Tax Cuts for Growth

August 14, 1961

It was not only right but imperative that President Kennedy give Khrushchev clear warning that we mean to defend Berlin at all costs. It was perhaps just as essential to show we were not bluffing by ordering an immediate build-up of our defenses. But the broader economic program outlined by Mr. Kennedy was unnecessary. It is more likely in the long run to thwart our national purposes than to help them.

The President told Congress that in order to improve our posture with regard to the defense of Berlin we need to spend $3.5 billion more in this fiscal year. This is a total increase in the defense budget of $6 billion since January. Suppose we accept the need for this $6 billion. Why was it not asked for in May, when Mr. Kennedy requested only $2.5 billion additional? The objective situation has not visibly changed. Khrushchev was threatening Berlin in May. We already knew then that he would threaten Berlin again and probably half a dozen other places. The new request gives an air of improvisation to the May request. It raises the question whether the present request may not also be improvised. Is Mr. Kennedy going to ask for new billions every time Khrushchev makes a new threat? That would give Khrushchev a cheap and easy way to lure us into spending ourselves into a runaway inflation or crushing taxation.

SWOLLEN EXPENDITURES

The President’s new requests raise his total defense budget to $47.5 billion. Whenever any serious investigation has been made of military spending—by the Hoover commission or a Congressional committee—it has turned up huge waste and duplication. It is discouraging that Mr. Kennedy’s reviews of the military budget have suggested no offsetting economies of any importance.

We come now to the non-defense budget. The overwhelming bulk of discussion consistently forgets that this is tremendous. The total Federal spending budget, including social security, exceeds $100 billion. Non-defense expenditures exceed $50 billion, or more than half. Yet not only has Mr. Kennedy not suggested any offsetting economies in any of these, he has poured into Congress since he came into office some 50 messages, nearly all of which have called for more spending in some new direction. In this $50 billion of non-defense expenditures, covering every conceivable activity, from aiding “depressed areas” to landing a man on the moon, there are infinitely rich opportunities for economy. Probably $3.5 billion could profitably be cut out of either crop supports or foreign aid alone.

NO BALANCE TILL 1963

Yet the President looks with complacency upon a budget deficit of more than $5 billion in the current fiscal year (which still has nearly eleven months to run) on top of that of nearly $4 billion for the fiscal year just closed. Not until the fiscal year 1963 does he promise a budget “strictly in balance.” Even this balance, he hints, is to be achieved not by economies but by “an increase in taxes.” Thus the President would put even more burdens on the already overburdened taxpayer. He neither asks nor hints at any sacrifices whatever for the multitudinous pressure groups that are now parasitic on the taxpayer.

But the necessity for reducing both government expenditures and taxes does not rest primarily on the argument for equity or fairness. It rests on the far stronger argument that this reduction is essential for promoting, instead of retarding, increased capital accumulation, production, and economic growth. We need to abolish all personal income tax rates above 50 percent. These bring in barely enough revenue to support the government for a half a week. They are confiscatory and purely punitive. If the personal income tax rates above 50 percent were abandoned, the revenues of the government would probably increase; the country’s production would certainly increase.

There would also probably be more revenues and certainly greater national production and income if the double tax on corporate dividends were mitigated, if capital gains taxes were more realistic and less one-sided, and if more generous tax write-offs were allowed for depreciation and new investment.