Wednesday, January 20, 2016

John F. Kennedy: The Last Conservative Democrat

John Fitzgerald Kennedy might possibly be the most written about President in modern history, and I do not wish to rehash it all. What I'd like to focus on is an aspect of his presidency that gets little attention: the fact he was the last in a long line of conservative democrats. Much evidence supports this claim.

Kennedy was inaugurated on January 20, 1961.  This was a time when the top marginal tax rate was at 91 percent, and the capital gains tax was at 25 percent. Hoover was the first to suggest raising taxes in order to pay for programs he thought were necessary to spur the economy. FDR put taxes on steroids.

After the Great Depression, and after WWII, there was no place for the economy to go but North, so Harry S. Truman essentially rode the wave caused by the post war boom.  He was more concerned with worldly matters, such as receiving the unconditional surrender of Germany, and figuring out how he was going to get Japan to surrender (he ultimately decided to drop Fat Man and Little Boy), and then reconstruction of Europe.

This boom produced eight years of economic growth and prosperity during the Eisenhower years. Nearly every indicator of economic health -- GNP, capital investments, personal savings, and income, showed substantial upswings. So neither Truman nor Eisenhower needed to stimulate the economy by reducing the tax burden.

This changed as John F. Kennedy came into office.  By 1960 the high tax rates started to catch up with the economy, and a recession ensued.  Kennedy understood that lowering taxes would encourage people to save and invest. He also understood the single best means of stimulating an economy was to lower capital gains taxes.  So he proposed lowering the top marginal tax rate to 65 percent, and the capital gains taxes to 19.5 percent.

Sounding much like a modern day conservative, Kennedy explained his economic plan on December 14, 1962, in a speech to the Economic Club of New York:
This administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes to be enacted and become effective in 1963. 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. 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 of private expenditures...
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...
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 revenues to balance our budget, just as it will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders, but by slow economic growth and periodic recessions, and any new recession would break all deficit records. 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 the revenues in the long run is to cut the rates now.
Liberal democrats, such as Al Gore Sr. and John Kenneth Galbraith, championed against Kennedy's economic plan.  They proposed raising taxes and increasing government spending. They said Kennedy's plan would only result in less government revenue, and not grow the economy.   Kennedy essentially called Gore a "son of a bitch" and told Galbraith to "shut up!"

Even republicans opposed the Kennedy tax cuts, claiming they were reckless.  During the Kennedy-Nixon debates, it was Kennedy who championed for tax cuts and not the republican.  In fact, when Nixon was later elected as president, he would end up being more liberal than Kennedy.  This is yet another example that it's not the party, but the candidate we should be concerned about.

After his death, Congress agreed to cut the top marginal tax rate to 70 percent, but failed to cut capital gains taxes.  Still, despite liberal democrats and moderate republicans claiming it wouldn't work, government revenue doubled (or nearly doubled when adjusted for inflation). In 1961, tax revenue was $94 billion. This climbed to $153 billion in 1968, an increase of 62 percent (33 percent after adjusted for inflation).

The tax cuts were so successful that Lyndon Baines Johnson presided over a country in economic prosperity.  GNP rose 10 percent in the first year after the tax, and economic growth averages a rate of 4.5 percent from 1961 to 1968.  Disposable personal income rose 15 percent in 1966 alone. These are pretty substantial numbers showing the benefits of responsible economic programs.

Along with tax cuts, he was also an ardent supporter of having a limited government, meaning he was not a big spender. In fact, his annual budgets were always less than the 1959 Eisenhower budget.

However, when it came to the military he was a big spender (much like Reagan did 20 years later). He increased the budget by 20 percent, and increased the supply of nuclear weapons. He believed it was important to spend money on the military so we did not have to use it.  In other words, he believed that if people feared and respected our military, they will not mess with us. Some call this "Peace through strength."

He was also a strong opponent of socialism and Communism abroad. He was so opposed to Communism that he increased American involvement in Vietnam.  When Cuban rebels tried to overtake the Communist Fidel Castro, Kennedy sent troops to Cuba in what became known as the Bay of Pigs. After that failed, Russia attempted to send a ship full of nuclear weapons to Cuba.  Despite calls within his own party to stay out of it, Kennedy ordered the U.S. Navy to take action.

He believed in order to win the Cold War the U.S. had to beat the Russians where it counted. The best examples of this were his military spending and his promise to send astronauts to the moon. He said it was very important to beat them to the moon, "otherwise we shouldn’t be spending this kind of money, because I’m not that interested in space.”

A famous line from his innauguration speach was, "Ask not what your country can do for you, ask what you can do for your country."  This was in reference to the welfare program, of which he was an ardent supporter of reforming. He believed in  "training for useful work instead of prolonged dependency."

In another effort to spur economic growth, he championed Congress for the authority to negotiate tariff reductions in order to lower prices and stimulate economic growth. In a special message to Congress on January 25, 1962, he said:
"The American consumer benefits most of all from an increase in foreign trade. Imports give him a wider choice of products at competitive prices. They introduce new ideas and new tastes, which often lead to new demands for American production... Increased imports stimulate our own efforts to increase efficiency, and supplement anti-trust and other efforts to assure competition. Many industries of importance to the American consumer and economy are dependent upon imports for raw materials and other supplies. Thus American-made goods can also be made much less expensively for the American consumers if we lower the tariff on the materials that are necessary to their production... American imports, in short, have generally strengthened rather than weakened our economy... the warnings against increased imports based upon the lower level of wages paid in other countries are not telling the whole story. (One reason for this is that) American products can frequently compete successfully even where foreign prices are somewhat lower--by virtue of their superior quality, style, packaging, servicing or assurance of delivery... This philosophy of the free market--the wider economic choice for men and nations-is as old as freedom itself. It is not a partisan philosophy."
Perhaps most important, his values and principles were biproducts of the fact he was very religious, attending Catholic Mass every week. He was an ardent supporter of life, and when asked about the topic of abortion, he said, "Now, on the question of limiting population: As you know the Japanese have been doing it very vigorously, through abortion, which I think would be repugnant to all Americans.”

We would not be talking about Kennedy the way we do today if he had listened to his advisors. Polls show that 85 percent of Americans still hold a favorable view of him, and he continues to rank as one of the best presidents of all time. This is probably the result of his conservatism. He was, in fact, the last conservative democrat.

Further reading: