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Nevertheless, we need to have your best estimax in this area. What ETUI SET SCHerial Win or you estimate the cost to be I, this ESCL TELT, LIt what di you made in the figures. What do you està mate the cost to be for fiscal Y

I realize this is differun to 55 bin we have been given such estimates sione atom 195%. I believe. Of course, the pubik is emailed to know bow much the Bg, if there is some way for us to make a reasonably BOTTELS ESCMane.

Secretary Lum Yes, we can give you the figures on the cast of the war in fiscal year 1969, fiscal year 1971 and the projected cost for fiscal year 1971. We would, however, hope that we could keep the Sgures for this next fiscal year of a class fed basis.

The reason it is importan. Mr. Chairman, is that it reveals the plans that we have made for future force redactions in Vietnam. I do not think it does math good to announce in advance the particular reductions that we have in mind, but I will give this committee the figures.

The full costs of the war in fiscal year 1969 were $28.8 billion.
In fiscal year 1971, the full costs were $23.2 billion.

Mr. MAHON. These are estimates.

Secretary LAIRD. Those are estimated costs because we have not yet finished the current fiscal year. Those are estimated costs for fiscal year 1970.

For fiscal year 1971, the full costs of the war are estimated at

The incremental costs are the important ones as far as we are concerned, because these are the costs that are directly attributable to the war and do not affect our so-called base line budget.

The incremental costs for fiscal year 1969 were $21.5 billion.

The incremental costs for fiscal year 1970 are estimated to be $17.4 billion and the incremental costs for fiscal year 1971 are estimated to be

It is important to understand the difference between incremental costs and full costs. Let me give an example or two, Mr. Chairman. The incremental costs differ from the full costs for a very good reason. Take the 3d Marine Division which we moved out of Vietnam and placed back in Okinawa. Okinawa was the original basing point for the 3d Marine Division that went into Vietnam. The costs of this unit were considered a part of the full cost of the war when it was in Vietnam. We moved the 3d Marines back to Okinawa where they were prior to the war, and even though we redeployed them, we do not get the ful! savings because we still have the expense of maintaining the 3d Division in Okinawa. We do, however, realize some savings, and an obvious one would be the ammunition which they were using in Vietnam.

Now we are going to realize the full saving from the 5th Marine Division which we are inactivating, but we do not get as great a saving from the 3d division that we are redeploying, but retaining in the base line force.

Mr. MAHON. I am not quite clear what you mean by incremental costs. "Incremental" is a rather common word, but I do not quite get the application of the word to this situation. What do you actually mean?

Secretary LAIRD. It is the additional costs of the war over and above what would be spent in peacetime for the base line units involved. Take a ship assigned to patrol duty along the coastline of Vietnam. When the ship is assigned to that job, we change it from its "regular funding” to "war funding;" that is, we begin to count its cost in our estimate of the full costs of the war.

Mr. MAHON. The additional cost is the incremental cost, is that correct?

Secretary LAIRD. That is correct, the incremental cost in this case is the difference between the added cost of having the ship on the patrol off Vietnam and the cost of having it in operation in some other area not related to the Vietnam war.

I think it important that we understand this, and I would like the Comptroller, Bob Moot, to discuss this in detail, because it is very important that we understand this, Mr. Chairman.

Mr. MAHON. When we go to the floor, people will ask you as members of the Appropriations Committee, "If you don't know what the cost of the war in fiscal year 1971 is estimated to be, how does it happen you knew what it was last year?" and so on. If the fiscal year 1971 estimate is classified, the Defense Department and the committee may be accused of concealing something.

I can understand why it would be desirable from the standpoint of the prosecution of the war not to make public projections too long in advance, but for us to have the figure of the record so that we cannot respond if someone asks "What is the cost of the war?" might be unwise.

Secretary LAIRD.

- will be the full costs in fiscal year 1971, but the added costs over and above those of the baseline force structure

are

Mr. MAHON. IL other words, when you move somebody out of the war zone you still have to pay them, and there are still certain expenses, but they are not quite as heavy as in the war zone, and the difference is what you refer to as the incremental cost!

Mr. Moor. Yes, sir.

There are several very important points. One I heard you state yesterday. Mr. Chairman, to the press. That is, there are no precise accounting records for the war. The war was never entered into the accounting records, primarily because it couldn't have been. You could not have been that precise.

In the beginning, when the prior administration started to print the full cost of the war in the budget as it did each year, that full cost of the war had two pieces. The first piece was the cost of the additional men and the additional supplies that were brought into the Defense Department solely and exclusively for the war. The other cost was the additional cost of deploying the peacetime baseline forces that were in being in the Defense Department in 1965.

Mr. MAHON. It costs more to deploy them than to keep them where ther were.

Mr. Moor. That is right, sir.

The ammunition, the aircraft flying hours, the equipment maintenance, the equipment modification, new procurement for those baseline forces, all were greater in cost than in peacetime.

Mr. MAHON. "Baseline force" is not one of our most frequently used terms here. Are you talking about the regular peacetime force that you would have even if you did not have the war in Southeast Asia!

Mr. Moor. That is right.

Mr. MAHON. Before the war started, we had this baseline force in being.

Mr. Moor. Before the war started, we had peacetime force units. Certain of those units were deployed to Southeast Asia. The cost of supporting them in Southeast Asia was charged to the war.

When they are redeployed or withdrawn from Southeast Asia, some of the costs disappear, the added costs because of the war.

On the other hand, they must still train, they must still have aircraft flying hours, they must still have some training ammunition. their equipment must be modified, their equipment must be maintained. So, there is a continuing cost.

Each year when you see printed in the budget $25.8 billion as the cost of the war in fiscal year 1969 or $23.2 billion as the cost of the war in fiscal year 1979, the figure contains additional costs solely because of the war and continuing costs that would be transferred to the peacetime baseline forces after withdrawal from the war.

If you take the $288 billion which was the full cost of the war in fiscal year 1969, and the — which Secretary Laird mentioned for 1971, the difference is a reduction of

On a constant dollar basis, we are reducing our appropriations by a total of of our total reduction is due to the lower level of

Vietnam.

In addition, there is

in reduced costs that the Secretary mentioned yesterday in other programs than Vietnam support

programs.

So, the gross reduction from 1969 to 1971 is

This has been offset by pay and price increases in the interim of $5.9 billion. So, the net Treasury outlay reduction is

When I come up on Tuesday, Mr. Chairman, I shall have a very detailed, carefully laid out table with all of these figures. Mr. MAHON. I think that will be adequate.

Mr. Moor. I think it will be covered.

The basic question you asked is still a problem, and that is, anyone outside of this committee in unclassified testimony taking the trend of $28.8 billion, $23.2 billion, and can pretty well straight line where the force structure would be in Vietnam at the end of 1971, and it is that disclosure

Mr. MAHON. That you do not like to make on account of the possible impact on the war?

Mr. Moor. That is right, sir.

Mr. MAHON. I think you have a valid point.

Secretary LAIRD. Our problem is that, as you examine the reductions in these totals, you can project what the force structure will be in Vietnam at the end of fiscal year 1971. We have some difficulty, Mr. Chairman, in making that public.

Mr. MAHON. I understand that, but it will be very hard to hold a figure like this.

Mr. Moor. The most important thing that we should get on the record and state very flatly, Mr. Chairman, is:

First, the way the costs of the war are decreasing is exactly the way they were built. There has been no change in formula or factors. Second, there has been absolutely no diversion of the reduced funds from Southeast Asia programs to any other purpose. The same kind of continuing costs that we are talking about to be incurred by the peacetime forces are exactly the same kind of costs as they are incurring in Vietnam. It is the cost of fuel, depot maintenance, et cetera. We are not diverting funds for new weapons such as we have been alleged in the media.

(Off the record.)

PEACE DIVIDENDS

Mr. MAHON, Mr. Secretary, there has been a lot of talk about peace dividends as a result of the slowdown in war spending. The Joint Economic Committee has been active in the field, and there have been press releases and statements made.

I would like to have an analysis of those statements and the best clarification you can give us so we can have the exact truth as it is ascertainable.

Secretary LAIRD. Very well, Mr. Chairman.
Mr. MAHON. Are there questions on my left?

Mr. MINSHALL. I yield to the gentleman from Wisconsin.

Mr. DAVIS. You just anticipated the question I was going to ask the Secretary about the so-called peace dividend. A statement was widely distributed in my State under the name of one particular member of the Joint Committee on Economic Policy.

I hope this will be a rather point-by-point explanation, Mr. Secretary.

Secretary LAIRD. I think you are referring to a statement in the Senate by the distinguished Chairman of the Joint Economic Committee. I have seen that statement and will be happy to have Mr. Moot provide a full explanation.

We will also provide the text of Senator Proxmire's statement which I believe we have available.

(The information follows:)

WHO STOLE THE PEACE DIVIDEND?

Mr. PRESIDENT: When one looks beneath the vast propaganda generated by the White House and the Budget Bureau about the cuts in the Defense budget for fiscal year 1971, some alarming and disquieting facts are found. The paucity of the cuts does not match the rhetoric by which they are proclaimed. In fact known cuts of about $25 billion in military spending have reduced outlays in the 1971 budget by only $5.3 billion. Somewhere along the line, even after generous allowances are made for inflation and pay raises, double counting and uncontrollable items, we lost about $10 billion. Someone stole the peace dividend. Consider the following items:

$13 BILLION CUT IN VIETNAM SPENDING

Item: On October 22, in a speech before the Overseas Writers Club, Secretary Laird announced that by the end of fiscal year 1970, or by June 30, 1970, the cost of the Vietnam war would be down from a $30 billion a year level to an annual rate of $17 billion. Secretary Laird's figures were later stamped official in testimony before Congress. They are found in the supplemental testimony of Chairman McCracken of the Council of Economic Advisers to the Joint Economic Committee on October 23, 1969. In his supplementary comment Chairman McCracken verified what we on the committee had pointed out to him, namely that Vietnam spending was scheduled to drop by $13 billion by mid-1970. He wrote in his supplementary submission to us, "Secretary Laird has estimated that Vietnam spending will have fallen by mid-1970 to an annual rate of about $17 billion."

(Hearings, Subcommittee on Fiscal Policy of the Joint Economic Committee, October 23, 1969, p. 359.)

That is a reduction of $13 billion in Vietnam spending. And that is the rate of spending at which fiscal year 1970 ends and fiscal year 1971 Vietnam spending begins. It is not the average rate for fiscal year 1971 which should be even lower.

Yet the 1971 Department of Defense budget for the Pentagon itself (excluding military assistance, atomic energy, and defense related activities) is only $5.3 billion below 1970 outlays. It is only $6.6 billion below the 1969 outlays when Defense spending and the Vietnam war were at their peaks.

CUTS IN MILITARY PERSONNEL

Item: The administration has only recently announced that by the end of fiscal year 1971, the number of military personnel would be down by 600,000. The budget indicates that 250,000 of that reduction will be in effect by June 30, 1970. The rest is to come in 1971. But most of the savings will come in fiscal year 1971 because the 1970 reductions are end of the year figures. About 450,000 of that reduction should be in effect for the entire fiscal year.

41-876 0-70-pt. 1——27

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