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Kennedy's view on tax cuts are the same as Reagan,
John F. Kennedy on taxes
"It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now ... Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus."
– John F. Kennedy, Nov. 20, 1962, president's news conference
"Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government."
– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964
JFK lowered taxes, but supply-siders wrongly claim he's their patron saint.
Since the drive to pass Ronald Reagan's tax cuts in the 1980s, Republicans have often invoked John F. Kennedy as the patron saint of supply-side economics. For several years now, conservative groups such as the National Association of Manufacturers and the Club for Growth—the supply-side group whose name sounds like a hair-replacement outfit—have used JFK's name and words to depict Republican tax cuts skewed toward the rich as part of a grand bipartisan tradition. (In 1997 in Slate, Democratic strategist Bob Shrum dissected one of these ads.) Now the Club for Growth's Stephen Moore is enlisting JFK to take a swipe at Howard Dean's economic vision in the Wall Street Journal, declaring it anti-growth, burdensome to the middle-class, and in an oh-so-painful concluding slap, final proof that the Democrats "no longer believe a word of John F. Kennedy's message of 40 years ago."
So, was Kennedy really a forerunner to Reagan and Bush? Or are supply-siders just cynically appropriating his aura? The Republicans are right, up to a point. Kennedy did push tax cuts, and his plan, which passed in February 1964, three months after his death, did help spur economic growth. But they're wrong to see the tax reduction as a supply-side cut, like Reagan's and Bush's; it was a demand-side cut. "The Revenue Act of 1964 was aimed at the demand, rather than the supply, side of the economy," said Arthur Okun, one of Kennedy's economic advisers.
This distinction, taught in Economics 101, seldom makes it into the Washington sound-bite wars. A demand-side cut rests on the Keynesian theory that public consumption spurs economic activity. Government puts money in people's hands, as a temporary measure, so that they'll spend it. A supply-side cut sees business investment as the key to growth. Government gives money to businesses and wealthy individuals to invest, ultimately benefiting all Americans. Back in the early 1960s, tax cutting was as contentious as it is today, but it was liberal demand-siders who were calling for the cuts and generating the controversy.
When Kennedy ran for president in 1960 amid a sluggish economy, he vowed to "get the country moving again." After his election, his advisers, led by chief economist Walter Heller, urged a classically Keynesian solution: running a deficit to stimulate growth. (The $10 billion deficit Heller recommended, bold at the time, seems laughably small by today's standards.) In Keynesian theory, a tax cut aimed at consumers would have a "multiplier" effect, since each dollar that a taxpayer spent would go to another taxpayer, who would in effect spend it again—meaning the deficit would be short-lived.
At first Kennedy balked at Heller's Keynesianism. He even proposed a balanced budget in his first State of the Union address. But Heller and his team won over the president. By mid-1962 Kennedy had seen the Keynesian light, and in January 1963 he declared that "the enactment this year of tax reduction and tax reform overshadows all other domestic issues in this Congress."
The plan Kennedy's team drafted had many elements, including the closing of loopholes (the "tax reform" Kennedy spoke of). Ultimately, in the form that Lyndon Johnson signed into law, it reduced tax withholding rates, initiated a new standard deduction, and boosted the top deduction for child care expenses, among other provisions. It did lower the top tax bracket significantly, although from a vastly higher starting point than anything we've seen in recent years: 91 percent on marginal income greater than $400,000. And he cut it only to 70 percent, hardly the mark of a future Club for Growth member.
Yet the Kennedy-Johnson team saw the supply-side effects of the bill as secondary, if not incidental, to its main goal of prodding near-term growth. "The tax cut is good for long-run growth," said James Tobin, another economist on JFK's team, "only in the general sense that prosperity is good for investment." The immediate boost to the economy was the main goal. In fact, Nixon's economic adviser Herb Stein noted that the 1964 plan led to a diminished output-per-person-employed—a fact that could argue against the supply-side tenet that lower marginal rates would unleash the productivity of workers deterred from working harder because of overtaxation.
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