Wayne O'Leary

That Kennedy Tax Cut

During a CNN debate last month between Sens. Bernie Sanders (I-Vt.) and Ted Cruz (R-Texas) on the subject of taxes, Cruz pointed to the Kennedy administration tax cuts of the 1960s as an object lesson in the success of tax-cutting as federal economic policy; they were, he implied, like the Reagan and Bush tax cuts that followed, the source from which all good things flowed and the rationale for passing the tax package being pushed by President Trump and the GOP Congress.

Cruz’s debate partner Sanders let the Kennedy analogy pass without comment, as liberals usually do when JFK’s tax reductions (signed into law after his death by Lyndon Johnson) are raised in discussion by conservatives and presented as the perfect ideological squelch. Others have seized on the Kennedy precedent in the current legislative environment as well. The right-wing tax-cut advocacy group the Committee to Unleash Prosperity — members include longtime limited-government crusaders Steve Forbes, Lawrence Kudlow, Arthur Laffer, and Stephen Moore — regularly harkens back to JFK’s tax policy.

And most recently, a business lobby group disingenuously called Job Creators Network has partnered with the notorious American Legislative Exchange Council (ALEC) to undertake a nationwide TV ad campaign and online petition drive on behalf of the Republican tax cuts that prominently features President Kennedy speaking on film in support of his 1963 tax plan. It’s as if the martyred 35th president were reaching back from the grave to invest the Trump-Ryan legislation with his personal tax-cut cachet.

The current effort to further comfort the financially comfortable doesn’t represent the voice of the people. The Job Creators, who bill themselves as defenders of “economic freedom,” are purportedly small businessmen, but their leadership represents business interests of a decidedly different character. Fronting the organization are Home Depot co-founder and CEO Bernie Marcus, former Pepsi and Kraft executive Alfredo Ortiz, failed Trump Labor Secretary nominee and restaurant mogul Andrew Puzder, and onetime Hewlett-Packard CEO and billionaire Republican politico Carly Fiorina. Throw in perennial GOP media consultant Frank Luntz, and it’s not hard to guess where the idea for the JFK TV spots originated.

John F. Kennedy did introduce an eventually enacted Democratic tax-cut proposal during his brief time in office; that much is true. But not all tax cuts are created equal, and Democrats (as well as the public) need to understand precisely what the Kennedy reductions were and how they came into being. In both intent and content, they were nothing like the Republican tax cuts that followed in later years.

The Kennedy initiative was, first and foremost, a stimulus plan, not unlike the Obama stimulus of 2009. JFK took office in the wake of three Eisenhower recessions (including a major downturn in 1958) that slowed the economy significantly; the last one, stretching from the election year of 1960 into early 1961 and raising unemployment to nearly 7% (compared to 4.1% now), was the impetus for his famous promise to “get the country moving again.” His activist response marked him as a Keynesian in economic policy; indeed, biographer Arthur Schlesinger Jr. called Kennedy the first truly committed Keynesian president, since FDR’s Keynesianism was more ad hoc and experimental.

Kennedy’s advisors were divided over the form their stimulus should take. Economist John Kenneth Galbraith and Labor Secretary Arthur Goldberg favored large-scale, Rooseveltian-style public investment, as in the 1930s; Walter Heller, chairman of the president’s Council of Economic Advisors, fellow economist Paul Samuelson, and Treasury Secretary Douglas Dillon preferred tax cuts for their immediate impact. But all were agreed that the program would be Keynesian in that it would utilize deficit spending.

Kennedy chose tax cuts over social spending because of political realities. Democrats nominally held Congress, but their fragile majority was provided by conservative southern Democrats, the cohort that later crossed over to the Republican Party under Nixon and that, like the GOP, opposed government spending. Since a spending stimulus was politically impossible, JFK accepted tax cuts, what Galbraith puckishly labelled reactionary Keynesianism, as the only realistic option for stimulating economic revival. The cuts were, however, proportionately geared to lower-income groups and were not of the classic trickle-down variety.

The same could not be said for either Reagan tax cuts of the 1980s or the Bush tax cuts of the early 2000s, nor for the proposed Trump reductions of today, all of which were and are principally aimed at easing the tax burden at the top of the income scale for its own sake. Reagan’s Budget Director David Stockman admitted as much in a celebrated 1981 Atlantic Monthly interview, brazenly revealing that GOP supply-side tax-cut theory was used as a “Trojan horse” to bring down the tax rate on wealthy taxpayers.

Simply look at the numbers. Whereas JFK lowered the top marginal rate from the frankly confiscatory 91% level prevailing from 1950 to 1963 (though few rich Americans paid anywhere near that after deductions and credits) to 70%, the taxphobic Reagan started lower and slashed it twice as much, first to 50% and then (in 1986) to 28%, a 42-point drop.

Though Democrats later pushed the top rate back up modestly in succeeding years under Bill Clinton (to 39.6%), Republicans quickly returned it to a Reagan-like 35% under George W. Bush, half the rate endorsed by Kennedy. Donald Trump promised the same thing for Barack Obama’s negotiated 2011 uptick, but has acceded to a continued 39.6% top rate (still historically low) for those in the millionaire-billionaire class, limiting his 35 percent gift rate to “middle-class” incomes of $260,000 to $999,999.

Then, there’s the corporate income tax. JFK brought it down slightly from 52%, its highest level ever, to 48%, still the second-highest corporate rate in history. A decade later, Reagan rolled it back to 34%, the lowest point in 50 years. Now, the Trump-Ryan team wants to further ratchet it down to 20%, the edge of extinction. This would be done, of course, in the name of spurring economic growth and expansion, a dubious rationale when corporate profits are already at record highs, the stock market is booming, unemployment is low, and the corporate share of federal tax revenue (10%) is the smallest it’s been in 60 years.

The truth is that, like all Republican tax cuts, the party’s latest corporate “reform” would produce an upward transfer of wealth. That, John F. Kennedy’s tax program never contemplated.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, December 1, 2017

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