dr. Lutz made the study, sir, and perhaps he can say.

Senator BARKLEY. And what projects you would eliminate.

Mr. LUTZ. This particular study was not as to the detail of projects. We simply pointed out in view of the inflation situation and scarcity of labor and materials, and in view of the stop-spend order of 1946, on the grounds that then the taxpayer was not getting a fair value, it was reasonable to assume in 1949 there could be no case for spending more than actually was spent in fiscal 1947, which was $1,400,000,000, or half as much as the budget for 1949 proposes.

Senator BARKLEY. All right.

Mr. MITCHELL. Right here, we should take note of the fact that many of those committed to the present level of Government spending place the greatest emphasis on, or perhaps hide behind, the necessity for adequate defense and maintaining our international position.

Senator CONNALLY. By "perhaps hide behind," you mean to impugn their motives, do you not?

You are high-minded and honest when you want to cut taxes, but a man that does not is a crook. Is that correct?

Mr. MITCHELL. I would not go so far as to say that, Senator, but it is always easy to spend more money in government and hard to spend less.

Senator CONNALLY. You mean by that language to impugn the motives of those who do not agree with you on reducing taxes? Mr. MITCHELL. No, I would not say

Senator CONNALLY. What else do you mean, then-"hide behind?" In other words, the sheriff is looking for them and they are out in the brush somewhere hiding.

Mr. MITCHELL. We will cut out the words "perhaps hide behind," Senator.

Senator CONNALLY. I do not want you to cut them out. They represent your views.

Mr. MITCHELL. That is right.

Senator HAWKES. I think, Mr. Chairman, the witness might have used a better expression: "Because of political expediency and pressure groups and demands, many of those in the Congress would rather comply with those demands from the voters in their particular district than to take the right course in preserving the United States of America."

Mr. MITCHELL. I will accept your statement, Senator.

Senator BARKLEY. I do not want to pursue this thought, but you were, it seems to me, very unfortunate in using the words "hide behind," in connection with our national defense.

Are you willing to identify anybody who is urging national defense who is hiding behind it?

Mr. MITCHELL. No, not at all. My next statement says that I would be the last one to quarrel with these objectives.

Senator BARKLEY. You would be the last one, but you are among those who do.

Mr. MITCHELL. I do, however, strongly want to make the next statement, Senator, that we must constantly remind ourselves that we have no military strength, we have no international prestige and influence, except for the strength of our domestic economy.

In other words, if our domestic economy is weak, we cannot have military strength and international prestige and influence over the

long period, and my plea is to keep our domestic economy strong so we can have all these things.

Senator BARKLEY. You do not think it is weak now, do you?

Mr. MITCHELL. No; but I am afraid it might get weak.

Senator BARKLEY. I am sorry that I got in a little late and missed a part of your statement. But have you identified any figure by which you would reduce the Treasury's income by reduction of taxes?

Mr. MITCHELL. My plea is to have the Senate pass the Knutson bill, 4790, in its present form, which is $6,600,000,000.

Senator BARKLEY. You think that would strengthen us?

Mr. MITCHELL. I think it will help to, sir.

The CHAIRMAN. It has been indicated to the witness, Senator Barkley, that it might be less, and that would be reluctantly acceptable. Senator BARKLEY. On his part?

The CHAIRMAN. Yes.

Senator BARKLEY. All right.

Mr. MITCHELL. This simply means that if we recognize the needs for replenishing our capital sources, then we must also recognize that tax reduction of the right kind and in full amount is needed to maintain our strength abroad as well as at home.

Or, to put it in terms of the budget, if first things come first we need not spend in 1949 twice as much on public works as was spent in 1947. Nor do we need to embark on new and costly programs, and certainly we do not need to spend as much on some of the existing programs of dubious worth and low priorities when the whole national interest is considered.

Here, I refer, gentlemen, to some of the Government bureaus that were established as depression-fighting bureaus and are still there. What was it the fellow said-the nearest thing to immortality on earth is a government bureau?

Senator LUCAS. I think the National Association of Manufacturers is closer to immortality.

Mr. MITCHELL. You do not mind if I disagree with you, Senator. Third, we as a Nation may need to moderate our views on the importance of a large budget surplus for debt reduction as compared with tax reduction at the present time. The NAM has been a strong advocate of debt reduction, recommending $2,500,000,000 as an annual minimum for this purpose. The Congress has just gone on record, in the legislative budget, for setting aside $2,600,000,000 for this purpose. These are realistic and reasonable positions if we do not go further and insist on an additional safety margin in the budget to meet these goals. At the present time, we cannot afford to maintain tax rates that anticipate an extra amount of surplus in the administrative budget for debt payment at the expense of supplying the economy with more of the lifeblood of new capital. We find added strength for this view in the fact that the marketable debt in the hands of the public is being reduced at a substantial rate through the application of the cash surpluses which are being created by other parts of the Federal fiscal system.

There may still be other approaches to a solution of the tax problem. Nothing can be more certain, however, than that there must be a solution if our national economy is to grow and become stronger. It is not a matter of tax reduction versus debt retirement or a strong

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