Haunted by tax cuts past

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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.

In 1997, Robert Shrum, a Democratic Party political hack, attacked the National Association of Manufacturers for producing a TV spot that simply showed Kennedy speaking his own words on why a tax cut was needed in 1963. Two years ago, President Kennedy's daughter, Caroline, and his brother, Sen. Edward M. Kennedy, Massachusetts Democrat, tried to stop Republican groups like the Club for Growth from using JFK's name and image in support of President Bush's tax cut.

Republicans responded, quite rightly, that neither President Kennedy's family nor the Democratic Party owns the rights to his words and actions. Others are perfectly free to use them -- or those of any other president -- in support or opposition to any current policy question, provided they are used accurately. In this case, there is simply no denying President Kennedy's words -- especially in his speech to the Economic Club of New York on Dec. 14, 1962 -- would more likely be spoken by a Republican than a Democrat today.

This is not coincidental. When then-Rep. Jack Kemp, New York Republican, first began pushing for a big tax cut in the late 1970s, he got his inspiration from John F. Kennedy. I know because I was on Mr. Kemp's staff and had the job of drafting the Kemp-Roth Bill, which later formed the basis of Ronald Reagan's 1981 tax cut. Among those advising Mr. Kemp in this regard was Norman Ture, one of the fathers of supply-side economics and a key player in developing the Kennedy tax cut.

Mr. Ture's role in the Kennedy tax cut is detailed a recent book, "Taxing America: Wilbur D. Mills, Congress, and the State, 1945-1975" by historian Julian Zelizer. He notes Mr. Ture was a close adviser to House Ways and Means Committee Chairman Wilbur Mills, Arkansas Democrat. While serving on the staff of the Joint Economic Committee, of which Mills was also a member, Mr. Ture taught Mills the importance of marginal tax rates, incentives for saving and investment, and other aspects of supply-side doctrine.

Mills, in turn, was critical to developing Kennedy's thinking about taxes. This fact is clearly evident in recently released tapes of meetings in the Oval Office in 1962. The transcripts are now available on the Internet (whitehousetapes.org) and include several meetings between Mills and Kennedy. For example, at an Aug. 6, 1962, meeting, Mills talked Kennedy out of proposing only a temporary tax cut. Said Mills, "To give the economy this temporary injection, it may have some effect, but the minute that injection wears off, it's just like medicine."

Ture also played a role as a member of President Kennedy's Taxation Task Force. This was a group of outside economists and tax experts recruited by Kennedy aide Theodore Sorenson after the 1960 election. It was this group that first suggested that Kennedy support creation of an Investment Tax Credit, which he did in 1962, and an across the board reduction in tax rates, which he did in 1963. The proposal Kennedy put forward on Jan. 24, 1963 would have cut the top individual income tax rate from 91 percent to 65 percent, and reduced the maximum capital gains tax from 25 percent to 19.5 percent.

Of course, liberals don't deny Kennedy wanted to cut taxes. But they say 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 most of Kennedy's economic advisers were Keynesians, it is worth remembering 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), Mr. 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.

Mr. Greenberg and Mr. Shreve really have no good explanation for why Kennedy didn't implement Keynesian theories by raising spending, instituting a temporary tax cut or some kind of tax credit scheme, rather than reducing marginal tax rates. Most Keynesians would say 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.

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

Bruce Bartlett is senior fellow with the National Center for Policy Analysis and a nationally syndicated columnist.