NCPA - National Center for Policy Analysis

Kennedy's Tax Cuts

January 28, 2004

In the area of taxation, there is probably nothing that drives Democrats crazier than when they hear Republicans praise John F. Kennedy's tax cut and compare their tax cuts to his. Unfortunately, Democrats keep running up against Kennedy's own statements and actions, which show a clear parallel to Republican tax policies since 1980.

Of course, liberals don't deny that Kennedy wanted to cut taxes. But they say that Kennedy was only interested in expanding the budget deficit to give a boost to consumption -- pure Keynesian economics. This is the gist of recent articles by historians David Shreve and David Greenberg.

While there is no denying that most of Kennedy's economic advisers were Keynesians, it is worth remembering that he exiled his most Keynesian adviser, Harvard professor John Kenneth Galbraith, to India, where he served as ambassador:

  • In his book, Ambassador's Journal (1969), Galbraith tells how he tried to talk Kennedy out of the tax cut.
  • He wanted to raise the deficit and give the economy a Keynesian kick by boosting government spending, not lowering revenues.

Greenberg and Shreve really have no good explanation for why Kennedy didn't implement Keynesian theories by raising spending, implementing a temporary tax cut or some kind of tax credit scheme, rather than reducing marginal tax rates. Most Keynesians would say that reducing marginal rates--especially for the rich and for capital gains--is just about the worst possible way of stimulating aggregate demand. Indeed, they made this same argument against the Bush tax cuts.

Kennedy was a better economist than his advisers -- he cut tax rates for supply-side reasons, but used Keynesian arguments to sell them, explains Bartlett.

Source: Bruce Bartlett, "Kennedy's Tax Cuts," National Center for Policy Analysis, January 28, 2004.


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