Part 2: The Kennedy Tax Cuts, GATT, and International Capital

Part One of this series discussed how power and privilege are integral to JFK’s presidential cabinet. Part 2 will address the Kennedy Tax Cuts which are loved by the right-wing, international capital and the precursor to the WTO: GATT.

After all, as linguist and professor Noam Chomsky says, the Kennedy and Reagan administrations aren’t that different:

…compare two Presidential administrations in the 1960s and the 1980s, the Kennedy administration and the Reagan administration. Now, in a sense they had a lot in common, contrary to what everyone says. Both came into office on a fraudulent denunciations of their predecessors as being wimpish and weak and letting the Russians get ahead of us–There was a fraudulent “missile gap” in the Kennedy case, a fraudulent “window of vulnerability” in the Reagan case. Both were characterized by a major escalation of the arms race, which means more international violence and increased taxpayer subsidies to advanced industry at home through military spending. Both were jingoist, both tried to whip up fear in the general population through a lot of militarist hysteria and jingoism. Both launched highly aggressive foreign policies around the world–Kennedy substantially increased the level of violence in Latin America; the plague of repression that culminated in the 1980s under Reagan was in fact largely the result of his initiatives. Of course, the Kennedy administration was different in that, at least rhetorically, and to some extent in practice, it was concerned for social reform programs at home, whereas the Reagan administration was committed to the oppose, to eliminating what there was of a social welfare system here…In the early 1960s, the United States was the world dominant power, and has plenty of opportunity for combining international violence and commitment to military spending with social reform at home. By the 1980s, that same opportunity wasn’t around anyone…There was a general consensus [at the time] among elites…that you had to break down the welfare state in order to maintain the profitability and competitiveness of American capital. But that difference apart, the two administrations were very similar. On the other hand, they couldn’t do the same things…Kennedy could invade Cuba and launch the world’s to-date major international terrorist operation against them…he was able to invade South Vietnam…and [send in]…troops to crush the peasant independence movement there…The Reagan Administration tried to do similar things…in Central America, and they couldn’t…I think that difference is one of the achievements of the activism and dissidence of the last twenty-five years. By the 1960s, under Kennedy, the U.S. was shifting towards giving some aid to India to make it sort of a counterweight to China…with strings attached…India badly needed fertilizers…[and] a decision was made…to help them do it…only if they would use Western-based hydrocarbons…they had to buy them from the American oil companies, and…had to allow dominant U.S. control over the fertilizer and any other industries which developed…India resisted…very strongly…but…they had to give in.

While those in the United States have this love of Reagan, as noted at the beginning of this piece, JFK is still one of the most highly regarded. Ron Fourier wrote in the National Journal that “Republican Ronald Reagan and Democrat John F. Kennedy are the best modern-day examples of presidents who appealed to America’s strong national identity,” which Obama echoed when he spoke of American exceptionalism in January 2011. This leads me to the conclusion that may shock many of those Kennedy lovers, apologists and just plain ‘ole commoners: “it was not the Republicans but the Democrats—the Kennedy-Johnson administrations—who, under the guise of “tax reform,” first lowered the World War 11-era rate of 91 percent on incomes over $400,000 a year to 70 percent” as noted by Howard Zinn.

This was specifically noted in a book by investigative reporters Donald L. Bartlett & James B. Steele titled America: Who Really Pays the Taxes? Before one gets into the specifics of the Kennedy Tax Cuts, which were modeled after the Mellon tax cuts of the 1920s since JFK and Wall Street Secretary of Treasury Dillon believed those cuts were a success. It is important to examine what JFK said himself about these cuts. He told Congress in his 1963 State of the Union speech that:

I shall propose a permanent reduction in tax rates which will lower liabilities by $13.5 billion. Of this, $11 billion results from reducing individual tax rates [from] between 20% and 91%, to a more sensible range of 14% to 65%…$2.5 billion results from reducing corporate tax rates, from 52%…to the permanent pre-Korean level of 47%…[and] more than $2 billion cut in corporate tax liabilities resulting from last year’s investment credit and depreciation reform.

Earlier in his presidency, in 1961, he told the nation on TV that “we need a tax cut to keep this present drive from running out of gas.” That same year he declared to Congress that:

The tax system must be adequate to meet our public needs. It must meet them fairly, calling on each of us to contribute his proper share to the cost of government…the uniform distribution of the tax burden is thereby disturbed and higher rates are made necessary by the narrowing of the tax base…It will be a major aim of our tax reform program to reverse this process, by broadening the tax base and reconsidering the rate structure…I am now proposing additional incentives for the modernization and expansion of private plant and equipment…[and] elimination of tax deferral privileges in developed countries and “tax haven” deferral privileges in all countries…I therefore recommend that capital gains treatment be withdrawn from gains on the disposition of depreciable property…In the absence of such legislation, the corporate tax rate would be decreased 5 percentage points, from 52 percent to 47 percent.

Kennedy kept pushing, saying to the New York Economic Club in December 1962 that:

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…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” and the quote that is on a lot of right-wing websites: “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.

There is no need to go further, because I believe you get the point by now.

First it is important to understand what these tax cuts really did. Rutgers Professor and writer David Greenberg, who has attacked Gore Vidal as a “racist” and “elitist” begins the conversation. He writes on Slate that “back in the early 1960s, tax cutting was as contentious as it is today, but it was liberal demand-siders who were calling for the cuts and generating the controversy” while it “did lower the top tax bracket significantly…[meaning that] many liberals disliked Kennedy’s plan on grounds of equity…[and] that Kennedy had to rebut charges of unfairness from his left flank…[while taking] pains to sell the package to the business world…[but] even as Kennedy accepted tax reduction…he never gave up his spending idea.”

To add some more details to the Kennedy Tax Cut, it must be noted that the “reform” lowered the top rate from 90% to 70% while “calling for U.S. corporations to be taxed on all their profits, earned anywhere in the world…cutting tax preferences for the oil and gas industries…[and] limiting itemized deductions for the rich.”

Still, Alberto Jesus Rodriguez makes a better point on his little-read blog titled “Albert’s America”. He writes in support of JFK’s tax cuts, but argues that that JFK was “the first Reagan” because he was against higher tax rates especially a huge burden on the wealthy and did not want higher Capital Gains Taxes either. Rodriguez continues noting that although the tax cuts were passed after he was assassinated, they clearly “favored the rich [with] a 21% tax cut on the top marginal tax rates,” a 6% cut in the corporate income tax, and an 8% cut in the lowest income tax rate.

Jude Wanniski writes a seemingly positive account of the tax cuts saying that they would “seem to benefit the richest the most” and supposedly “ushered in the great bull market and non-inflationary boom of the mid-Sixties” while also noting “the chief difference between President Reagan and President Kennedy at this stage of their presidential terms is that Reagan survived the assassin’s bullet.”

Columnist Matt Towry writes on Town Hall that “Reagan’s first months in office were eerily similar to Kennedy’s…So Reagan ultimately passed his own version of Kennedy’s tax-rate reduction…Also like Kennedy, Reagan determined that the military was to be respected but also reigned in.”

You know something is wrong when a former Reagan official and the Director of Entitlement and Budget Policy at the climate change denialist Heartland Institute applaud the tax cuts of Kennedy and Reagan, almost mushing them together.

Supply-side economist Brian Domitrovic writes on Forbes seemingly in support of the tax cuts, noting that when JFK talked about “economic growth” he meant “that growth would get unleashed via tax policy, namely two big tax cuts, one on business and the other on personal income…These tax cuts became law, the business ones in 1962 and the personal ones early in 1964, a few months after the assassination…[leading supposedly to] postwar prosperity. Second was the federal spending explosion…the greatest boom of the 20th century.”

Conservative ‘scholar’ Thomas Sowell writes on Newsmax that “unlike the Republicans today, John F. Kennedy had an answer when critics tried to portray his tax cut proposal as just a “tax cut for the rich.” President Kennedy argued that it was a tax cut for the economy, that changed incentives meant a faster growing economy and that ‘A rising tide lifts all boats'”, even saying that “If they are afraid that they would be stigmatized as conservatives if they favored cuts in tax rates, they might take heart from the fact that not only John F. Kennedy, but even John Maynard Keynes as well, argued that cutting tax rates could increase tax revenues and thereby help reduce the deficit.” On other hand, Weakonomics argues that JFK is to blame for our deficit because “Kennedy focused on stirring demand with tax cuts directly to the people” said that “the tax cuts were largely considered a success.” One website noted that in their analysis “real income tax revenues did go up…from 1961 to 1969…[the] Kennedy tax cut reduced the top marginal rate from 91% to 70%…[meaning it] was beneficial, at least in reducing this oppressive top marginal rate.”

On top of this, Brookings Institution’s Peter R. Orszag wrote that:

The Revenue Act of 1964 reduced revenue by 1.6 percent of GDP…[and] the bottom 40 percent of the income distribution received 18 percent of the personal income tax cut from the 1964 act, and the bottom 85 percent received 59 percent of the tax cut. The top 2.4 percent of the income distribution received 17.4 percent of the tax cut, and the top 0.4 percent of the income distribution received six percent of it…The Kennedy tax cut thus differed significantly from the proposed Bush tax cut. It was both somewhat less expensive and much less unevenly distributed.

With all of these opinions floating around, it is important to set the record straight. Frank Cocozzelli wrote that:

Supporters of the Bush-era plan also may claim that the 1964 tax cut was responsible for the economic boom of the ’60s; it was not. While it helped sustain the continuation of prosperity, the truth is that the nine-year economic boom had begun two years earlier in 1962 — well before the tax cut kicked in. All-too-conveniently, Conservatives leave out the vital role a Keynesian-inspired active fiscal policy played…we should remember that when President Kennedy first contemplated cutting taxes, it was a first step in that direction.

After all, as capitalist and commentator Ira Stoll writes:

Kennedy was a conservative by the standards of both his time and today. While he increased military spending…his plan for economic growth emphasized not deficits but tax-rate cuts that he argued would eventually pay for themselves by increasing government revenue. He reduced tariffs in pursuit of free trade, and he took a hard line against communism abroad and at home…Liberals claim that Kennedy’s tax cuts were somehow different from Reagan’s and Bush’s, and it is true that Kennedy was cutting the rates from higher levels (though loopholes and deductions meant that few actually paid the statutory high rates). But the arguments Kennedy rejected in pursuing his tax cuts sound awfully similar to the arguments used by liberals today.

In The Economist, there is a rebuttal to this view that while holding up Kennedy in high regard as an inspirational figure, it still notes that he “belonged to a relatively hawkish wing of the Democratic Party… [and] cut taxes on the rich…[including] cut[ting] the top marginal tax rate from 91% to 70% [and]…run[ning] a larger budget deficit.” Then there’s the kicker: in 1990, Professor David M. Gordon wrote in the LA Times that the US’s greatest boom was in the 1960s, bigger than that in the 1980s under Reagan.

One must question who this boom was really for. As noted in a chart made up by one of the biggest, baddest banks, JP Morgan Chase, the price of the S&P Composite Index return went up, if I have these numbers right, about 150% between 1960 and 1965. At the same time, the Dow Jones Industrial Average jumped 115 points (between 18 and 19%), give or take, during JFK’s administration, reaching a high of about 735 points in 1962. It seemed all good because housing prices were continuing to go up in relative prices while wages in mining, logging, construction and manufacturing were increasing, and debt was on the decline along with debt as a percentage of GDP. But, there was something sinister: corporate taxes as a percentage of corporate profits were on a decline while corporate profits after taxes were on the rise as noted by data compiled by the New York Times. Additionally, personal wage and salary as a percentage of the GDP was on the decline while personal taxes as a percentage of personal income stayed pretty much steady.

Still, in the eyes of some, JFK was not on the side of business. The JFK Library states that:

JFK’s relationship with the business community had been uneasy from the start. His very public 1961 dispute with U.S. Steel president Roger Blough over an increase in steel prices had reinforced the business community’s suspicions of his motives…The president finally decided that only a bold domestic program, including tax cuts, would restore his political momentum…Kennedy [said that]…strong economic growth would not continue without lower taxes…[in 1963] the grateful president reiterated that lowering taxes was the surest path to full employment and lower deficits.

Rex Bradford makes a similar point, arguing that:

…though the Kennedy administration had never directly asked the steel industry to hold prices….the announcement seemed to be a deliberate attempt to tell the Democratic President that he didn’t tell American business what to do…Of course, the business sector didn’t like such talk any more in the 1960s than it does today.

Bradford claimed that there was a three-pronged approach:

The Defense Dept. announced plans to review steel contracts and switch to lower-cost suppliers…the Justice Dept. initiated an investigation as to whether the near-simultaneous price increases were the result of monopoly and thus subject to anti-trust laws…The President went on the air to tell the press and the public why he thought the steel companies’ actions were not in the public interest.

Bradford goes on to say that:

The court of public opinion, for its part, sided with Kennedy. This included much of the press as well…to the surprise of Kennedy himself, Big Steel caved on April 13, three days after announcing the price increases…The aftermath of the crisis included applause for Kennedy’s forceful and successful handling – many steel clients privately approved of JFK’s actions. But such praise was accompanied by a fair amount of criticism in the business press for the tactics employed.

Tagging onto this, some ludicrously and absurdly claim that the Kennedy Presidency was “Battling Wall Street,” in a sort of populist quest in part 1 and part 2 of an article on Daily Kos which basically amounts to apologism at its finest. This view is despite, as noted earlier, the lowering of taxes for the rich, the business community having deep connections to JFK’s cabinet and his family’s wealth, among other factors. This is why Noam Chomsky. when asked about Kennedy as noted in his book, Secrets, Lies and Democracy, replied with the following: “…Kennedy was very pro-business. He was essentially a business candidate. His assassination had no significant effect on policy that anybody was able to detect.” At the same time, Howard Zinn, his collegue and people’s historian, wrote that after JFK presented his first budget, it was clear there “would be no major change in the distribution of income or wealth or tax advantages” and then proceeded to quote New York Times columnist James Reston, who wrote that Kennedy “agreed to a tax break for business investment in plant expansion and modernization. He is not spoiling for a fight with the Southern conservatives over civil rights. He has been urging the unions to keep wage demands down…he has been trying to reassure the business community that he does not want any cold war with them…During these twelve months the President has moved over into the decisive middle ground of American politics.”

In addition, let’s not forget that Reagan modeled his tax cuts on “JFK’s across-the-board rate reduction…dusted off his rhetoric…[and] frequently talked about a rising tide lifting all boats, after-tax incentives to keep more of what you earn, and how lower tax rates produce higher tax revenues. [while also] credit[ing]…Kennedy when the 1980’s tax cuts got the economy moving again.” The other factors that showed he was a business candidate are what will be talked about next.

There is also something that should not be forgotten. In the article by Rodriguez, there was a small mention of something called the Trade Expansion Act which lowered tariffs on certain trade products. The stub of a Wikipedia page claimed that this law gave the President the authority to “negotiate tariff reductions of up to 50%” but there is something even deeper: it paved the way for the GATT (General Agreement on Tariffs and Trade) negotiations. In 1995, after forty-eight years of spreading the power of international capital, GATT would morph into what Socialist Party USA would call on its platform an “instrument…of capitalist oppression”: the feared and hated World Trade Organization or WTO which was protested from its birth in the 1990s. After signing the Trade Expansion Act in October 1962, Kennedy remarked that it was not only the “most important international piece of legislation…affecting economics since the passage of the Marshall plan” but that it also puts in place “mutual lowering of tariff barriers among friendly nations…[causing] our industry, our agriculture, our mining industry [to]…benefit” and noted that since “a vital expanding economy in the free world is a strong counter to the threat of the world Communist movement [the law]…is…an important new weapon to advance the cause of freedom.”

This is very telling. A document titled “Congressman’s Report”, written by liberal Democrat Morris ‘Mo’ Udall in May 1962, notes that under the law, the President is seeking two kinds of authority to cut taxes, one being the “authority to reduce tariffs by 50 per cent…in exchange for concessions from other nations” and the other being “special authority to reduce or eliminate all tariffs on those products where the United States and the Common Market nations dominate world trade,” all phased in over a five-year period. Importantly, Udall wrote that under the law “a firm hurt by a tariff cut could get these types of assistance: Tax benefits, loans and technical information to aid in modernizing and re-tooling for new products.”

If this isn’t enough, consider that the sixth round of GATT was named after JFK because of his “support for the reformulation of the United States trade agenda, which resulted in the Trade Expansion Act of 1962. This Act gave the President the widest-ever negotiating authority.” This is pretty crazy, if you ask me. Clearly, what JFK called in 1962, the “free flow of goods,” through measures that would benefit international capital was a bipartisan policy. It had started with a Democrat, Truman, continued through the administration of a Republican, Eisenhower, and then into JFK’s presidency, that of a Democrat. While the WTO may be nominally correct that GATT, along with the IMF and World Bank, “was established in the postwar period “to build an integrated world economic system,” and E.B. Williams Library can correctly state that GATT “is one third of the Bretton Woods system that was created after World War II to ensure a stable trade and economic world environment,” there is something deeper. Noam Chomsky described GATT in 1992 as “the international trading system…set up in the 1940s” while also criticizing how it works for big corporations and rich countries.

As one seemingly libertarian site noted, certain groups benefit: there is an increase in “the multi-national corporations’ profit margins and the International banksters’ increased stranglehold on the world’s six billion people…millions of dollars went into the profit margins of Nike while many Americans lost jobs.” While GATT was not one of the original bodies created during the Bretton Woods conference, it was created as a replacement to the International Trade Organization.

Eric Toussaint writes that “initially, the Roosevelt administration was in favour of creating strong institutions capable of imposing rules on the private financial sector…but noticing the hostility of the banking world Roosevelt backed down” but that “Wall Street effectively withheld its support of the Bank and the Fund until 1947….The Soviets…at the UN General Assembly, denounced the Bretton Woods institutions as “branches of Wall Street” [since] for the Soviet representative, the World Bank was “subordinated to political purposes which make it the instrument of one great power” which was a valid concern because “the distribution of votes clearly reflected US and British dominance over the two institutions.”

While some may be surprised by the measures geared toward business, this is no surprise. One must consider that since the traditional founders, the drafters of the US constitution, “represented the interests of “merchants, slaveholders, and manufacturers” at the closed-door convention, creating a “new more powerful government” that protected those interests, was fundamentally antidemocratic due to their distrust of “democracy and the common folk,” preserved and protected slavery, among other provisions as noted by Eat The State!. Most importantly, it must be said that “the one percent created the US Constitution, and were motivated to create its strong federal government for their own benefit and the benefit of the wealthy class.” This ingrained plutocratic thought continued throughout US history, up to the present, not always in the same form it is in today.