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The Myth of the Kennedy Tax Cuts

28 Feb 2012
Anti-tax fetishists love to use President Kennedy as their poster boy for tax cuts, which is curious since so many of them have such contempt for his family and its popularity. If this "liberal" Democrat from Taxachusetts can support tax cuts, their reasoning goes, why, everyone should always support income tax cuts under all circumstances.

To begin with JFK was a cautious moderate, no more. The concept of a Kennedy liberal came along after his death.

On the contrary the myth of the Kennedy tax cuts, which is the myth that tax cuts will always have the same beneficial effect as they did in 1964 after President Kennedy's tax cuts were passed by Congress with the the lobbying of President Johnson, must be laid to rest once and for all.

"A rising tide lifts all boats," the Cape Cod yachtsman once said. That's fine for people who own boats, but too many people today are barely even treading water.

President Kennedy did indeed support and propose a significant income tax cut (passed after his death, in 1964), reducing the bracket for the wealthiest Americans by twenty percentage points: from 91% to 71%. A twenty-point reduction today would reduce the top bracket to 15%, which is less than I have paid for a long time now, and I am by no means wealthy. The legislation floundered until after his death, when President Johnson championed it in Congress and made sure it was passed. The question is, what would it take to produce a tax cut with power comparable to that passed at Kennedy's instigation?

It cannot be done. Consider the real impact of the Kennedy tax cut: at that time, a wealthy person only got to spend 9% of his earnings. That's one dollar in eleven! The other ten dollars went to the IRS. JFK's tax cut gave that person 29% of their earnings, which is a tripling and more - almost three dollars in ten. That was a major improvement in disposable income for the haves and have-mores. Who could be surprised that this was great for the economy?

Today that is not possible. If you pay the top rate of 35%, you have still 65% of your money to spend - more than twice what was possible after the Kennedy cuts. You cannot triple 65%, at least not in this context. So to talk about raising or lowering the top rate by five or even ten points would have a (literally) marginal effect on disposable income for the upper income earners.

You can be against tax increases for ideological reasons, but as a practical matter it should not hurt the economy to raise the upper brackets a bit, especially considering the insanely high upper incomes we have seen in the last two decades.

Tax cuts can be useful when taxes are a true burden, but by historical standards that claim cannot be made accurately today. America's fiscal woes today are due to overspending, not overtaxing: That is where Congress and the White House must focus their energy.

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