Jem, it appears, is a believer in supply-side tickle down economics. The idea is that by lowering taxes on the wealthy you could goose the economy to the point that everyone would make more money; thus, even though the upper tax brackets are drastically reduced and compressed, everyone would be doing so much better that federal revenues would increase. There was one tax decrease, of a demand side rather than supply side nature, during Kennedy's administration, that some economists believe did increased revenues. The Kennedy tax decrease, however, was diametrically the opposite of the Reagan tax decrease in the 1980s. Revenues increased after both cuts, but economists believe that only the Kennedy cuts can be said to have been responsible for the increased revenues. Revenue increases under Reagan were the result of historically high Federal spending into the economy, some of which returned as federal revenue, coupled with a simultaneous recovery from the recession at the end of the Carter presidency. The Reagan cuts actually resulted in the highest peacetime deficits in the country's history. And the revenue shortfall from estimates was monstrous. Reagan later said that the failure of supply-side economics to generate the revenue increases anticipated was the greatest disappointment of his presidency. Sadly the Republican establishment today is still pushing for supply-side economics long after this school of economics has been thoroughly discredited. [see, for example, John Quiggin,"Zombie Economics."]
Here is an accurate rundown of the Kennedy cuts and why they worked to increase revenues. [underlining is mine, and my notes are added in italics and brackets] Note the Kennedy initiatives are nearly the mirror image of what the Republican establishment is espousing today.
The following is excerpted from
http://www.npr.org/2013/11/12/244772593/jfks-lasting-economic-legacy-lower-tax-rates --which please see as it is one of the clearest most comprehensive articles you will find written for the non-economist.
" ...
By 1966 — the year that might have been the fifth of his presidency had he lived — Kennedy would have been presiding over an economy growing at a rate of
6.6 percent and an unemployment rate falling to just
3.8 percent.
That boom came after Kennedy got Congress to try to stimulate the economy by passing a "liberal" agenda that included:
- Increasing the minimum wage.
- Expanding unemployment benefits.
- Boosting Social Security benefits to encourage workers to retire earlier.
- Spending more for highway construction.
[note how the underlined items above are exact opposites of Republican initiatives today!]
But Kennedy also did something that conservatives have been praising ever since: He pushed for much lower tax rates.
In 1962,
speaking at the Economic Club of New York, Kennedy said he was committed to "an across-the-board, top-to-bottom cut in personal and corporate income taxes." The tax system, mostly designed during World War II, "exerts too heavy a drag on growth in peace time; that it siphons out of the private economy too large a share of personal and business purchasing power; that it reduces the financial incentives for personal effort, investment, and risk-taking," he said.
Many lawmakers worried that reducing taxes without cutting spending would create unacceptable budget deficits. But Kennedy, who famously noted that "a rising tide lifts all boats," insisted tax cuts would generate broad-based growth.
Congress finally approved the tax cuts in early 1964, three months after Kennedy's assassination. The following fiscal year, the
federal budget deficit did indeed shrink. Stock investors loved it. Between 1962 and 1966, the Dow Jones industrial average
nearly doubled.
To this day,
conservatives point to that robust period as evidence that cutting taxes will lead to higher revenues.
But liberals say conservatives' interpretation is misleading because conditions were so different in the early 1960s, when the
top marginal tax rate was 91 percent. The Kennedy-backed tax cuts took down that rate to 70 percent. Today, the highest rate is 39.6 percent. Cutting the top tax bracket now would not have the same impact because it already has been lowered several times, the argument goes.
"You can only go to the well so many times before you lose effectiveness," says David Shreve, an economic historian who has
written about the Kennedy-era tax cuts.
Shreve says there's another factor conservatives overlook: Kennedy's biggest tax cuts were aimed at average wage earners in hopes they would spend more. Boosting the demand side of the economy "gave us the widest prosperity and longest unbroken run of growth in history" up to then.
[The above underlined statement is the key to why the Kennedy cuts were so effective in creating a robust economy, i.e., the money was put where it would be spent, in the pockets of average wage earners! Contrast this to the diametrically opposite 1980s cuts which put the money at the top end where it wouldn't be spent, but instead invested to produce unearned income that would be taxed at a still lower rate. The Reagan cuts of the 1980s moved the 70% bracket precipitously down to 27% and actually raised the lowest bracket by a percent or two, so that nearly a flat tax was produced. (This idea of a flat tax remains a popular idea with Republicans today. And for good reason. It helped produced a wealth redistribution of money from the lower classes to the upper classes, the likes of which hadn't been seen since the 19th Century! It is important to note that the initial Reagan cuts were so drastic at the upper end they quickly had to be partially undone. Still today, however, as a hold over from the Reagan era, we are suffering from too few brackets. This has resulted in much of the progressive character of our U.S. income tax being been wrung out. The small yearly effects of bracket compression in combination with lower rates on unearned income compounded over 35 years has produced today's, drastically skewed, U.S. wealth distribution.]
In contrast, conservatives focus on "supply-side" cuts, which target the marginal tax rates for wealthier individuals. The goal is to encourage them to invest more and expand output.
