IT was the fiftieth anniversary of John F Kennedy’s assassination this weekend. Yet amid all the retrospectives, not enough has been said about his tax policies, which were better than those of almost any Western government in power today. He believed in cutting taxes to liberate companies and individuals and to incentivise them to work harder and invest more, creating growth and jobs; it is a message that George Osborne ought to reacquaint himself with and one that Barack Obama, a Democrat like JFK, would do well to look into.
The best summary of JFK’s economic views can be found in his address to the Economic Club of New York, delivered on 14 December 1962. The speech paved the way for the Tax Reduction Act of 1964, signed into law after JFK’s death by Lyndon Johnson, which saw the top rate of income tax slashed from 91 per cent to 70 per cent, among other improvements, and kicked off a long process of supply-side reforms which peaked in the 1980s. When it came to tax, JFK’s views were almost identical to Ronald Reagan’s. So here is JFK, pure and unadulterated, for your reading pleasure:
“I'm not talking about a ‘quickie’ or a temporary tax cut, which would be more appropriate if a recession were imminent. Nor am I talking about giving the economy a mere shot in the arm, to ease some temporary complaint. I am talking about the accumulated evidence of the last five years that our present tax system, developed as it was, in good part, during World War II to restrain growth, 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.
In short, to increase demand and lift the economy, the federal government’s most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures…
Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other... an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget — just as it will never produce enough jobs or enough profits…
…it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now…The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus…
I repeat: our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy, or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve, I believe — and I believe this can be done — a budget surplus. The first type of deficit is a sign of waste and weakness; the second reflects an investment in the future.”
I have nothing to add to this. The world would be hugely more prosperous a place if a greater number of our contemporary politicians thought in this way. John F Kennedy is associated with many things – the Cuban missile crisis, the space race – but his economic legacy is just as fundamental to understanding the modern world.
So Iran is out of the cold – but I’m afraid that I’m not really convinced by the deal struck at the weekend. At best, this is merely the first step on a very lengthy and dangerously slippery road; at worst, cunning Tehrani negotiators have just pulled a fast one on a deluded world. The actual impact of the policies agreed will be only very slightly positive. A real transformation still requires a regime change led by a bottom-up, grassroots uprising by the long-suffering Iranian people. Until that day, or until we see far more progress in international talks, extreme caution remains in order.