Having finished an interview with President Eisenhower on the military complex in the U.S., I was ready for my next interview. Here at the end of that interview,I am introduced to President Kennedy. I then question him on tax policy.
President Eisenhower; Well, as you know and stated, I was a military man and relied on my economic advisers to tell me what was best in that area. Let me introduce you to President John F. Kennedy that, I believe, had a better understanding of things like that, than I did.
President Kennedy! Do you have a moment you could spare for a question for my friend here, Mr. Jan Burr, from the future.
President Kennedy: "Ask not what your country can do for you - ask what you can do for your country"
President Kennedy: I would be glad to try and help. Good morning, Mr. Burr.
Author: President Kennedy. This is a very special meeting for me and I want to thank you from the bottom of my heart for this time with you.
I have been trying to get a perspective from past Presidents that will help me understand why our nation is in a crisis in 2010. One thing I believe that has hurt is our 17,000 page tax code and another 40,000 pages of IRS letters and Court rulings, etc. that are used to decide tax compliance issues.
There also seems to be a lot of debate about tax cuts, vs. tax increases and you still had a debt issue, because of WW II. Between President Hoover and President Roosevelt, the tax rate for income was 90%, apparently due to their attempt to pay for the depression tax revenue declines, and then later for the war effort. Thus, what you did regarding tax policy was very important due to this debt issue.
You changed things dramatically, regarding taxes. What drove you to be 180 degrees out of phase with some of our other Presidents?
Pres. Kennedy:
Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that, no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenue to balance the budget - just as it will never produce enough jobs or enough profits.
'In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low - and the soundest way to raise revenues in the long run is to cut rates now.
Author: What led you to this conclusion?
Pres. Kennedy:
The most direct and significant kind of Federal action aiding economic growth is to make possible an increase in private consumption and investment demand - to cut the fetters which hold back private spending. In the past, this could be done in part by the increased use of credit and monetary tools, but our balance of payments situation today places limits on our use of those tools for expansion. It could also be done by increasing Federal expenditures more rapidly than necessary, but such a course would soon demoralize both the Government and our economy. If Government is to retain the confidence of the people, it must not spend more than can be justified on grounds of national need or spent with maximum efficiency.
Author: Ok, I see your point but, how long should these tax cuts last?
Pres. Kennedy:
I am 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 5 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.
Author: What exactly will you ask Congress to consider as they work on a new tax policy?
Pres. Kennedy:
First, it should reduce the net taxes by a sufficiently early date and a sufficiently large amount to do the job required. Early action could give us extra leverage, added results, and important insurance against recession. Too large a tax cut, of course, could result in inflation and insufficient future revenues - but the greater danger is a tax cut too little or too late to be effective.
Second, the new tax bill must increase private consumption as well as investment. Consumers are still spending between 92 and 94 percent of their after-tax income. But that after-tax income could and should be greater, providing stronger markets for the products of American industry. When consumers purchase more goods, plants use more of their capacity, men are hired instead of laid off, investment increases and profits are high.
Corporate tax rates must also be cut to increase incentives and the availability of investment capital. The Government has already taken major steps this year to reduce business tax liability and to stimulate the modernization, replacement, and expansion of our productive plant and equipment. We have done this through the 1962 investment tax credit and through the liberalization of depreciation allowances - two essential parts of our first step in tax revision which amounted to a 10 percent reduction in corporate income taxes worth $2.5 billion. Now we need to increase consumer demand to make these measures fully effective - demand which will make more use of existing capacity and thus increase both profits and the incentive to invest. In fact, profits after taxes would be at least 15 percent higher today if we were operating at full employment.
For all these reasons, next year's tax bill should reduce personal as well as corporate income taxes, for those in the lower brackets, who are certain to spend their additional take-home pay, and for those in the middle and upper brackets, who can thereby be encouraged to undertake additional efforts and enabled to invest more capital.
JFK: The Case For Tax Cuts
Author: I am afraid that there is an entirely different view of what good tax policy is, now in 2010. It is like there is some force moving the nation in ways that are unseen. Do you have any thoughts on that?
President Kennedy: Oh I most definitely do but, they go back before I was President. I believe, that even as far back as the founding of our nation, there were forces at work that intended to undermine the system of government we had created. But, let me introduce you to President Woodrow Wilson who actually addressed this issue in a book he wrote, "The New Freedom."
President Wilson. This is a friend of mine, Mr. Jan Burr (boy, Presidents sure seem formal) from the future, 2010, to be exact and I wanted you to tell him about your concerns of hidden forces that exert pressure on our nation and its businesses and government.
Author's note:
The words of the Presidents in quotes are their actual words from the site listed below their comments. I have placed some of their comments in bold as I believe they focus on some key points they are making. I have written this as I did, to show how little has really changed. Human nature is such that the people of nations, seem to keep making the same mistakes they have made before or that other nations have made before. Some of our greatest leaders saw this reoccurance of mistakes and attempted to remedy them only to see future generations "overrule" their wisdom and make the mistakes anyway.
What I learned from the Interview
What the President said about lower taxes creating the growth we need and higher taxes stifling things and the balance needed so that we can fund our government programs is true. In short, what I learned is that since he gave that speech, the United States has made things much worse, regarding tax policy, not just tax rates. We are now in a situation where the private sector is just too small. When JFK was President, government spending was only about 20% of National Income. Thus, 80% was available for the private sector to used for growth and needs.
In 2009, government will consume a whopping 61.34 percent of national income.
Last year’s COGD date, July 16, was the fifth-latest in 32 years. This year, the day on which the average American worker has earned enough in cumulative gross income to pay off his or her share of government spending, including the often-forgotten cost of regulation, falls 26 days later than last year and 23 days later than the previous record-late date, July 20, 1982.
61 Percent of National Income Goes to Government By: Sandra Fabr: Budget & Tax News
In the 1990's it was 43% so in less than 2 decades it has skyrocketed to where we are probably, now, with stimulus, close to 65% of national income being spent by governments (federal, state, local). That only leaves about 35% for the private sector to use for growth and needs. National income is currently about $12.661 trillion.However, it is even worse than just the amount the government spends because we as individuals and companies are spending some of the 35% we have left for things we shouldn't have to spend money on like the cost of tax compliance that is included in the prices we pay for goods and services.
- Corporations with assets of $1 million or less (more than 90 percent of all corporations) paid a minimum of $382 in compliance costs for every $100 they paid in income taxes
- Projections show that by 2015 compliance costs will grow to $482.7 billion.
The Fair Tax Blog: The Cost of Compliance
That means that the consumer, who pays all the money that goes into a corporation, is paying not only the tax but, almost 400% more to comply with the 17,000 page tax code. The article puts it into even better perspective.
A compliance burden of 6 billion hours per year represents a work force of over 2,884,000 people: Larger than the populations of Dallas (1,210,393), Detroit (900,198), and Washington, D.C. (553,523) combined; and more people than work in the auto, computer manufacturing, airline manufacturing, and steel industries combined..
While I agree with President Kennedy 100% on what he states about the impact of taxes on the economy and growth, we have to also consider the impact of what it costs to comply with the tax code. This is another policy (the tax code) that is part of the reason we are on such an unsustainable course fiscally. This is the one area of reform, that is needed, that I believe could have the greatest growth factor and the least risk of creating a depression. (of course you would have a lot of accountants out of work and tax lawyers)
While cutting spending in most areas would lead to a depression, cutting the cost of tax compliance would mean we could even keep tax collection (using a much simpler code) as high. Even though the tax revenues collected would be as high, the savings on tax compliance would leave better bottom lines. The prices of goods, even with tax revenues as high, could be reduced with the savings from the 400% tax compliance cost.
The lower prices would mean consumers could spend or save more. They could pay down credit card debt or other debt and still spend as much as they do now. I admit, I am not a "tax expert" nor am I an "economist." But, I have owned and run a business and I do pay taxes and just on my personal tax compliance, there are years I pay more to have the taxes done than I pay in. Some years, I even get money back. Common sense, alone, tells me that something is terribly wrong with our tax policies.
Having said all that, I also realize that Congressional testimony has revealed, we can't tax or grow out of this as we find in this article by Dan Balz, Washington Post Staff Writer.
....Erskine Bowles, White House chief of staff under President Bill Clinton.....
"We can't grow our way out of this," Bowles said. "We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can't tax our way out. . . .
Obama's debt commission warns of fiscal 'cancer'
This is not something that can be "fixed." It has to play out and it won't be good for millions of Americans. It had to be prevented and that would have had to happen decades ago before we started trying to end recessions artifically. Instead we should have fixed the policies that were causeing them or that made things worse by artificially ending the recessions. While some are not "fixable," like a global slowdow that would impact our exports, a lot of the damage could have been avoided.
A nation that saves, has money in both the private and public sector, to spend during slow downs is much better prepared for downturns. Unsound use of debt based spending is one the biggest factors in preventing a nation from minimizing the damage of a slowdown. That debt based spending by government just makes things worse if it can't be paid down quickly once the recession is over.
While we can learn from the past, we are not in a situation where we can avoid the damage decades of bad policies based on flawed economic, monetary, and tax theories, has caused, and will cause. But, the government can keep using the policies that caused the crisis and possibly delay the worst we face for a few months to a few years. Use this time to prepare for the worst and hope for the best.
Jan Paul Burr
Previous interviews with past Presidents
Part II An Interview with President Eisenhower on the military complex and his concerns
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