As he did in last year’s budget, President Obama has called for a cap on retirement accounts, even though the personal savings rate in America hovers in the low single digits. Obama has added a provision to encourage...
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- Happy Birthday to the Kennedy Tax Cuts
Happy Birthday to the Kennedy Tax Cuts
Today is the 49th anniversary of the Revenue Act of 1964, the legislation signed into law by President Lyndon Johnson that contained the tax code changes generally referred to as the “Kennedy tax cuts.” President Kennedy had emphasized the need for tax reform in his 1963 State of the Union address:
To achieve these greater gains, one step, above all, is essential--the enactment this year of a substantial reduction and revision in Federal income taxes.
For it is increasingly clear--to those in Government, business, and labor who are responsible for our economy's success--that our obsolete tax system exerts too heavy a drag on private purchasing power, profits, and employment. Designed to check inflation in earlier years, it now checks growth instead. It discourages extra effort and risk. It distorts the use of resources. It invites recurrent recessions, depresses our Federal revenues, and causes chronic budget deficits.
Now, when the inflationary pressures of the war and the post-war years no longer threaten, and the dollar commands new respect-now, when no military crisis strains our resources--now is the time to act. We cannot afford to be timid or slow. For this is the most urgent task confronting the Congress in 1963.
After Kennedy’s death, President Johnson announced his intention to push tax reform forward in his own 1964 State of the Union address:
…every individual American taxpayer and every corporate taxpayer will benefit from the earliest possible passage of the pending tax bill from both the new investment it will bring and the new jobs that it will create.
That tax bill has been thoroughly discussed for a year. Now we need action. The new budget clearly allows it. Our taxpayers surely deserve it. Our economy strongly demands it. And every month of delay dilutes its benefits in 1964 for consumption, for investment, and for employment.
For until the bill is signed, its investment incentives cannot be deemed certain, and the withholding rate cannot be reduced-and the most damaging and devastating thing you can do to any businessman in America is to keep him in doubt and to keep him guessing on what our tax policy is.
Congress took up Johnson’s suggestion and passed what became the Revenue Act of 1964, which the President signed on February 26, 1964. The bill dropped the top marginal tax rate from 91% to 70% (and also reduced the corporate tax rate from 52% to 48%). In the wake of this reduction on high-earner households, federal revenue actually increased, rising from $94 billion in 1961 to $153 billion in 1968, an increase of 33 percent in real terms.
For more analysis, see Tax Foundation Fiscal Fact No. 15, "Comparing the Kennedy, Reagan and Bush Tax Cuts" by William Ahern.
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