Yes, that is the cry we hear from conservative talking heads and GOP candidates alike. By doing engaging in this refrain, they slyly avoid being called on the carpet for being less than honest about the deceased president’s true intent. More importantly, by making that claim without distinguishing what has changed in the nation’s economic structure since the early 1960s amounts to a blatant attempt to deceive the American people. Such is the extent with the Right’s desire to preserve the Bush-era tax cuts, particularly for the wealthiest Americans.
This charade started a decade ago when Steve Forbes pointed out that the first round of then-President George W. Bush tax cuts were smaller than the one JFK called for in 1962 and signed into law by LBJ in 1964. When JFK came into office, the highest bracket was 91% Kennedy wanted to reduce the top bracket to 65%, but the rates of 77% for 1964 and 70% for 1965 was agreed upon. Thus, a significant marginal reduction was put into effect for the highest income earners.
Many of our conservative friends seized upon this. Their basic argument is that the JFK tax cut was equal to 1.6% of our Gross Domestic Product (all the goods and services produced in the U.S. in one year). The Reagan tax cut of 1981 was 2.5% of GDP. At 1.5% of GDP, the Bush tax cut was the smallest of these three. They further point out that the wealthiest one per cent did quite well under this plan and that liberals were being hypocrites for opposing the “smaller” Bush plan. Class warfare was – and still is - their battle cry!
But a few important details were conveniently left out. First and foremost is that back in the 1960s there were other sources of government revenue. There was additional protection against huge deficits provided by corporate and other forms of taxation. As the Center for Tax Justice’s web site pointed out ten years ago, immediately after the JFK tax cut kicked in in1965, corporate income taxes were 4.1% of our GDP (reduced from a rate of 52% to a rate of 48%; still well above current corporate tax rates). By the time Bush Number 43 ascended to power, corporate income taxes had dropped to 2.5% of GDP—approximately a 40% drop. And while we were lowering our corporate income taxes, most other industrial nations were raising their corporate taxes to a higher proportion of their GDP. By 2002, U.S. corporate taxes plummeted to only 1.5% of our GDP—60% below 1965 levels. Today that number is 1.2% of GDP.
And there were other sources of income to take up the slack of an income tax cut. For example, in 1965 the United States total taxes from consumption taxes (excise and franchise taxes, import duties, tariffs, etc.) was 5.5% of GDP. By 2009, that ratio was down to 4.1% of GDP.
Another important detail conveniently left out of their arguments is that the brackets were broken down at greater increments. Instead of three basic brackets, there were 27 brackets. Furthermore, the increases were gradual and items such as credit-card interest and sales taxes could be written off. Finally, that 91% tax rate, where the big 30% reduction kicked in, occurred for individual filers earning in excess of $200,000 or joint filers earning in excess of $400,000 in 1964 dollars. Our average man or woman on the move in 1964 dollars was making about $38,000 a year and paying a tax rate of 65% before deductions and exemptions.9 JFK’s tax cut was truly more about the working class to upper middle class than multi-million dollar earners. Unlike the Bush-era tax cuts, JFK’s cut was designed to put money in the hands of those more likely to spend than save the extra money.
It is more important to argue the overall contexts of the two tax cuts rather than simply arguing that the Bush tax cut is smaller than the JFK tax cut in terms of GDP. In 1964 the nation could better afford such a large reduction in tax revenue. In 1965 corporate income taxes were a much larger piece of the tax pie (24%) than they are today (9%). Deficits were smaller and more controllable than they are today. Even with the top tax rates reduced, million-dollar earners were still being taxed at 70% rate. And before you weep for the wealthy of the middle 1960s, remember, there was no AMT back then. The very wealthy could deduct more of their legitimate expenses than they can under the present system. Furthermore, this meant that income from triple tax-free municipal bonds were then truly tax exempt.
Supporters of the Bush-era plan also may claim that the 1964 tax cut was responsible for the economic boom of the ’60s; it was not. While it helped sustain the continuation of prosperity, the truth is that the nine-year economic boom had begun two years earlier in 1962 -- well before the tax cut kicked in. All-too-conveniently, Conservatives leave out the vital role a Keynesian-inspired active fiscal policy played.
Finally, we should remember that when President Kennedy first contemplated cutting taxes, it was a first step in that direction. During the past forty years, there have been several other large tax cuts, especially under President Reagan. There has been a gradual lowering of tax rates. Now, we are at the other end of the spectrum. Tax brackets may have lowered to the point where reducing them any further could cause great economic harm.
And while tax rates can be too high for even the wealthiest, conversely they can be too low. As an analogy, think of the six-foot tall fellow who, by dieting, goes from weighing 300 pounds to 160 pounds. He has obtained the proper weight for his size. If, however, he decides he wants to go down to 90 pounds that would not be healthy.
As mother says, everything in moderation.
