Kennedy: The Classic Biography (79 page)

Throughout the fall, however, as these agreements were reached, the President, preoccupied with the Cuban missile crisis, was still almost indifferent to the tax bill. With the help of his newly enacted tax incentive for investment, continued liberal credit and increased public spending, the dark clouds of recession which had first caused all the tax talk had vanished. The stock market was climbing again. The growth of the economy was still too slow to create enough jobs, but that seemed a difficult premise on which to sell to the Congress a far-reaching bill of this kind.

The President did not become fully enthusiastic until December, and it was the convincing effect of one of his own speeches that helped convince him. The speech, designed to unveil the basic tax and Budget outlines, was delivered to a conservative gathering of mostly Republican businessmen, the Economic Club of New York. The President realized that the economy had resumed its growth and that any attempt to use an antirecession justification for his bill would seem strained. He planned to talk instead of “the burden on private income and the deterrents to private initiative imposed by our present tax system…that…reduce the financial incentives for personal investment, effort and risk-taking.” It sounded like Hoover, but it was actually Heller.

Earlier in the week, the words of Wilbur Mills in a magazine interview had been interpreted as opposition to any tax cut unless it was accompanied, as it could not be, by a Budget cut. But Mills, with whom the President had been in close contact, had actually used the words “increased control of the rises in expenditures.” And in his Economic Club speech the President revealed the planned reduction in nondefense spending as well as other increased Budget controls.

Ken Galbraith, stopping by the White House from India as the speech was being finished, called it “the most Republican speech since McKinley.” He preferred releasing into the economy an additional $10 billion in Federal expenditures, on top of normal Budget increases, instead of a $10 billion tax cut. But the President felt that that alternative was unobtainable in the Eighty-eighth Congress (and told Galbraith he had usually found it helpful to have his lanky friend on the other side anyway). The key member of the Senate Finance Committee on whom the President was depending, Senator Robert Kerr of Oklahoma, also made suggestions for the speech, shortly before he entered the hospital from which he did not emerge. Mills read it without commitment. Dillon, Heller and others all added their views.

But the man most concerned about the speech was the President. He worried less about the policy than the Economic Club audience, wondering how they would swallow a large tax cut at a time of increasing deficits, increasing expenditures and increasing prosperity. “If I can convince them,” he said as we reviewed the final draft in his New York hotel room, “I can convince anybody.”

He did convince them. The speech—sounding, said
Time
magazine, like that of an officer of the National Association of Manufacturers—was well received (partly because it gave no details on either reforms or the size of the deficit). The President’s own enthusiasm grew. He began to look to the tax cut as his most potent weapon against the persistent unemployment still plaguing him. He began to concentrate on it in his conferences, his speeches, his Budget, his legislative program and his State of the Union Message; and tax cuts, rather than tax reform, dominated his talks about the bill.

But the public was initially indifferent, and despite broad business and labor support the Congress was still far from enthusiastic. If Congress had been unwilling to pass a tax cut the previous summer when recession threatened and the Budget (as proposed) was in balance, why did Kennedy think he could suggest a cut in 1963, when no recession threatened and the Budget was both larger and out of balance? Almost every Democrat had some better scheme for reducing rates. Almost every Republican denounced the Budget. Almost every lobby group denounced one or more reforms. The difficulties encountered by the “little” reform bill of 1962, which limited expense account abuses and cracked down on overseas tax havens, were minuscule compared to the opposition to the new reforms. Every legislator’s favorite reform closed some other legislator’s favorite loophole. And even the tax cut created quarrels among its supporters as to whether business or low-income groups were getting too large a share. Congressmen perfectly willing to leave farm, military and other policies to the more specialized committee members had no hesitancy in feeling expert on tax changes.

The Republicans called the tax cut the “biggest gamble in history” and predicted that unemployment would not decline. But having long talked about removing the heavy hand of government, they were unable to quarrel with the President’s reasons for a tax cut and quarreled instead with the Budget. We had strained painfully but successfully to reduce that Budget to meet the three Presidential limitations earlier mentioned. But Everett Dirksen called it “incredible,” Clarence Cannon called it “monstrous” and Charles Halleck said it made “a mockery of the administration’s brave talk.” The President calmly emphasized that the choice was not between a Budget deficit and a Budget surplus but between two kinds of deficits—one from “waste and weakness” as the result of slack growth and lagging taxable income and one “incurred as we build our future strength” on the way to a full-employment economy. With full employment, he said, we would have no deficit, but delaying a tax cut until expenditures could be equally cut meant waiting until our population stopped growing and the Communists stopped threatening.

Then former President Eisenhower entered the fray with a letter to Halleck. He called the combination of “a massive deficit…lavish new spending and a huge tax cut…fiscal recklessness,” leading in time not to “a free country with bright opportunities but a vast wasteland of debt and financial chaos.” He endorsed a cut of some $13 to $15 billion from Kennedy’s Budget. “May I stress,” said the former Republican President in closing to the Republican House Leader, “there is not a trace of partisanship in the views here expressed.”

The President made no direct reply. But a few weeks later, in answering a question from the nation’s editors, he reviewed both the Budget economies he had made and the necessity of major Budget increases, and then added, without a trace of partisanship:

I am strongly against the wholesale Budget cuts of the kind that have been talked about, $5-$10-$15 billion. I can think of nothing more ruinous to the security of this country and our economy. And I think that those who advocate it were in many cases the architects of the fiscal and monetary policies which brought us into a recession in ’58, a $12.5 billion deficit in ’58, the largest outflow…of gold and dollars…and a recession in 1960. We hope to do better.

From the other side liberal Democrats complained that the reforms were inadequate, that wealthy individuals and corporations would benefit too much, that the timing was too slow or the amounts too low. Labor spokesmen preferred job-creating public works, fearful that business would use its tax cuts merely to increase automation. New Dealers, preferring public spending, called the President’s basic premise contrary to thirty years of Democratic philosophy.

Dillon and Hodges had analyses showing the benefits of the bill to business—cuts in the top brackets and in corporation taxes, combined with the tax gains given business the previous year—and Heller and Secretary of Labor Wirtz had tables to show labor and liberals that the lower-income groups had the largest proportionate cut. Both were right. But the President emphasized that the usual class warfare jargon was inappropriate, that his effort was not how to divide the economic pie but how to enlarge it for everyone. Helping business profits led to more jobs. Helping consumer income led to more sales.

The key to House approval was Ways and Means Chairman Mills. A long-time advocate of tax reform, he was doubtful about tax cuts when no recession threatened. Slowly the President brought him around. Initially Mills agreed to a major tax reform bill, with a little tax reduction to help pass it. When presented, it was a tax reform and tax reduction bill. In testimony, it became a tax reduction and tax reform bill. And when it was finally reported out by Mills, the President had his major tax cut bill with a little tax reform. More reforms, the President agreed, were overdue, but they could not even pass Mills’s committee.

Wilbur Mills, as he had proved the previous year on the trade, “little” tax and other bills, was an invaluable ally, respected by his colleagues, well-informed on his work and a cautious head-counter. No committee chairman had a firmer grip on his committee. Having been embarrassed by a defeat on the first bill he ever reported out as Ways and Means chairman back in 1958, the Arkansas Congressman never thereafter took a bill to the House floor without knowing he had the votes. He worked slowly, carefully, deliberately. The lengthy hearings and delays were at times exasperating to the President. “Do you realize,” he said to me one day, “that the British prepared, proposed, passed and put into effect a proportionately larger tax cut than ours, and are getting the benefits from it, while we are still holding hearings?”

Finally, as the House prepared to vote, the President went on television once again. This time the speech was worked and reworked, simplified and clarified. One draft was prepared by economics columnist Sylvia Porter, whose prose the President admired. Illustrations of how the bill would reduce the taxes of a typical family, and how their tax savings would be used to create more jobs, were inserted. So were the President’s favorite statistics: ten thousand new jobs had to be created every day; recessions have occurred on the average every forty-four months since World War I; seven million more young people will come into the labor market in the sixties than in the fifties. Some of his own familiar phrases were included: “We need a tax cut to keep this present drive from running out of gas”; “this nation is the keystone of the arch.”

This time the speech was a success, and so was the bill.

The Kennedy tax bill, as finally enacted with the help of his successor, and the unparalleled period of expansion both its anticipation and enactment helped bring to the American economy,’ stand as monuments to the economic wisdom and political tenacity of John Kennedy. They embody a repudiation of the most persistent fiscal myths and fears which have so long dominated this nation. Prevented by the balance of payments and a conservative Congress from relying too heavily on the familiar Democratic remedies of still lower interest rates and still higher budgets, he had nevertheless broken the trend of postwar recessions by blazing new trails and rejecting old dogma. While it cannot be claimed that either the country or the Congress fully accepted his philosophy along with his bill, his actions shed more light on the once “dismal science” of economics than a generation of speeches and lectures.

In the process, John Kennedy’s own thinking had come a long way in a short time. In a message to Galbraith requesting information on a particular problem on the balance of payments, he asked for “as much technical detail as seems appropriate and without the limitations that you might feel in discussing the matter with one who is not a professional economist.” To this he added in a scrawl: “—but who knows a hell of a lot about it after taking Ec-A under Russ Nixon at Harvard.”

Whatever he had learned in Ec-A, he had received a good education in economics in the White House. For a man pressed with other problems, he had been a good student; and for the country as a whole, he had been a good teacher.

1
Made permanent the following year, this is the bill by which Kennedy was best known in the darkest corners of despair in this country.

2
By substituting molded plastic for stainless steel, for example, the cost of a small turbine wheel was reduced from $175 to $2.

3
A year later, when the market was once again high and the belief that Kennedy’s steel fight had caused the May drop was well accepted, an expert study sponsored by the SEC, whose careful investigation of shoddy stock practices had also been blamed by some, presented facts and figures which exploded all myths. It was not a plot of the professionals against Kennedy. Although many of them were buying bargains while the public was unloading, there was no evidence of manipulation. But neither had Kennedy caused the drop. Long before the steel fight the market was going down, the mutual funds were selling, the big-name stocks were declining to a more reasonable ratio of earnings, and investors were finding more attractive security in bonds and banks. Some of the market letters had been warning that prices were overvalued, but high-pressure merchandising techniques had continued to push up sales. The end of inflation had brought the inevitable shake-out, long overdue after a get-rich-quick public had speculated feverishly on glamour stocks “with scientific sounding names ending in -namics, -omics, or -mation.”

4
Though not for Galbraith, who continued to advise the President from abroad on the virtues of more public spending.

CHAPTER XVII
THE FIGHT AGAINST INFLATION—THE STEEL PRICE DISPUTE

R
EMEMBER,”
shouted Richard Nixon to a Cleveland, Ohio, crowd in 1960, “if you want to inflate your money, if you want to raise your prices, you have our opponents to vote for.” In 1961 many an expert, who assumed that inflation was certain to accompany recovery, thought the Vice President’s reasoning wrong but his prediction right. John Kennedy proved his prediction to be wrong as well.

The experts did not lack faith in Kennedy. They simply knew that price rises had usually occurred during rapid economic expansion—that Kennedy’s increases in defense, space and antirecession spending would produce the kind of large Budget deficits assumed to produce inflation—that traditional Democratic sympathies for the worker and farmer usually led to higher wages and food prices—that traditional Democratic opposition to high interest rates and hard money also invited inflation—and that the President had no power to prevent powerful industries and unions from adopting inflationary price and wage increases. They calculated that prices had risen nearly 10 percent in the second term of a Republican administration dedicated to halting inflation, so how could Democrat Kennedy, dedicated to greater growth, ever hope to do better?