The Economy: Politics v. Policy

President Kennedy decided weeks ago that a quick tax cut was needed to pep up the sluggish U.S. economy. Most of his economists, including Walter Heller, chairman of the Council of Economic Advisers, urged him to call for a cut. Yet last week, when he appeared on national television to explain his policy, Kennedy came out not with a tax-cut proposal, but rather with a statement that emergency tax legislation “could not now be either justified or enacted.”

What odd thing had happened on the way to the TV cameras? The fact was that President Kennedy had run into some rutty political detours. It had become increasingly evident that he could not get Congress to approve a quick tax cut; among those opposing any such move were both Wilbur Mills, chairman of the House Ways and Means Committee, and Harry Byrd, chairman of the Senate Finance Committee. And early in August a Gallup poll reported that 72% of the voters opposed immediate tax reduction if it meant that the Government would go deeper into debt. At that point Kennedy found himself in the position of a business executive who 1) drafts a memo arguing that his company should open additional sales offices, 2) overhears his boss say he wants to cut costs, 3) tears up the memo, and 4) drafts a memo arguing that the company should shut down some of its sales offices.

Placing the Blame. The result was the Kennedy speech, spiritlessly delivered and political in its every nuance. Implicit throughout was an attempt to blame the present mushy economy on the Republican Eisenhower Administration. “The fact of the matter is that the economy in January of last year was sick,” said Kennedy. “We have had a five-year period where we have been more or less standing still economically . . . When I came into office in January 1961, this country was in a recession. We have made a recovery from that recession.” Near Kennedy was an easel of charts, prepared to illustrate how the economy has perked up during his Administration.

Pointing to them, he explained that since the beginning of 1961 the gross national product has gone up 10%, industrial production 16%, wages and salaries 10%, disposable personal income 8% and pretax corporate profits 26%, while unemployment has gone down 23%. “So this is the story of our economic recovery. The pace thus far this summer, while not as good as all of us would like, has still brought further gains. Economic indicators which have been reported to me for July do not warrant the conclusion that we are entering a new recession.” The President’s statistics overstated—by a considerable margin—the extent of recovery from the 1960-61 recession. The 26% gain in profits, for example, looked very impressive on the chart, but it was measured from a valley in early 1961, when corporate profits dipped to the lowest level since 1958. All the 26% increase did was bring profits up to about the level of the second quarter of 1959.

Instead of cutting taxes now, the President called upon Congress to enact a batch of New Frontier bills—including aid for state and local public works, supplementary unemployment compensation, youth jobs and job training, aid for school construction. He praised the results of several programs already enacted during his Administration, such as area redevelopment, the food-stamp program and federal aid for special housing for the aged. He said that 400,000 persons “are now receiving retraining so that they can find new work in new industries”—a claim that prompted New York’s Republican Representative Charles E. Goodell, coauthor of the retraining measure, to note that funds for the new program are only now becoming available, and that Kennedy’s 400,000 figure was therefore grossly inflated. “As of now,” said Goodell, “the number being retrained is exactly zero.” Invoking the Name. Recalling the “dark days” when Franklin Delano Roosevelt first took office, Democrat Kennedy warmed to his political message, striking out at all those who oppose his programs “as they opposed moves in other days . . . much as they opposed social security, much as they opposed a minimum wage, much as they opposed a ban on child labor and, more recently in the Senate, medical care for the elderly.” Said Kennedy: “This country would still be in the dark ages economically if we permitted the opponents of progress and defenders of special privileges and interests to veto every forward move.” Having invoked politics past, Kennedy turned to politics future with a firm promise to achieve wide-ranging tax reform next year. The present tax system, he said, “is a drag on economic recovery and economic growth.” Tax rates are “so high as to weaken the very essence of the progress of a free society . . . the incentive of additional return for additional effort.” Accordingly, he pledged, in 1963 the Administration will propose a “permanent basic reform and reduction in our rate structure, a creative tax cut creating more jobs and income and eventually more revenue … It will include an across-the-board, top-to-bottom cut in both corporate and personal income taxes. It will include long-needed tax reform that logic and equity demand, and it will date that cut in taxes to take effect as of the start of next year.”

That commitment sounded good with elections approaching, but promising was easier than delivering. Almost everyone now agrees that tax reform is desperately needed; but almost everyone has different ideas about the specifics of that reform. At the very least, any meaningful reform must be shaped by economic fact, not partisan politics. And for all President Kennedy’s talk about tax reform, his Administration has yet to get beyond the talking stage in working out a specific program.