Kennedy: The Classic Biography (78 page)

Even during that first week the pressures increased. Senate Democratic Whip Humphrey called for a temporary tax cut. So did Secretary of Commerce Hodges. Secretary of the Treasury Dillon assured Senator Byrd in open hearings that none was planned. The President was irked by Cabinet members publicly committing him either way in advance of his decision, and irked as well by press speculation that he had secretly decided for a “quickie.”

At the June 6 meeting Heller was more gloomy about the economy. He was backed by outside advisers Samuelson and Robert Solow, who used language that hit the President where it hurt. While not yet foreseeing a new recession in 1962, they felt that

for the first time the prudent odds for a so-called “Kennedy recession”…have ceased to be negligible…. The first Kennedy expansion may be no larger than the 25 months of Eisenhower’s last recovery…. Why can’t America take the initiative needed to forestall unnecessary recessions?…Only an early tax cut appears to be capable of giving the economy the stimulus it needs in time.

By the end of June, Samuelson had raised the odds on a 1962 recession from 20 percent to even. By mid-July Samuelson and Solow spoke, they said, for “a majority of economists inside and outside the government”
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in asserting that, without a temporary emergency tax cut, losses of profits, production, employment and total output in 1962 would characterize “the developing recession.” Walter Heller feared a downturn “before the snows melt” (they melt late in his native Minnesota). Rockefeller and labor, the Chamber of Commerce and the ADA, the academic economic advisers to the Treasury, all joined in urging a tax cut in 1962, though they all differed sharply on what kind.

But in each of our meetings throughout the summer, Douglas Dillon and others offered persuasive arguments to the contrary. The economic indicators were, as the President described them, “a mixed bag,” some down, some up, some steady. If the Congress would act promptly on the tax bills already before it—including the investment tax credit, a repeal of surface transportation taxes and, above all, a bill providing stand-by authority to adjust taxes in an emergency—that would be enough. If Congress was balking at these, then sending up a new bill would not help and might only endanger the tax credit bill then before the Senate. Moreover, argued Dillon, the President had already indicated early in 1961 that a comprehensive tax reform bill, to be submitted after passage of the “little” tax reform bill which contained the investment credit, would include some reduction in tax rates. That hope should be enough. It involved waiting only a few months; and any reduction taken in 1962 could not be used in 1963 as sugar coating for an otherwise unpalatable reform bill.

The legislative and economic arguments, in fact, overlapped. If the Congress passed a temporary tax cut and it proved premature, the President’s overreaction, an attribute he sought always to avoid, might make action more difficult when it was really needed. Nor did political arguments aimed at the 1962 mid-term elections impress him. Not only was he loath to be charged with partisan motivations, the record did not support them: whatever party was in control of the Congress during the three tax cuts enacted since the war had on each occasion lost the next election. Nor did he want a big tax cut to push his deficit beyond that Eisenhower record he liked to cite.

But the greater likelihood, O’Brien, Dillon and others reported, was that a temporary tax cut could not be passed. Too many key figures were against it or unconvinced. For the President to assert that a “quickie” tax cut was essential to our economic health, and then have it rejected, might well worsen the climate of confidence, further depress the stock market and impair prospects for the 1963 tax bill. Even the supporters of a temporary tax cut in the Congress and business community could not agree on its size, scope, timing, nature or conditions. The number of amendments certain to be offered held out the prospects of at best delay, at worst a bill so bad it would have to be vetoed, and, most likely, no bill at all.

Senator Douglas, a long-time advocate of tax cuts to fight recessions and an eminent economist, opposed a cut in 1962 in a thoughtful memorandum to the President. Senator Byrd not unsurprisingly was strongly opposed, and, most importantly, Chairman Wilbur Mills of the House Ways and Means Committee—who, in an unusual Presidential move, had been invited to sit in on one of Kennedy’s sessions with his economists—remained unconvinced that a cut was needed or could pass. Other solons were for such a bill only if its economic impact were canceled by cutting out of the Budget the same amount of funds as the tax cut would release into the economy, thus rendering it meaningless.

In short, it was clear to Kennedy that, in the absence of overwhelming evidence that a tax reduction bill was needed to prevent a recession, the Congress, which had already spent a year and a half on his first tax measure, would not pass such a bill in that session. The President had no choice but to wait for that overwhelming evidence, and it never came.

Did Kennedy really want a quickie tax cut in 1962 which the Congress prevented him from obtaining? Its advocates thought so. The press said so. But, having taken part in all the meetings, my own judgment is that he, too, was unconvinced that a temporary cut at that time was essential, as distinguished from merely being helpful, in the absence of that overwhelming evidence that was required to get the bill through. “We want to be convinced,” he told a news conference questioner, “that the course of action we are advocating is essential before we advocate it.” Cool as the pressures built up around him, accused of undue delay and indecision, he refused to be stampeded into an unnecessary and unsuccessful fight that could only impair his long-range economic goals and his relations with the Congress. “Wilbur Mills,” he said one day, “knows that he was chairman of Ways and Means before I got here and that he’ll still be chairman after I’ve gone—and he knows I know it. I don’t have any hold on him.”

While he waited for the evidence, he pursued an alternative program, quietly and administratively increasing expenditures in a number of areas, publicly pressing for Congressional action on the tax credit, on public works and on other economic measures, liberalizing tax rules on depreciation, and telling each press conference that “we will continue to watch the economy.” Finally, after a review of the figures for July showed no signs of a recession sufficiently strong to convince him or the Congress, he delivered on August 13 an economic report to the nation by television from the White House. He concluded that report by promising a permanent tax cut bill in 1963 and by rejecting a temporary tax cut unless subsequent events made it necessary to recall the Congress for that purpose.

Under the right circumstances that is…a sound and effective weapon…[to be] fired only at a period of maximum advantage…. Proposing an emergency tax cut tonight,
a cut which could not now be either justified or enacted
, would needlessly undermine confidence both at home and abroad.

The operative words, which are italicized, satisfied both sides within the ranks of his advisers. Those opposed to the temporary tax cut agreed with his judgment that it could not be justified, and those favoring it accepted his judgment that it could not be enacted.

The speech, however, was in every other respect less satisfying. We tried every possible way to make a dull economics speech interesting. The President used charts beside his desk. He cited real-life human interest examples of individuals helped by his programs. But despite these efforts and despite, or perhaps partly because of, the President’s effort to extemporize informally as he moved from desk to chart, that speech was the worst speech he ever gave from the White House on television. It sought to educate the American people on the new fiscal philosophy. It urged action by the Congress on pending economic measures. It was, in short, the kind of “fireside chat” the critics said he needed. But it dealt not with a new crisis, only an explanation of why there was none—not with a new bill, only an explanation of why there would be none—and that kind of speech cannot be exciting. “I would call it,” said the President to one professor, “a C-minus performance.”

THE 1963 TAX BILL

Nevertheless that drab speech, and the aforementioned June 7 opening press statement on taxes, laid the groundwork for one of the boldest and most far-reaching domestic economic measures ever proposed—the $10 billion tax cut bill of 1963, offered without experiencing or even predicting for the immediate future any of the three traditional occasions for a tax cut: a Budget surplus, a reduction in spending or a recession. While it would be convenient to assert that this bill was conceived solely by President Kennedy as a defiant challenge to the fiscal troglodytes, or that massive tax reduction to keep the expansion going had long been his plan for 1963, the actual facts are more haphazard.

The origins of that bill can be traced to the preinaugural task force on taxation, commissioned by the President-elect and headed by Professor Stanley Surrey, who was later Assistant Secretary of the Treasury. That report, like the President’s comprehensive Message on Taxation in April, 1961, recommended without details a sweeping, long-range, tax reform bill which would broaden the tax base by closing loopholes, end all inequities of benefit to the few, and thereby make possible lower rates for all. It was a tax reform bill, not a tax cut, and while it was agreed by Surrey and Dillon that the reforms would make possible the same amount of revenues at lower rates, and could only be passed with the help of such a “sweetener,” there was no mention or intention at that time of reducing the government’s net take. The President publicly emphasized, in fact, that with “budget problems as difficult as they are…we cannot carry out a tax reduction in these critical times.” He planned to offer this bill in January, 1962, enabling the Congress to concentrate in 1961 on the “little” tax bill, a bill designed to help the economy and balance of payments with no net loss of revenue. In the unlikely event that he could achieve a Budget surplus, he planned a tax cut and a debt reduction as well.

But the “little” bill did not pass until late in 1962, making impossible the proposal of a larger, more controversial tax reform before January of the following year. Meanwhile the President was rejecting Walter Heller’s advocacy of a quickie tax cut in the spring of 1961 and the summer of 1962. But even as he rejected them—and particularly as he listened to the arguments against a temporary tax hike in the 1961 Berlin crisis—the President gave thought to a favorite Heller theme: namely, that the Federal tax rates, established in wartime to prevent inflation, were taking in so much money as the economy recovered that they were draining off the private funds needed for full growth. Heller wanted a quickie tax cut as a down payment on a permanent reduction.

Between the two crucial meetings in the late spring of 1962—the first held just after the stock market tumble and the second just before the President’s June 7 press conference—Douglas Dillon, aware of the strength in Heller’s argument, and trying to fight off a temporary tax cut that might block the 1963 reform bill, accepted the view that the 1963 bill should provide a net tax reduction. In a speech on June 4 he said that reforms would offset reductions in the 1963 bill “in whole or in part.” But in our June 6 meeting it became “in part”—not because he was as yet an advocate of massive tax reduction, but because he thought a small net reduction would help pass tax reforms.

On the following day the President, seeking to give the nation more cause for confidence after the drop in the market and the pause in the economy, and seeking to answer public pressures for a tax cut that summer, included in his press conference review of the economy an almost hidden pledge:

Three:
A comprehensive tax reform bill… will be offered for action by the next Congress, making effective as of January 1 of next year an across-the-board reduction in personal and corporate income tax rates which will not be wholly offset by other reforms—in other words, a net tax reduction.

The emphasis was still on tax reform but the commitment had been made. The August economic “fireside chat” gave slightly more prominence to a tax cut but no more details: “An across-the-board, top-to-bottom cut in both corporate and personal income taxes…a creative tax cut creating more jobs and income and eventually more revenue.” It also cited the Heller doctrine that “our present tax system is a drag on economic recovery and economic growth, biting heavily into the purchasing power of every taxpayer and every consumer.”

Nevertheless the President remained unenthusiastic, if not skeptical, about tax reduction. He still thought in terms of tax reform more than a tax cut for 1963. He was committed to no figure. He barely mentioned it in the mid-term campaign. Division, moreover, was deep within the administration and its advisers. Some economists wanted all reforms dropped as too controversial a drag on the tax cut. Some department heads wanted the cut small to prevent its reducing room in the Budget for their programs. Some wanted cuts and reforms in separate bills. The Vice President argued that oil depletion reforms would handicap the whole bill. There were arguments over whether to include corporations at all, whether to exclude all but corporations, whether to stretch the cut over two or three years or include it all immediately, whether to concentrate on lower-bracket or high-income relief.

But when the bill was finally hammered out, first in Washington and then in our annual planning sessions in Palm Beach over the holidays, the internal arguments had largely vanished. It was the classic example of everyone getting something and no one getting everything. All agreed that the economy needed a boost, that many tax reforms would help growth and that a wholesale reduction in tax rates was the best reform of all. Proposals for rate changes, reforms, the Budget and the statutory debt limit were all juggled, rearranged and revised in relation to each other, as the President insisted that Eisenhower’s $12 billion deficit could not be exceeded, that “civilian domestic” spending had to decline, and that the Budget could not create headlines by going over $100 billion. He knew the Budget had to grow if the economy was to grow. But he felt that passage of the tax bill was far more important to our economic growth than the difference between his proposing spending estimates of $98 billion instead of $100 billion, and that the latter figure was sufficiently more dramatic that it should be avoided.