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Question
Hello Sir, I had asked this question before here and also searched the website recommended by expert but didn't got the clear vision. Question is about President Kennedy's tax cuts in 1964.
The purpose of John F Kennedy's Tax cuts was to
1. Follow the advice of John Maynard Keynes
2. Increase aggregate demand
Because I am giving the options, I also give my chosen option. I think option 2 is correct one because Keynes was in favor to encourage aggregate demand and President Kennedy's want to encourage investment, consumption expending, and all combined aggregate demand to stimulate economy plus follow the advice as main purpose is not convincing as a President main purpose. Though he cuts take but main purpose he wanted to expend the economy which is done by increasing aggregate demand.
But Sir, I am confuse as President Kennedy's companions was great followers of John Maynard who mainly gave the idea of aggregate demand (the general theory), and on their suggestions he applied the tax cuts. Help me out to get clear view of his main purpose of tax cuts.
Thanks
Take care!
Hi, Sonia--
Glad to help, as always.
President Kennedy's tax cuts were NOT in 1964, my friend. He was killed on Nov. 22, 1963. So 1964 is out of the question here.
I assume that the tax cuts to which you are referring were the ones Congress enacted in his response to his message dated April 20, 1961. Here's a link to it: http://www.nationalcenter.org/JFKTaxes1961.html
The principal tax cut was the investment tax credit. However, business spending did not begin to pick up until 1964. That is when major cuts in personal tax rates kicked in from legislation passed in 1963. Here is a link to quotations from Kennedy on tax matters: http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=39517
You are correct that Kennedy's economics people were all Keynesians. Nearly all economists were Keynesians back then. Only later, with the 'stagflation' of the 1970s, did Keynes's ideas fall into disrepute. The purpose of the Kennedy tax cuts were part economic and part political. The economic side was to provide greater incentives for people to work because they would get to keep relatively more of what they earned. The political side was to position the president for a run for re-election in 1964, so he could tell the voters that he had cut their taxes.
At the end of the day, most presidents are political animals. If something is a good idea politically, they'll do it, even if it's a bad idea economically. Kennedy got both sides of the equation right with his investment tax credit and his cuts in marginal tax rates for individuals. However, it's worth noting that the marginal tax rate for corporations remained @ 48% until the Reagan came to power almost two decades later.
Hope this is helpful, Sonia. You know the drill: Please complete the rate-the-expert email you'll receive about the same time as you get this reply from me. Your ratings and comments help me do a better job of helping people like you who ask such interesting questions!
Best regards--
Warren
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Warren D. Miller, CFA, CPA, ASA
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