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The Kennedy–Johnson Tax Cut of 1964, the Defeat of Keynes, and Comprehensive Tax Reform in the United States

Published online by Cambridge University Press:  19 December 2017


Seiichiro Mozumi
Affiliation:
Yokohama National University
Corresponding
E-mail address:

Abstract:

In 1964, President Lyndon B. Johnson, the successor of John F. Kennedy, signed into law the largest tax cut in U.S. history until 1981, the so-called Kennedy–Johnson tax cut. Many scholars have evaluated it as representative Keynesian tax policy; this article focuses on the effort of the Treasury Department, tax experts such as Stanley S. Surrey and Wilbur D. Mills, the chairman of House Committee on Ways and Means, to reform the federal income tax system comprehensively—making it simpler, fairer, and more equitable—and their defeat by the 1964 tax cut. Through the policymaking and legislative process, the Kennedy administration’s Council Economic Advisers defeated the Treasury and Surrey by domesticating Keynes’s ideas on tax policy. Until the 1964 passage of the tax cut, Mills, with his inconsistent action, abandoned the accomplishment of their ideal tax reform.


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Articles
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Copyright © Donald Critchlow and Cambridge University Press 2017 

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Footnotes

I gratefully acknowledge the assistance of W. Elliot Brownlee, Gareth Davies, Junichi Hasegawa, Eisaku Ide, Takehiko Ikegami, Masaru Kaneko, Cathie Jo Martin, Isaac W. Martin, Ajay K. Mehrotra, Monica Prasad, Luke Roberts, and the anonymous reviewers of JPH.


References

1. At the same time, both Kennedy’s and Johnson’s administrations chose to attempt to reduce government expenditures, doubting the wisdom of stimulating the economy through a higher level of government spending. Johnson stated: “From time to time we are going to carefully study each department and agency and try to bring those expenditures down further. We have been encouraged in that move by the Chairman of the Ways and Means Committee and the Chairman of the Finance Committee; they have proven their faith in us by passing this tax bill, and we are trying to—going to keep faith with them by cutting expenditures. By taking this course we have made this bill an expression of faith in our system of free enterprise.” Lyndon B. Johnson, “Radio and Television Remarks upon Signing the Tax Bill,” 26 February 1964, ed. Gerhard Peters and John T. Woolley, The American Presidency Project (http://www.presidency.ucsb.edu/ws/?pid=26084).

2. Ibid.

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18. This letter appeared in the New York Times on 31 December 1933.

19. Keynes, Hansen, and Lerner also mentioned tax cuts as measures to stimulate recovery. However, I would put greater emphasis on the following two points. At first, when Keynes referred to the possibility of tax cuts in The Means to Prosperity in 1933, the world was in the midst of the Great Depression. Keynes recommended tax cuts as temporary measures to promote economic recovery. In addition, Hansen and Lerner argued that controlling individual income tax rates could have useful short-term purposes, such as economic recovery and restraint of inflation. Second, all three individuals, especially Keynes, stressed that tax cuts are applicable to all additional expenditure made, not in substitution for other expenditure, but out of savings or borrowings. See Keynes, John M., The Means to Prosperity (Oxford, 2011)Google Scholar; Lerner, Abba P., The Economics of Control: Principles of Welfare Economics (New York, 1947)Google Scholar; Hansen, Alvin H., Economic Policy and Full Employment (New York, 1947), 137–44.Google Scholar

20. Meanwhile, Keynes described that the passage of recovery measures and social reforms were long overdue. He mentioned price stability through monetary policy as a long-range purpose. See Moggridge, Donald, The Collected Writings of John Maynard Keynes, Volume 21: Activities 1931–1939: World Crises and Policies in Britain and America (Cambridge, 1982), 290–93.Google Scholar

21. Keynes wrote that “Income taxes, especially when they discriminate against ‘unearned’ income, taxes on capital-profits, death-duties and the like are as relevant as the rate of interest. . . . If fiscal policy is used as a deliberate instrument for the more equal distribution of incomes, its effect in increasing the propensity to consume is, of course, all the greater.” He continued: “Assuming that the State applies the proceeds of these duties to its ordinary outgoings so that taxes on incomes and consumption are correspondingly reduced or avoided, it is, of course, true that a fiscal policy of heavy death duties has the effect of increasing the community’s propensity to consume.” See Keynes, John M., The Collected Writings of John Maynard Keynes, Volume 7: The General Theory of Employment, Interest and Money (Cambridge, 1973), 94–95, 372–73.Google Scholar

22. It seems that Keynes drew his tax ideas from the development of the British income tax system. After 1799, the British income tax system increased its progressivity until 1920, the year in which the full development of the progressive principle became a permanent part of British income tax. See F. Shehab, Progressive Taxation: A Study in the Development of the Progressive Principle in the British Income Tax (Oxford, 1953). Focusing on the political economy, Martin Daunton examined the detailed process of its development. See Daunton, Martin J., Just Taxes: The Politics of Taxation in Britain, 1914–1979 (Cambridge, 2002)Google Scholar; Trusting Leviathan: The Politics of Taxation in Britain, 1799–1914 (Cambridge, 2001).

23. Keynes described his desire to take advantage of “the opportunity of war finance to effect a considerable redistribution of incomes in the direction of greater equality.”

24. Keynes, John M., How to Pay for the War (London, 1940), 3451.Google Scholar

25. Heller reputed that Hansen had achieved the “Americanization of Keynes.” See Heller, New Dimensions of Political Economy, 4. Lerner is generally reputed as one of old fiscal policy scholars who were influenced by Hansen.

26. Hansen, Alvin H., Fiscal Policy and Business Cycles (New York, 1941), 125–85, 289312.Google Scholar

27. Lerner continued as follows: “Increased taxes on the rich, offset by decreased taxes on the poor or by greater bonuses to the poor, will increase total demand without unbalancing the budget.” See Lerner, The Economics of Control, 319–20.

28. C. Eugene Steuerle, Contemporary U.S. Tax Policy; W. Elliot Brownlee, Federal Taxation in America; Zelizer, Julian E., Taxing America: Wilbur D. Mills, Congress, and the State, 1945–1975 (New York, 1998)Google Scholar; Iwan W. Morgan, Deficit Government: Taxing and Spending in Modern America (Chicago, 1995); King, Ronald F., Money, Time, and Politics: Investment Tax Subsidies and American Democracy (New Haven, 1993)Google Scholar; Martin, Cathie Jo, Shifting the Burden: The Struggle over Growth and Corporate Taxation (Chicago, 1991)Google Scholar; Witte, The Politics and Development of the Federal Income Tax; Brownlee, W. Elliot, Dynamics of Ascent: A History of the American Economy, 2nd ed. (New York, 1979)Google Scholar; Stein, Herbert, The Fiscal Revolution in America (Chicago, 1969)Google Scholar; Flash, Edward S. Jr., Economic Advice and Presidential Leadership: The Council of Economic Advisers (New York, 1965).Google Scholar

29. Bartlett, Bruce, The Benefit and the Burden: Tax Reform––Why We Need It and What It Will Take (New York, 2012)Google Scholar; Zelizer, Taxing America; Manley, John F., The Politics of Finance: The House Committee on Ways and Means (Boston, 1970)Google Scholar; Stein, Fiscal Revolution in America.

30. W. Elliot Brownlee, “Tax Regimes, National Crisis, and State-building in America,” in Funding the Modern American State, 1941–1995: The Rise and Fall of the Era of Easy Finance, ed. W. Elliot Brownlee, 88–96. As for the “mass-based income taxation,” see Jones, Carolyn C., “Class Tax to Mass Tax: The Role of Propaganda in the Expansion of the Income Tax during World War II,” Buffalo Law Review 37 (1989): 685737.Google Scholar

31. Treasury Department, Annual Report of the Secretary of the Treasury on the State of Finance for the Fiscal Year ended June 30, 1948 (Washington, D.C., 1948), 50–53; Treasury Department, Annual Report of the Secretary of the Treasury on the State of Finance for the Fiscal Year ended June 30, 1946 (Washington, D.C., 1947), 89–93.

32. Treasury Department, Annual Report of the Secretary of the Treasury on the State of Finance for the Fiscal Year ended June 30, 1951 (Washington, D.C., 1952), 44–52; Treasury Department, Annual Report of the Secretary of the Treasury on the State of Finance for the Fiscal Year ended June 30, 1950 (Washington, D.C., 1951), 34–42.

33. This reform included not only the reduction of the individual income tax rate scale from 22.2–92% to 20–91%, but also reform measures designed to narrow the tax base. The reform measures included the application of an income-splitting return rule to widows with dependents, child care deduction up to $600 per year for widows and lower-income working women, expansion of itemized deductions, retirement income tax credit, exclusion of an employer health insurance contribution, exclusion of the first $50 of dividends against a shareholder’s taxable income, and a 4% dividend credit in excess of the $50. See Treasury Department, Annual Report of the Secretary of the Treasury on the State of Finance for the Fiscal Year ended June 30, 1954 (Washington, D.C., 1955), 43–53, 246–86.

34. Treasury Department, Annual Report of the Secretary of the Treasury on the State of Finance for the Fiscal Year ended June 30, 1958 (Washington, D.C., 1959), 41–52. As for the details of the federal tax system structured by the Revenue Act of 1954, see U.S. Congress, Joint Economic Committee, The Federal Revenue System: Facts and Problems, 1961 (Washington, D.C., 1961).

35. The Subcommittee included Senator Paul Douglas (D-Ill.), Representative Thomas Curtis (R-Mo.), and Senator Barry Goldwater (R-Ariz.).

36. Louis Cassels, “This Man Shapes Your Tax Bill,” Nation’s Business, March 1956; “Looking at Tax Effects,” Business Week, 21 May 1955.

37. At this time, Mills clearly answered that he disagreed with the theory argued in the 1920s that “the lower the tax rates the higher the business activity, and therefore the higher the income.” He thought it was inconceivable that greater economic activity could never be achieved without more manpower, resources, and capital to generate increased economic activity. He disagreed with the argument that a mere reduction in rates of taxation would generate these economic aspects. Furthermore, he observed, “When I hear people urging us to cut tax rates in order to increase revenues when we have full employment, then I know they’re either asking for inflation or hoping for some kind of fiscal black magic.” He did not believe that the rate or level of taxation itself was necessarily such as to prevent a continued rise in economic activity, although he thought that rates could be reduced, and must be reduced in the long run. He thought that high tax rates might diminish incentives to make more money. However, he said he did not find who said at the hearings of his committees that the rate of taxation was such as to prevent him from working 12 months in the year. He believed that the federal tax system did not destroy the middle class. In addition, he was of the opinion that the tax system did not prevent opportunities for more equity capital for larger businesses. See “Keep the Income Tax but Make It Fair,” U.S. News & World Report, 27 July 1956.

38. “Keep the Income Tax but Make It Fair,” U.S. News & World Report, 27 July 1956; Louis Cassels, “This Man Shapes Your Tax Bill,” Nation’s Business, March 1956.

39. “Chairman Wilbur D. Mills, Committee on Ways and Means, House of Representatives, Announces Committee’s Plans for Study Aimed at Revision of Federal Tax System,” 18 May 1959, National Archives College Park (NACP), Record Group (RG) 56, Office of Tax Policy: Subject Files (OTPSF), Box 68, File Folder #55: Tax Legislative Program for 1959–60, Mills Subcommittee, 1959–62; “Address of Chairman Wilbur D. Mills, Committee on Ways and Means, U.S. House of Representatives, before the Ninth Annual Mid-Year Conference of the Tax Executive, Shoreham Hotel, Sunday Evening, 15 February 1959,” 15 February 1959, NACP, RG 56, OTPSF, Box 68, File Folder 55: Tax Legislative Program for 1959–60, Mills Subcommittee, 1959–62.

40. “Program of Panel Discussion in General Revenue Revision, 1959,” 8 September 1959, NACP, RG 56, OTPSF, Box 68, File Folder 55: Tax Legislative Program for 1959–60, Mills Subcommittee, 1959–62. As for this series of hearings, see U.S. House of Representatives, Committee on Ways and Means, Tax Revision Compendium of Papers on Broadening the Tax Base, vols. 1–3 (Washington, D.C., 1959).

41. “Tax Policies for Economic Growth,” 17 December 1959, NACP, RG 56, OTPSF, Box 68, File Folder 56: Suggestions for TAX REFORM Submitted to Treasury for Comment, 1959.

42. “Closing Statement of Chairman Wilbur D. Mills, Committee on Ways and Means, at the End of Five Weeks of Panel Discussions on Tax Reform,” 18 December 1959, NACP, RG 56, OTPSF, Box 68, File Folder 55: Tax Legislative Program for 1959–60, Mills Subcommittee, 1959–62; Fred C. Scribner Jr. to Wilbur D. Mills, 18 December 1959, NACP, RG 56, OTPSF, Box 68, File Folder 55: Tax Legislative Program for 1959–60, Mills Subcommittee, 1959–62.

43. For Surrey’s background, see, for example, Mirit Eyal-Cohen, “Preventive Tax Policy: Chief Justice Roger J. Traynor’s Tax Philosophy,” Hastings Law Journal 59 (March 2008); Griswold, Erwin N., “A True Public Servant,” Harvard Law Review 98, no. 2 (December 1984)Google Scholar; “Stanley S. Surrey, 74; Taxation Law Expert,” New York Times, 28 August 1984. For the Shoup Mission and Surrey’s contribution to it, see The Political Economy of Transnational Tax Reform: The Shoup Mission to Japan in Historical Context, ed. W. Elliot Brownlee, Eisaku Ide, and Yasunori Fukagai (New York, 2013).

44. Stanley S. Surrey, “The Relationship of Revenue Administration to Fiscal Policy with reference to Underdevelopment Countries,” 15 November 1956, Historical Special Collection (HSC), Harvard Law School Library (HLSL), Stanley S. Surrey Papers (SSSP), Box 35, File No. 26–3: Tax Administration Conference; Henry S. Bloch to Stanley S. Surrey, “Preparatory Meeting for the Conference on Tax Administration in Under-developed Countries,” 8 February 1957, HSC, HLSL, SSSP, Box 35, File No. 26–3: Tax Administration Conference. From 1958, Surrey served with Shoup on a tax assistance mission to Venezuela. See Brownlee, ed., The Political Economy of Transnational Tax Reform, 431–38.

45. Stanley S. Surrey to Frank Ikard, 17 November 1959, HSC, HLSL, SSSP, Box 39, File: Ways and Means Committee, 1957–60; Stanley S. Surrey to Lee Metcalf, 17 November 1959, HSC, HLSL, SSSP, Box 39, File No. 28–1: Ways and Means Committee, 1957–60; Stanley S. Surrey to Lee Metcalf, 15 January 1960, HSC, HLSL, SSSP, Box 39, File No. 28–1: Ways and Means Committee, 1957–60; Stanley S. Surrey to Frank Ikard, 15 January 1960, HSC, HLSL, SSSP, Box 39, File No. 28–1: Ways and Means Committee, 1957–60; Stanley S. Surrey to John W. Byrnes, 15 January 1960, HSC, HLSL, SSSP, Box 39, File No. 28–1: Ways and Means Committee, 1957–60. In late 1958, in a memorandum for Mills, Surrey recommended that the CWM reexamine the income tax structure in 1959 and 1960, make the revision of the income tax base its most important subject, study whether broadening the tax base would permit a reduction of income tax rates for all brackets, and utilize outside experts, largely from universities, on a topic-by-topic basis. Stanley S. Surrey to Wilbur D. Mills, “Memorandum re General Tax Revision Activities of House Committee on Ways and Means, 1959–1961,” 24 December 1958, HSC, HLSL, SSSP, Box 14, File No. 40–5: Hon. Wilbur D. Mills, 1956–59.

46. William Andrews, who was the Eli Goldston Professor of Law at Harvard Law School, described in retrospect the following: “This unity [of Surrey’s thought and action] resulted partly from the single-mindedness of Stanley’s concern for a fair, progressive tax system; wherever he was working and whatever he was doing, he was bound to be continuing the crusade for that objective.” See Andrews, William D., “A Source of Inspiration,” Harvard Law Review 98, no. 2 (December 1984): 332.Google Scholar

47. Stanley S. Surrey, “Summary Statement of Stanley S. Surrey for Hearings on Broadening The Tax Base, House Committee on Ways and Means November 16, 1959, The Federal Income Tax Base for Individuals,” undated, HSC, HLSL, SSSP, Box 39, File No. 28–1: Ways and Means Committee, 1957–60.

48. Thorndike, Joseph J., Their Fair Share: Taxing the Rich in the Age of FDR (Washington, D.C., 2013).Google Scholar It is said that the ideas of Robert Murray Haig were greatly influential to the Treasury’s tax experts. W. Elliot Brownlee, “Tax Regimes, National Crisis, and State-building in America,” in Funding the Modern American State, ed. Brownlee, 37–104.

49. Harris worked as one of the economic advisers to Kennedy in the presidential campaign in 1960. After Kennedy took office, he convened Treasury consultants’ meetings regarding tax, monetary policy, debt, and government expenditure.

50. Seymour E. Harris, “Where Is the Money Coming From?” 8 October 1956, HSC, HLSL, SSSP, Box 14, File No. 40–5: Hon. Wilbur D. Mills, 1956–59. It is not obvious for whom Harris wrote this report. However, I surmise it was for Mills considering the title of the file that contained this material.

51. Harvey E. Brazer, born in Montreal, received a Bachelor of Commerce degree from McGill University in 1943. After his graduation, during World War II, he served for three years as an artillery and infantry officer in the Royal Canadian Army. After the war, he received master’s (1947) and doctoral degrees (1951) at Columbia University and taught economics at Rutgers (1947–48) and finance at Lehigh (1948–50) and Wayne State universities until 1957, when he joined the Michigan faculty as an associate professor. He became a professor in 1960. He served the Treasury as a deputy assistant Secretary of the Treasury and director of the OTA under Kennedy from 1961 to 1963. His special area of focus was public finance, and this involved the examination of various methods of raising money to operate the government and its numerous public service programs. Among other things, his students studied ways to distribute tax burdens equitably among income groups. See, for example, “Harvey E. Brazer, 68, Professor of Economics,” New York Times, 18 May 1991; Faculty History Project of University of Michigan, http://um2017.org/faculty-history/faculty/harvey-e-brazer.

52. I elaborate on Surrey’s responsibility and role inside the Treasury at the time he wrote this in the last section.

53. As for their backgrounds, see, for example, “Walter Heller, 71, Economic Adviser in 60’s, Dead,” New York Times, 17 June 1987; Tobin’s curriculum vitae (http://cowles.econ.yale.edu/faculty/vita/cv_tobin.pdf); Finding Aid of Kermit Gordon Personal Papers, http://www.jfklibrary.org/Asset-Viewer/Archives/KGPP.aspx?f=1. Gardner Ackley and John Lewis replaced Tobin and Gordon later, respectively.

54. “Full-employment output” is the notion of output assumed when an economy is at full employment. The CEA defined the criterion of full employment as a 4% unemployment rate.

55. The concept of “full-employment budget surplus” means the difference between the balance of the actual budget and of the full-employment budget, which is the notion assumed when an economy is at full employment.

56. In 1966, Heller wrote in retrospect: “The $13 billion full-employment surplus in 1960 was an oppressive economic drag, a major force pulling us down into the recession of 1960–61.” Walter W. Heller, New Dimensions of Political Economy, 67.

57. Walter W. Heller to James Tobin and Kermit Gordon, “Eventual Memo to the President on Tax Cuts,” 20 February 1961, John F. Kennedy Library (JFKL), Walter W. Heller Personal Papers (WWHPP), Box 21, File: Tax Cut 11/24/60–3/29/61.

58. There has been frequent reference to Kennedy having not mastered economic knowledge at all. Kennedy’s special aide, Arthur M. Schlesinger Jr., wrote, “Kennedy had received his highest grade and only B in freshman year at Harvard in the introductory course in economics. The course made no deep impression on him. Indeed, he remembered his grade as C, or so at least he liked to tell his economists in later years” (Arthur M. Schlesinger Jr., A Thousand Days, 621). Although Kennedy appointed Heller, Gordon, and Tobin, all of whom have been called “Keynesian,” to the CEA, when the Berlin Crisis occurred in August 1961, Kennedy at first suggested a tax increase of $3 billion to finance the additional defense outlays. Heller described this choice as having made the CEA members feel at “a low point” (Walter W. Heller, New Dimensions of Political Economy, 32).

59. Public Papers of the Presidents of the United States, John F. Kennedy: Containing the Public Messages, Speeches, and Statements of the President, January 20 to December 31, 1961, 290–91.

60. The structural reform measures to tax rates suggested by Surrey were as follows: (1) reducing the rate in each bracket by 5 percentage points (decreasing revenue by $9.5 billion), (2) splitting the first $2,000 bracket into two brackets of $1,000 each and applying a 15% rate to the first bracket, and (3) reducing the rates for the other brackets by 3 percentage points (decreasing revenue by $7.4 billion), or by 2 percentage points (decreasing revenue by $6.2 billion).

61. Stanley S. Surrey, “Preliminary Statement of Tax Reform Program for 1962,” 22 April 1961, JFKL, WWHPP, Box 22, File: Tax Cut 4/61–11/61.

62. Douglas Eldridge, other staff from the OTA, Cary Brown, Richard Musgrave, Robert Solow, and Joseph Pechman attended the meeting.

63. Robert Solow to Walter W. Heller, Kermit Gordon and James Tobin, “Tax Reform in 1962,” 24 April 1961, JFKL, WWHPP, Box 22, File: Tax Cut 4/61–11/61.

64. Otto Eckstein, Richard Goode, Joseph Pechman, Carl Shoup, and Seymour Harris attended the meeting.

65. “A Summary of the Views of Tax Consultants Eckstein, Goode, Pechman, and Shoup on the Tax Reform Issues Discussed at the Treasury Department on June 10, 1961,” 26 October 1961, HSC, HLSL, SSSP, Box 59, File No. 208–3A: Consultants Prof. Seymour Harris, 1961–62.

66. Surrey, Eldridge, and Brazer from the Treasury, Robert Turner from the Bureau of Budget of the White House, and Arthur Okun from the CEA attended the meeting. Arthur Okun to Robert Solow and Joseph Pechman, “Tax Meeting of November 24,” 25 November 1961, JFKL, WWHPP, Box 22, File: Tax Cut 4/61–11/61.

67. Arthur M. Schlesinger Jr., A Thousand Days, 631–33.

68. The administration was in conflict with the steel industry over the price of steel. The administration regarded a rise in the price of steel would significantly influence the prices of other products and the economy as a whole and sent major steel companies letters to inform them they should not seek profits via price increases. In April 1962, the steel companies approved this recommendation. Nevertheless, just after the approval, US Steel, the biggest steelmaker, and five other major companies, including Bethlehem Steel, issued a declaration to raise prices. Then, the administration put great pressure on these companies to reverse their decision and finally, they had no choice but to obey. Schlesinger, Jr., A Thousand Days, 638; Walter W. Heller to John F. Kennedy, “The Price Situation in General (and Steel Prices in Particular),” 2 August 1961, JFKL, WWHPP, Box 5, File: Memo to JFK 8/61; Walter Heller to John F. Kennedy, “The Price Situation in General (and Steel Prices in Particular),” 2 August 1961, JFKL, WWHPP, Box 5, File: Memo to JFK 8/61.

69. The growth rate of GNP in each quarter proceeded as follows: 1960 IV–61I, -1%; 61I–61II, 2%; 61II–61III, 1.5%; 61III–61IV, 2.8%; 61IV–62I, 0.8%; 62I–62II, 0.7%; 62II–62III, 0.2%; and 62III–62IV, 1.2%. Economic Indicators, February 1961, 1; Economic Indicators, February 1963, 2. The author calculated the growth rate on the basis of these sources.

70. “Wall Street Takes a Dim View,” Business Week, 5 May 1962.

71. Walter W. Heller, New Dimension of Political Economy, 113.

72. The Council Economic Advisers, “Proposals for Tax Reduction,” 5 June 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62.

73. Walter W. Heller to John F. Kennedy, “Where We Stand on Budget and Tax Policy Decisions,” 9 June 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62.

74. Public Papers of the Presidents of the United States, John F. Kennedy: Containing the Public Messages, Speeches, and Statements of the President, January 20 to December 31, 1962, 457.

75. Public Papers of the Presidents of the United States, John F. Kennedy: Containing the Public Messages, Speeches, and Statements of the President, January 20 to December 31, 1962, 470–75.

76. Richard Musgrave, “Fiscal Policy Outlook,” 28 June 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62.

77. Paul A. Samuelson and Robert M. Solow to John F. Kennedy, “The Final Decision August Look at the Case for an Immediate Tax Cut,” 10 August 1962, JFKL, WWHPP, Box 22, File: Tax Cut 8/62.

78. Gerhard Colm to Walter W. Heller, 11 July 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62.

79. Walter W. Heller to John F. Kennedy, “Business Economists on the Economic Outlook and Tax Policy,” 12 July 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62.

80. Walter W. Heller to John F. Kennedy, 29 June 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62; Walter W. Heller to John F. Kennedy, “Report from Scattered Sectors: Economic and Tax Front,” 20 July 1961, JFKL, WWHPP, Box 22, File: Tax Cut 4/61–11/61.

81. Arthur M. Schlesinger Jr. to John F. Kennedy, “Tax Cut,” 17 July 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62.

82. Arthur Okun to Walter W. Heller, “Yesterday’s Press Conference,” 24 July 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62.

83. “Kennedy Bars Tax Cuts Now, Citing Upturn,” New York Times, 14 August 1962.

84. Dillon wrote: “Even though it included a loss of revenue and a substantial budget deficit, provided it was understood that this was geared to an effort to improve the overall state of the economy . . . any indication of over-hasty action or undue concern at this time would only serve to increase foreign doubts as to the course of the American economy and could well lead to very dangerous reactions on our balance of payments.” C. Douglas Dillon, “The Current Economic Situation and Proposals to Meet It,” 6 June 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62. This is a blind report.

85. Warren Smith to Walter W. Heller, “Financing of a Deficit Resulting from a Tax Cut,” 7 August 1962, JFKL, WWHPP, Box 22, File: Tax Cut 8/62.

86. Fatemi, N. et al., The Dollar Crisis: The United States Balance of Payments and Dollar Stability (Rutherford, N.J., 1963), 38–39, 54.Google Scholar

87. Smith argued as follows: “We must continue to keep our interest rates adjusted to those prevailing in foreign money centers in order to prevent . . . outflows of capital which complicate our balance of payments problem. However, interest rate increases beyond those required for balance of payments reasons are clearly undesirable under present conditions (whether taxes are cut or not) and should be avoided.” Warren Smith to Walter W. Heller, “Financing of a Deficit Resulting from a Tax Cut,” 7 August 1962, JFKL, WWHPP, Box 22, File: Tax Cut 8/62.

88. Frazer Wilde to Walter W. Heller, 11 July 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62; Frazer Wilde to Walter W. Heller, 27 July 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62.

89. Walter W. Heller to John F. Kennedy, 31 July 1962, JFKL, WWHPP, Box 22, File: Tax Cut 6/62–7/62.

90. Lee Preston to Walter W. Heller, “Dillon Testimony before Ways and Means Committee,” 7 August 1962, JFKL, WWHPP, Box 22, File: Tax Cut 8/62.

91. The New York Times in August 1962 stated, “Without a ‘clear and present danger’—as the President expressed it—the Administration felt that it could not excite Congress into emergency action. It is a fact, contradicting the popular notions about politicians and tax cuts in election years, that neither the Congress nor the public has been aroused by all the recent tax-cut talk.” “Kennedy Bars Tax Cuts Now, Citing Upturn,” New York Times, 14 August 1962.

92. Walter W. Heller to John F. Kennedy, “The Range of Tax-Cut Choices before Us,” 9 August 1962, JFKL, WWHPP, Box 22, File: Tax Cut 8/62.

93. Walter W. Heller to John F. Kennedy, “Business Views on the Economic Outlook and Tax Cuts,” 10 November 1962, JFKL, WWHPP, Box 22, File: Tax Cut 11/62.

94. Gardner Ackley to John F. Kennedy, “Your Meeting with AFL-CIO Economic Policy Committee,” 8 November 1962, JFKL, WWHPP, Box 22, File: Tax Cut 11/62.

95. Henry H. Fowler to the Files, “Conference with Chairman Wilbur Mills re Tax Program,” 15 November 1962, JFKL, Record of Department of Treasury Microfilm Print Outs (RDTMPO), Roll 48, File: 1964 Revenue Act Mr. Surrey’s Memos to the File 2/27/62–6/15/63.

96. Wallace presented the following package of the combinations as a tentative code: (1) cut corporate rates and speed up corporate collections, and (2) cut individual rate, eliminate dividend credit and exclusion, abolish sick-pay exclusion, and set a 4% floor on casualty losses. Robert A. Wallace, “Possible Compromise on Tax Package,” 19 November 1962, JFKL, RDTMPO, Roll 40, Folder 2 of 2, File: Asst. Secy. of Treasury (Robert A. Wallace), Troika, September–December 1962.

97. Individual tax rate reductions would take place over a three-year period: the rate schedule would range from 18.5% to 84.5% and the withholding rate would be reduced from 18% to 15.5% in calendar 1963; the cutting rate schedule would range from 15.5% to 71.5% with the withholding rate reduced to 13.5% in calendar 1964; and permanent rate cuts would range from 14% to 65% in calendar 1965.

98. The normal rate of 30%, applicable to the first $25,000 of taxable corporate income, would drop to 22%, while the surtax rate would rise to 30% in 1963. The surtax rate would drop to 28% in 1964 and 25% in 1965.

99. Public Papers of the Presidents of the United States, John F. Kennedy: Containing the Public Messages, Speeches, and Statements of the President, January 20 to November 22, 1963, 73–92.

100. Henry H. Fowler to Russell B. Long, 28 January 1963, HSC, HLSL, SSSP, Box 84, File No. 71–1(C): Estate and Gift Tax (1), 1961–67; Stanley S. Surrey to Henry H. Fowler, 24 January 1963, HSC, HLSL, SSSP, Box 84, File No. 71–1(C): Estate and Gift Tax (1), 1961–67.

101. The Research Institute of America, Inc., “Tax Research Report to Executive Members,” 24 January 1963, JFKL, WWHPP, Box 22, File: Tax Cut 1/16/63–1/31/63.

102. Lyman S. Ford to United Funds, Community Chests and Community Welfare Councils, 25 January 1963, HSC, HLSL, SSSP, Box 63, File No. 194–2: Deductions—General, 1962–63.

103. J. Sinclair Armstrong to Stanley S. Surrey, 24 April 1963, HSC, HLSL, SSSP, Box 92, File No. 194–1A: Five Percent Floor, 1963.

104. Office of the Secretary of the Treasury, Office of Tax Analysis, “Answers to Specific Points Raised by Mr. G. Keith Funston, President of the New York Exchange,” 11 March 1963, HSC, HLSL, SSSP, Box 81, File No. 194–4: Dividend Credit Exclusion, 1963–64.

105. “For Release Sunday Morning Papers, 27 January 1963: Statement by the Board of Directors of the Chamber of Commerce of the United States,” 26 January 1963, JFKL, WWHPP, Box 22, File: Tax 1/16/63–1/31/63.

106. Vincent P. Moravec to Kenneth O’Donnell, 13 February 1963, JFKL, WWHPP, Box 22, File: Tax 2/13/63–2/27/63.

107. Belden L. Daniels, “Resolution on Tax Reduction,” 8 April 1963, JFKL, WWHPP, Box 23, File: Tax 4/63. This is a blind mail. I surmise Daniels wrote it to Heller, considering the title of this material and the fact that I found it in a file from a collection of Heller’s personal papers.

108. “The Right Remedy but Late and Little,” Business Week, 26 January 1963.

109. “Compounding Tax Inequity,” St. Louis Post, 28 January 1963.

110. “5 Per Cent Tax Deduction,” Washington Post, 14 February 1963.

111. Joseph F. McCaffrey to Walter W. Heller, 23 January 1963, JFKL, WWHPP, Box 22, File: Tax 1/16/63–1/31/63; Meet the Press: America’s Press Conference of the Air, vol. 7, no. 5 (10 February 1963), JFKL, WWHPP, Box 22, File: Tax 2/1/63–2/12/63; “If Taxes Are Cut—the Chances of a Boom,” U.S. News & World Report, 11 February 1963.

112. “Dillon Defends Curbs on Deductions as Allowing Across-Board Tax Cuts,” Wall Street Journal, 7 February 1963.

113. “5 Per Cent Tax Deduction,” Washington Post, 14 February 1963.

114. Stein, The Fiscal Revolution in America, 449–50. Stein cited Mills’s Statement from U.S., Congress, House, Congressional Record, 88th Cong., 1st sess., 1963, vol. 109, pt. 13, 17908–9.

115. Stanley S. Surrey to Edward J. Patten, 8 January 1964, HSC, HLSL, SSSP, Box 81, File No. 194–4: Dividend Credit Exclusion, 1963–64.

116. Public Papers of the President of the United States, Lyndon B. Johnson, 1963–1964, bk. 1, 9–10.

117. Office of the Secretary of the Treasury, Office of Tax Analysis, “The Treasury Recommendation for Deleting Provision H.R. 8363 Reducing the Percentage Inclusion and Alternative Rate on Net Long-Term Capital Gain,” 16 January 1964, HSC, HLSL, SSSP, Box 53, File No. 48–1: Capital Gains, 1961–68.

118. Stanley S. Surrey to K. H. Koach, 6 February 1964, HSC, HLSL, SSSP, Box 53, File No. 193–5: Capital Gains, 1963–64.

119. The withholding rate was cut to 14% in 1964. The normal rate of corporate income tax was reduced to 22% in 1964, while the surtax rate was reduced to 28% in 1964, and reduced further to 26% in 1965.

120. The Treasury Department, Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1964 (Washington, D.C., 1965), 36. Richard Goode demonstrates the particular result and effect that the tax reform of 1964 had on the individual income tax system. See Goode, Richard, The Individual Income Tax (Washington, D.C., 1964), 236.Google Scholar

121. Lyndon B. Johnson: “Radio and Television Remarks upon Signing the Tax Bill,” 26 February 1964, ed. Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=26084.

122. Walter W. Heller to Lyndon B. Johnson, “Economic Impact of the Tax Cut,” 2 June 1964, JFKL, WWHPP, Box 23, File: Tax 6/63.

123. Office of the White House Press Secretary, “Presidential Statement #5 on Economic Issues, Further Tax Reduction,” 27 October 1964, HSC, HLSL, SSSP, Box 53, File No. 187–5: Campaign, 1964.

124. “Goldwater’s Tax Cuts,” Washington Post, 14 September 1964; Robert A. Wallace to Myer Feldman, “Goldwater Tax Proposal,” 8 September 1964, HSC, HLSL, SSSP, Box 53, File No. 187–5: Campaign, 1964.

125. Surrey served in his position until 1968. Before he returned to Harvard, while in the Treasury, he prepared a major study on tax reform that was published in early 1969. This study, according to Surrey, essentially regarded the task of tax reform as that of restoring “fairness” to the federal tax system by ending both the escape of many well-to-do individuals and large corporations from the burdens of that system and the ironic contrast of placing an income tax on those still in the poverty class. This study became the basis of the Tax Reform Act of 1969. At Harvard, “with the benefit of hindsight,” he sought to link tax reform to the concept of tax expenditure in order to consider the criteria for choosing between tax incentives and direct expenditure. See Surrey, Stanley S., Pathways to Tax Reform: The Concept of Tax Expenditures (Cambridge, Mass., 1973), viiviii.Google Scholar

126. Stanley S. Surrey to Thomas G. Morris, 12 March 1964, HSC, HLDL, SSSP, Box 81, File No. 194–4: Dividend Credit Exclusion, 1963–64.

127. Wallace regarded Goldwater’s tax-cut program as irresponsible for the following reasons: (1) The idea that a potential increase in revenues could possibly achieve all that was expected by Goldwater was patently absurd. (2) The Goldwater proposal would seal in a tax cut for future years when the economic situation facing the country may require retrenchment. (3) It would give too large a proportion of the tax cuts to corporations (46% of the total tax cut) and upper-income individuals (54% of the cut to individuals with less than $10,000). Robert A. Wallace to Myer Feldman, “Goldwater Tax Proposal,” 8 September 1964, HSC, HLSL, SSSP, Box 53, File No. 187–5: Campaign, 1964.

128. Wilbur D. Mills, “Remarks before the American Institute of Certified Public Accountants, Washington, D.C.,” 16 October 1968, The Hendrix College Archives (HCA), Wilbur D. Mills Papers Collections (WDMPC), Box 644, File 3.

129. “Remarks of the Honorable Henry H. Fowler, Under Secretary of the Treasury, at the Fourteenth Annual Midyear Conference of the Tax Executives Institute, Mayflower Hotel, Washington, D.C., Monday, 2 March 1964, 7:30 P.M., EST: A Turning Point in Tax Policy,” 3 March 1964, NACP, RG 56, OTPSF, Box 69, Folder 96: Tax Policy (1964–65).

130. As to the outline of the Nixon administration’s proposal, see The Treasury Department, Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1969 (Washington, D.C., 1970), 26–33.

131. Witte, The Politics and Development of the Federal Income Tax, 166–72.

132. U.S. Congress, Joint Committee on Internal Revenue Taxation and the Committee on Finance, Summary of H.R. 13270, The Tax Reform Act of 1969 (Washington, D.C., 1969).

133. Zelizer, Taxing America, 306.

134. The Treasury Department, Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1970 (Washington, D.C., 1971), 29.

135. Zelizer, Taxing America, 309. Zelizer cited this Mills’s argument from Transcript: Meet the Press, 11 June 1972, HCA, WDMPC, Box 397, File 3.

136. “Bracket creep” means the effect of inflation that pushes taxpayers slowly into higher tax brackets. In particular, Steuerle argued that tax-cutting measures fitted well into the postwar era until the late 1970s. See Steuerle, “Financing the American State at the Turn of the Century.”

137. Biven, Carl W., Jimmy Carter’s Economy: Policy in an Age of Limits (Chapel Hill, 2002).Google Scholar

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