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The Story of the Kennedy Tax Cut

Updated on October 2, 2018
President John F. Kennedy working in the Oval Office
President John F. Kennedy working in the Oval Office

Democrats of today are axiomatically opposed to tax cuts and persistently spar with Republicans on this issue especially after the GOP tax reform bill was passed in 2017 and as Congressional Republicans are currently endeavoring to push another tax reform effort, dubbed as “Tax Reform 2.0”, to fulfillment. However, things were not always this way. There was once not too long ago when Democrats supported tax cuts and even spearheaded a successful essay to shrink the federal tax burden. Among all those Democrats was President John F. Kennedy who laid the groundwork for what would become known as the “Kennedy tax cuts” which ignited the American economy and ushered it into an era of prosperity.

John F. Kennedy emerged in presidential politics in 1960 as the Democratic party’s nominee for the presidency. In that year’s general election, Kennedy faced incumbent Vice President Richard Nixon, the Republican candidate in an extremely close and suspenseful race. Kennedy ultimately triumphed by a modest margin. One of the reasons that contributed to JFK’s triumph was his cogent economic proposal which encompassed one extraordinary pledge - a pledge to extensively cut taxes to energize the economy and accelerate its pace. That pledge was made in part because the US economy was mired in a recession as a consequence of the Federal Reserve’s embrace of contractionary monetary policy. With the recession’s presence, GDP growth slowed from almost 7% to just 2.6% and unemployment rate started to ascend over 6% in 1960 and would hit its peak at 7.1% in May 1961. The Massachusetts Senator was cognizant of the fact something had to be done to address this misery and strengthen the economy and he discerned a way to do so.

President Kennedy addressing the Economic Club of New York on December 14, 1962, making a point for tax cuts
President Kennedy addressing the Economic Club of New York on December 14, 1962, making a point for tax cuts

Kennedy was an ardent apostle of tax cuts in his time. He had a conviction across-the-board tax cuts, which would allow the people to expend their extra dollars in the economy, could result in economic prosperity as he often perspicuously asseverated in his public speeches and addresses. For instance, in his address to the Economic Club of New York in December 1962, he remarked "Our present tax system, developed as it was, in good part, during World War II to restrain growth, exerts too heavy a drag on growth in peace time; that it siphons out of the private economy too large a share of personal and business purchasing power; that it reduces the financial incentives for personal effort, investment, and risk-taking." He also pointed out the boon of tax cuts with regard to federal budget by noting “A tax cut means higher family income and higher business profits and a balanced federal budget. Every taxpayer and his family will have more money left over after taxes for a new car, a new home, new conveniences, education and investment. Every businessman can keep a higher percentage of his profits in his cash register or put it to work expanding or improving his business, and as the national income grows, the federal government will ultimately end up with more revenues.” in his address to the nation on September 18, 1963. He clearly understood high tax rates (top income tax rate was 91% at that time after all) restrained the economy’s full capacity and were great impediments to its progress. Therefore, he continually articulated his intention to decrease taxes to the public.

Television thematic display preceding President Kennedy's address to the nation on tax cuts on September 18, 1963
Television thematic display preceding President Kennedy's address to the nation on tax cuts on September 18, 1963
Newspaper featuring JFK's tax cut proposal in the 1963 State of the Union address
Newspaper featuring JFK's tax cut proposal in the 1963 State of the Union address

Nonetheless, not until 1963 did Kennedy marshaled his tax cut plan to the Congress. Standing in front of a joint session of the national legislative body to deliver his State of the Union address on January 14 of that consequential year, he uttered “To achieve these greater gains, one step, above all, is essential--the enactment this year of a substantial reduction and revision in Federal income taxes.
For it is increasingly clear--to those in Government, business, and labor who are responsible for our economy's success--that our obsolete tax system exerts too heavy a drag on private purchasing power, profits, and employment. Designed to check inflation in earlier years, it now checks growth instead. It discourages extra effort and risk. It distorts the use of resources. It invites recurrent recessions, depresses our Federal revenues, and causes chronic budget deficits.” and submitted a proposal to considerably cut taxes. That proposal incorporated a reduction of estimated 13.5 billion dollars which required top income tax rate to plummet from 91% to 65%, bottom income tax rate to be decreased from 20% to 14% and corporate tax rate to be lowered from 52% to 47%, the rates he opined more sensible. Unfortunately, the proposal was repudiated by Congressional members, especially Republicans who were reluctant to give him an essential legislative victory before the defining 1964 elections. This effort to cut taxes died on the Capitol Hill and not until a tragedy befell the nation was it renewed.

Kennedy in his motorcade in Dallas, seconds before the tragic assassination took place
Kennedy in his motorcade in Dallas, seconds before the tragic assassination took place

On November 22, 1963, riding in an open-topped limousine under a blissful sky in Dallas, JFK was shot and killed, leaving the nation appalled and disconsolate. The young president was superseded by his vice president Lyndon Baines Johnson. Having served in the Congress for more than 2 decades, the senior Southerner had consummate Congressional skills, unlike his young predecessor who abounded with physical charisma and inspiring eloquence but lacked the ability to pass things through the legislative branch. He also had a motivational push his predecessor never had but conferred to him. The death of Jack Kennedy which was deemed by virtually everybody in the land as untimely and traumatic popularized and sanctified the whole Kennedy legacy and thus, the LBJ administration (at least at the beginning) and everything it inherited including the moribund tax cut endeavor.

President Lyndon Johnson, JFK's successor, delivering his 1964 State of the Union address in which he pushed for the enactment of tax cuts
President Lyndon Johnson, JFK's successor, delivering his 1964 State of the Union address in which he pushed for the enactment of tax cuts

Upon assuming his presidency, Johnson began to persevere on propelling the tax cuts to fruition, thereby resurrecting the essay initiated by JFK notwithstanding the fact that the economy had already recuperated from recession in 1961 and was growing at a respectable 4.4%, as of 1963. In his 1964 State of the Union address, he enunciated “Above all, we must release $11 billion of tax reduction into the private spending stream to create new jobs and new markets in every area of this land.”, stating “And every individual American taxpayer and every corporate taxpayer will benefit from the earliest possible passage of the pending tax bill from both the new investment it will bring and the new jobs that it will create. That tax bill has been thoroughly discussed for a year. Now we need action. The new budget clearly allows it. Our taxpayers surely deserve it. Our economy strongly demands it. And every month of delay dilutes its benefits in 1964 for consumption, for investment, and for employment. For until the bill is signed, its investment incentives cannot be deemed certain, and the withholding rate cannot be reduced-and the most damaging and devastating thing you can do to any businessman in America is to keep him in doubt and to keep him guessing on what our tax policy is. And I say that we should now reduce to 14 percent instead of 15 percent our withholding rate. I therefore urge the Congress to take final action on this bill by the first of February, if at all possible. For however proud we may be of the unprecedented progress of our free enterprise economy over the last 3 years, we should not and we cannot permit it to pause.”

President Johnson signing the Revenue Act into law on February 26, 1964
President Johnson signing the Revenue Act into law on February 26, 1964

With the aforementioned sanctity enabled by Kennedy’s assassination and Johnson’s proficiency at captaining and collaborating with the Congress, rendering the tax cuts a statute of the land was ostensibly facile. Still, as 1964 emerged, some Congresspeople remained obdurate and obstructed the attempt to enact the tax bill. Congress demanded that the 1965 budget be under 100 billion dollars. A compromise took place. Johnson acceded to the demand. Eventually, a bill passed the Congress and was delivered to the president’s desk on February 26. Johnson signed it with avidity. However, its content was modified slightly from the plan in JFK’s intent. Rather, it cut the top income tax rate to 70% and the corporate tax rate to 48%. Nevertheless, taxes were reduced substantially. The results of this bill, as known as the Revenue Act of 1964 or more famously, the Kennedy tax cuts, were magnificent. GDP growth was boosted to 5.8% by the end of the year and in 1965, levitated above 6% while unemployment rate continually declined and hit its nadir at 3.4% between September 1968 and May 1969. In the meantime, not a single year (in the decade, at least) since the tax cuts were implemented did the US federal tax receipts dwindle. As of 1964, they were at 113 billion dollars combined. By 1969, the number was 187 billion. This impressive 65.4% upsurge in revenue can be attributed to the immense and robust economic growth which upsized the tax base substantially and which was enabled exclusively by the tax rate reductions. All of this materialized in the midst of one of the most prosperous economic expansions in history. The genesis of this boom can be traced back to early 1961 when the recession came to conclusion. However, in its early years, prior to the passage of the Revenue Act, it was relatively mild as unemployment scarcely changed although GDP growth arrived at a distinct number of 6.1% in 1962. After the act was enacted, it became more exuberant and would last until December 1969, thereby becoming also one of the longest periods of economic burgeoning ever.

Patently, the Kennedy tax cuts invigorated the American economy and contributed to the existence and elongation of an age of stupendous prosperity which broadened the tax base appreciably and thus, generated more federal revenue enough to compensate the loss entailed by the decreases in tax rates and to surpass the past numbers. Although Democrats of today may have already absconded JFK’s firm stance on tax reduction, it is important to take note of these tax cuts which were pushed by Democrats of the 1960s and which proved to be significant and rewarding to the economy as were other historical tax reduction bills regardless of the words of critics and cynics. They are indeed an exemplary precursor of the subsequent tax cuts and their favorable results have conceivably augured the benefits of their successors engineered in the 1980s, the 2000s and now, 2017.


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