TOP SECRET TOP SEGhcT Cutting our overseas deployment would have a great impact on our Allies and on ovr foreign policy. The President expressed the opin.on that the interest of the Department of State was generally limited to assurance that mobile U.S. forces could be sent overseas promptly to meet critical situations. The President then asked Mr. Harold Vance, who was sitting for Admiral Strauss, if he had any comments on what he had listened to this morning. Mr. Vance expressed the opinion that the President was quite right in his belief that we could save considerable amounts of money if there were greater centralization of research in the Department of Defense. General Cutler said that he and Secretary Anderson had been totaling up informally the total cost of the add-on programs which had been mentioned in the course of the presentation. Their total amounted to approximately 4 billion 800 million in new obligational authority. The President commented wryly that the trouble with new obligational authority levels was that these levels soon became formed into expenditure levels. In response to a suggestion from General Cutler, Secretary Anderson made a brief comment on the implications of all these figures for the financial and economic well-being of the country. Up to recently we had been saying that if all our plans work out we would end up the fiscal year with a surplus of approximately 1.8 billion. At the present moment, however, the economy of the U.S. was certainly not in the course of an upward movement. Indeed if the economy stays at present levels or drops, we might for the first time in the present Administration be contemplating an unbalanced budget. While nobody could really foretell the size of the Treasury's income, it may now be nearer 72 billion than the ' 76 billion we had previously estimated. It is of extreme importance to realize the possibility of an unbalanced budget. Again at the suggestion of General Cutler, Mr. Saulnier said that he merely wanted to make it clear to all concerned that any hopes for Treasury receipts in the range of 76 billion dollars were quite unrealistic at the present time. He said he believed that at the rate the economy was moving the Treasury receipts for FY 1958 would be around 72.8 billion. If this indeed proved to be the case REPRODUCED AT THE DWIGHT, D. EISENHOWER LIBRARY there would be no significant surplus at the end of FY 1958 and possibly even a small deficit. This change in the budgetary outlook was due in general to a falling off of economic activity. This falling off wag related to the fact of lesa expenditure. While Dr. Saulnier described himself as no deficit-expenditure theorist, we should bear in mind that our troubles do come in part from reduction in levels of expenditure both government and private. This trend could be reversed either by balancing the budget and providing a tax cut which would stimulate the economy or it might be met by in- creased government expenditure which would stimulate economic activity. -9- TOP SECRET